Keystone Place Article: Long-term Care Insurance (LTCI)

If you own long-term care insurance (LTCI) or are thinking about purchasing coverage it is important to understand how the policy works and what it covers. Adult children should also be familiar with the details of their parents’ coverage because they will likely be involved with coordinating LTCI benefits when the time comes. By understanding the details of the policy, you will be better equipped to get the most out of your coverage when it is needed.

What type of care is COVERED?

The earliest forms of LTCI (issued more than two decades ago) were considered “nursing home” policies, which covered skilled nursing services received in a nursing facility. Long-term care delivered at home or in an assisted living facility were not covered expenses.

Eventually policies began covering care in assisted living facilities and sometimes at-home care, but often at a discounted amount. For example, the policy might cover care in an assisted living facility at fifty-percent of the benefit amount that would be paid for care received in a skilled nursing facility.

Most policies issued within the last five – ten years are more comprehensive, providing the same amount of coverage regardless of where care is received. These policies may also cover expenses like adult day care and respite care.

LTCI Benefit Amount

The benefit amount is usually a daily or monthly amount, and the total lifetime benefit amount is expressed in years. For example, a policy might provide a daily benefit of $200 for three years. This amounts to a total lifetime benefit of $219,000. ($200 x 365 x 3) This does not mean that the policy must be used within three years, but rather that the policy holder has the equivalent of three years of coverage over their lifetime. However, a policy will not pay more than the stated benefit amount in any given day or month. Therefore, using the example above, the policy would not, for instance, pay out $300 for any one day of coverage.

Inflation Rider

Many policies include an “inflation rider” which increases the benefit amount annually to help ensure that the coverage amount reflects the increased cost of care over time. The formula used to determine the increase can vary from one policy to another. If your policy includes an inflation rider, you should know the current coverage amount, as opposed to the originally stated coverage amount. If this information is not clear, contact the insurance company and ask about the current benefit.

Coverage Elimination Period

Most LTCI policies have an elimination period. This is similar to a deductible, but is measured in days, not dollars. A policyholder chooses the elimination period (from zero to 180+ days) at the time of application. A longer elimination period lowers the premium, and vice versa. A policy’s elimination period can be based on days of care or calendar days. For example, a policy with a 90-day elimination period would specify if that means ninety calendar days (beginning with the first day of care), or ninety days of care. In some cases there could be a substantial difference in time between the two if there is a break in care within the 90-day period. Additionally, a policy could have different elimination periods for different care settings.

If you are thinking about buying coverage and want to keep your premiums lower, or if you want to lower premiums on your existing coverage, consider extending the elimination period. You may decide that you are willing, and able, to pay out of pocket for a certain amount of time but want to cap your exposure for all care beyond that.

If you or a loved one own long-term care insurance (LTCI) it is important to understand how the policy works and what it covers so you will be better equipped to incorporate it into your overall retirement plan. In addition to understanding the type, you should also be aware of when coverage begins, what triggers coverage, and how benefits are paid.

Benefit Triggers

Before LTCI coverage will pay benefits, the policyholder must be unable to perform at least two of the six activities of daily living (ADLs): feeding, toileting, dressing, bathing, walking/transferring (i.e., moving from bed to wheelchair), and continence. Some policies may require that the policyholder be unable to perform three ADLs instead of two. Policies may also specify what is required before the policyholder is declared “unable” to perform a certain ADL. Additionally, some policies may include cognitive impairments, such as dementia or Alzheimer’s, as a benefit trigger. In some cases, a policy will not pay benefits unless a doctor certifies that the care is medically necessary.

Benefit Payment Methods

LTCI policies are generally categorized as either expense-incurred (reimbursement) or indemnity (set dollar amount). Under an expense-incurred policy, a policyholder only receives benefits when care is received. The policyholder, or a representative for the policyholder, must submit receipts for services. If it is an approved service, the insurance company will pay the insured or the care provider for the cost of services up to the daily (or monthly) benefit amount.

The less common indemnity plan pays the daily or monthly benefit amount stated in the policy, regardless of the actual cost of services. Once the claim is approved the benefit is paid directly to the policyholder, up to the stated benefit amount, and continues as long as eligible services are being received. The premium for an indemnity policy is typically higher than it would be for comparable coverage under an expense-incurred policy.

Hybrid Policies

An increasingly popular type of long-term care plan is actually a hybrid policy combining life insurance (or a deferred annuity) and long-term care insurance. If you meet the benefit triggers, which are typically the same as those described above, then you can tap into the long-term care benefit. However, if you never require long-term care or you decide to cancel the policy you or your beneficiaries will receive money back in the form of the cash surrender value or the policy death benefit, respectively.

The appeal of a hybrid policy is that the policy holder (or the heirs) is assured to receive cash back whether or not they require long-term care. The trade-offs are that a traditional policy will buy more coverage per dollar and a hybrid policy requires premiums to be paid in a lump sum- usually $50,000 or more- or at least within ten years. When premiums are spread out over ten years the amount per year will be higher than it would be for a traditional plan, whereby payments are usually spread out over lifetime.

Those who own a cash value life insurance and are interested in getting long-term care insurance may be able to do an exchange of their existing policy into a hybrid plan without having to pay any additional premiums. This can be particularly beneficial for those who, due to health issues, may not be able to qualify for traditional long-term care insurance because hybrid plans sometimes have more flexible underwriting guidelines. This is particularly true of annuity-based hybrid plans. 

If you or a loved one own long-term care insurance (LTCI) it is important to understand how the policy works and what it covers so you will be better equipped to incorporate it into your overall retirement plan.

Step 1: Understanding Benefit Triggers

Understanding benefit triggers is one of the most important first steps. Long term care policy payments are typically triggered once the insured needs help with 2 out of 6 activities of daily living (aka ADLs). The ADLs are:
Bathing, Dressing, Eating, Transferring, Toileting, and Continence. Though the ADLs are a standard list, policy language is not necessarily standardized.

The second way a policy is triggered is Cognitive impairment. The Center for Disease Control defines cognitive impairment as “…when a person has trouble remembering, learning new things, concentrating, or making decisions that affect their everyday life.”

This does not merely mean a diagnosis of memory loss – it means the patient needs SUBSTANTIAL supervision due to a severe cognitive impairment. Not all long-term care policies have the same triggers. Policies issued before 1996 are often different than those issued in subsequent years (because of federal legislation defining long term care).

Step 2: Understanding the Policy Benefits

Here are the 3 top reasons long term care insurance claims are denied:

▪ Benefit triggers not met

▪ Incomplete documentation

▪ Wrong type of caregiver (example: using an independent caregiver versus an approved caregiver)

AVOID claims delays or denials by steering clear of these problems!

Step 3: Follow Up

The importance of following up cannot be overemphasized. Failure to follow up often means things slip between the cracks, the insurance company doesn’t get what they require, and claims decisions are delayed. Monthly review of Explanation of Benefits (EOB) and submission of bills is required on almost all policies. Many families do not realize that filing for long term care insurance is a monthly commitment. In addition to submitting new evidence of paid care, the claim should be monitored every month by reviewing the Explanation of Benefits (EOB).

Filing a successful term care insurance claim can be difficult, but it is not impossible. It takes time, paying attention to detail, perseverance, and patience. It is a bit like filing your own IRS tax return…but a long-term care insurance claim needs to be done every month! To minimize difficulties, one person must be assigned to this task. They must be a well-organized, paperwork-oriented person.