General Observations
Long term care insurance is a complicated product. With over 16 different benefit options to select from and each option offering 2 to 4 choices (daily benefits may offer up to 30 choices) there are hundreds and possibly thousands of policy combinations under the same plan. This can result in hundreds or thousands of different premiums.
In an effort to keep it simple, group plans will preselect 3 or 4 different benefit combinations for employees along with a few additional riders such as shortened pay, inflation protection and non-forfeiture. This cuts the number of options to 10 or 15. It also serves another purpose. By forcing everyone to buy predefined benefits, employees who are sick or disabled are prevented from selecting very generous benefits for themselves. Since these people are more likely to make claims, the size of their claims are held in check and they cause less negative impact on the risk pool.
But restricting benefits, causes the healthy employees to miss the advantages of richer and better plans. And in many cases restricted benefits force them to buy inadequate coverage. The danger here is that employees think they're covered when they're really not. For instance, in order to make policies look like a bargain so as to increase participation rates, many carriers don't require inflation protection. Or they offer incomplete protection. They don't even stress it's importance. Employees think they're buying adequate coverage, but 35 years from now, without proper inflation protection, their insurance may not even buy the sheets on their hospital bed. (Perhaps this is an exaggeration to make my point, who knows?) In fact, as I mentioned in a previous chapter, a recent survey of people currently using insurance benefits for care, reveals they have inadequate coverage for their actual LTC needs. Another bad idea, resulting in poor future coverage, is a carrier recommending a plan that is cheap at first but allows periodic bump-ups in benefits with corresponding premium increases. I'll explain the problems with this strategy later.
This is why I usually recommend that you choose a plan that allows the selection of additional benefits. These extra options are always medically underwritten, but at least employees have the opportunity to get better coverage. Probably 90% to 95% of actively working employees will qualify for preferred rates under a medically underwritten plan. Or you may want to offer an additional individual plan some time after having met the initial participation goals with enrollment of your primary plan. If it were an individual plan, you could offer it as a supplement with no enrollment period. People could sign up at any time during the year.
One other observation. Because it's so complicated and because the wrong choice of benefits now may not have implications for 30 or 40 years, it's important you deal with an advisor who only specializes in long term care insurance. This is a recommendation often repeated in numerous public awareness articles over the past 10 years.
Receiving Benefits-Qualified and Non-qualified Policies
HIPAA (Health Insurance Portability & Accountability Act of 1996) legislation is specific for receiving benefits under a tax qualified policy. First of all it defines qualified long term care services and then defines the conditions to be met for the insurance to pay. All qualified policies contain derivations of this language:
Qualified Long Care Services
Qualified long term care services are:
1) Necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and 2) Required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
Chronically ill individual
You are chronically ill if you have been certified by a licensed health care practitioner within the previous 12 months as one of the following:
1) You are unable for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing and continence, or
2) You require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Non qualified policies use similar benefit triggers but usually add a third trigger: "If deemed medically necessary" Which might make qualification easier. These policies also leave out the restrictive language such as: "substantial supervision", and "for at least 90 days". On the other hand this more liberal approach is offset by the fact that the insurance company often determines eligibility with non-qualified; whereas, a third-party, impartial, licensed health care practitioner certifies eligibility under qualified policies. Cognitive impairment covers Alzheimer's, stroke, dementia and other organic nervous disorders with both policy forms.
Some policies include an IRS definition waiver that also lessens the advantage of the "medical necessity" clause of non-qualified contracts. These waivered qualified contracts allow either as a policy rider or by contract language the "substantial assistance" (which is interpreted as hands-on assistance) to be redefined as "substantial or standby assistance". Standby assistance does not require "hands-on" and may be nothing more than verbal encouragement or an assuring presence. This added dimension under some circumstances might make it easier to certify for benefits under a qualified contract. Read your policy carefully, not all contracts offer this more liberal provision.
Understand Long-Term Care Insurance Benefits - Part I
Understand Long-Term Care Insurance Benefits - Part II
Understand Long-Term Care Insurance Benefits - Part III
Understand Long-Term Care Insurance Benefits - Part IV
Related Article:
Free Long-Term Insurance Quote:
UK Travel Insurance