Long-term care contracts are customized to reflect the insured’s projected needs.
Still, certain features are common to all contracts. These features include: loss sharing arrangements, description of covered services, and the benefit trigger.
Loss Sharing
Similar to the disability insurance contract, loss sharing is a fundamental arrange- ment in all long-term care contracts. This arrangement includes: a waiting or elim- ination period, a limit on the amount of daily benefit, and a duration period. The elimination period effectively serves as a “deductible” for the policyholder. That is because it specifies a length of time that before the insurer begins to make disabil- ity payments. The average waiting period is anywhere between 21 and 100 days.
However, a policy could have a waiting period of anywhere from 0 to 365 days.
Generally, a 90-day waiting period is considered to be the most cost-effective. This is based on value for the premium dollar paid. Depending on the individual need, an insured can choose the appropriate benefit and duration amounts, such as,
$250 per day for three years, or $100 per day for life.
Covered Services
In customizing a policy, the applicant identifies the type of services desired, spe- cifically the range of care activities and the intensity of care. Several types of care are now presented.
Skilled Nursing Care Coverage. Skilled nursing care is typically needed after hos- pitalization, and it tends to be short-term in duration. Care by a licensed nurse is provided on a 24-hour schedule. Specialized services might include: intrave- nous therapy, feeding tubes, and respirators.
Intermediate Nursing Care Coverage. Intermediate care tends to be long term in nature. The duration of daily care ranges from a few hours a day to around-the- clock. Often intermediate care is designed to provide the patient with some ongoing help with daily health activities and therapies.
Custodial Care Coverage. The policy should provide coverage not only for skilled and intermediate care but also for custodial care which does not require the engagement of licensed medical professionals.
Home Care. Long-term care in the individual’s home, rather than in a residential or nursing facility, can be an attractive alternative. Most policies offer this cover- age only as a rider for an extra charge or as a percentage of the normal coverage.
Assisted Living. Assisted living is an arrangement in which customized help is pro- vided to patients still capable of performing certain functions by themselves.
Regular assistance might include: meals, administration of medications, help with personal grooming, and transportation to and from doctor visits or social activities.
Life Care Facilities. These facilities require residents to pay an entrance fee and monthly service fees for meals, housecleaning, and other related services.
Residents unable to live independently have little choice but to move to the assisted living units, and ultimately to the skilled nursing facility.
Adult Day Care. This day-time care (typically during the weekdays) offers a reprieve for the caregiver who needs to work during the day or needs a break from the responsibilities of ongoing care. Adult day care center services range from social action to medical and mental care.
Pre hospitalization. Some policies pay benefits only if the individual has been in a hospital before receiving long-term care. However, since many individuals do not go to long-term care facilities directly from the hospital, this requirement can result in a denial of benefits at a crucial time. Therefore, a good policy should not require the insured to be hospitalized before entering a nursing home care.
Alzheimer’s Coverage. A good policy provides long-term care coverage for the Alzheimer’s disease, which is generally described in policy language as organi- cally based mental conditions. If such language is not specifically included in the policy, probably Alzheimer’s coverage is not provided by that policy.
Benefit Trigger (Activities of Daily Living)
The benefit for covered medical services typically becomes available when all the following conditions are met.
1. The policy owner is either: (a) unable to perform at least 2 of the 6 ADLs (eating, bathing, dressing, toileting, continence, mobility), or (b) suffers from cognitive impairment (e.g., dementia, Alzheimer’s disease).
2. The policy owner’s physician certifies that the inability to perform at least two of the activities of daily living or cognitive impairment exists.
3. This condition is expected to last for at least 90 days.
It is important that the policy will require that all three conditions are met in order to trigger the release of benefits.
Options and Riders
Long-term care insurers typically provide a number of options and riders that enable policyholders to customize their coverage. These are now discussed.
Shared Cost. This rider links the policies of the husband and wife in terms of benefit duration. With this option either spouse can tap the unused long-term benefit period of the other spouse. This is helpful if it is projected that one of the two will need long-term care, although no one is certain who between the two would need such care. Note that some insurers do not offer this rider.
Inflation Protection. This feature provides for the anticipated rise in the cost of long-term care. A rider to offset inflationary increases can cause the premium to increase by as much as one-third; however, the catastrophic risk and the
impact that inflation can have on future long-term care costs make this helpful.
So a compounded, rather than a simple, inflation protection rider is recommended.
Waiver of Elimination Period for Home Health Care. This rider eliminates the waiting period for benefits when the care is provided at home. Assuming that most people wish to remain in their homes during sickness, this rider is recommended.
Waiver of Premium. In most policies it is common to find a waiver of premium provision. This provision waives future premium payments as long as the insured continues to receive benefits under the policy.
Guaranteed Renewability. The policy should be guaranteed renewable for life.
This feature prevents the insurer from canceling the policy, except for nonpay- ment of premiums. Note that all qualified long-term care policies have guaran- teed renewal by law. They contain standard nonforfeiture options offering the policyholder the following three choices if the premium is raised.
1. Pay new premium. Paying the new, higher premium keeps the current policy and current benefits in place.
2. Pay prior premium. Continuing to pay the prior premium amount buys a reduced amount of benefits.
3. Nonforfeiture. Every qualified policy has a nonforfeiture option. This pro- vides the policyholder a paid-up policy equal to the total premiums paid should the policyholder decide to stop making payments. This right gen- erally becomes available after the policy has been in force for at least three years.
Other policy features may include: clauses limiting coverage based on preexist- ing conditions or medical history, premiums that remain level for life, and a grace period, giving the policyholder some protection against overlooking pay- ment of a premium.