LONG Term CARE PRIMER

Transcription

1 LONG Term CARE PRIMER

2 LTC PRIMER OUTLINE 75 minutes The Graying of America Page 2 Medicare coverages page 3 Skilled Nursing Facilities page 3 Home Health Care... pages 3 and 4 Hospice Care page 4 Medicaid.pages 4 and 5 Medicaid Transfers pages 5 and 6 Income Allowances... page 6 Service Facilities. page 7 Long-term care levels page 8 BREAK- 10 minutes 75 minutes Reasons to buy LTC.. pages 9 and 10 Qualified vs. Non-Qualified pages 10 and 11 Long-Term Care Policies page 12 Composition of an LTC policy..pages 13, 14 and 15 Optional Benefits pages 15 and 16 Common Exclusions.. page 17 Benefit triggers page 17 How Benefits are paid page 17 BREAK- 10 minutes 50 minutes Long Term Care Partnership...pages

3 The Graying of America The effects of the graying of America will be very powerful. In the year 2001 the first of the baby boomers will reach age 55. By the year 2010, the population of individuals, 65 and over, will increase at an annual rate of 2.8%. It is estimated that between the years 2010 and 2030, approximately 76 million baby boomers will attain their 65th birthday. By the year 2030, when the first baby boomers will reach age 85, demographics indicate that one in every 5 Americans will be a senior citizen. In North Carolina, by the year 2025, the elderly population will grow from 13% to 21%. Statistics indicate that nearly 2 out of 3 residents will require some form of Long Term Care either at their home or in a nursing facility. In spite of this upcoming looming crisis those individuals destined for elderly care nor the network of service providers are prepared to meet the needs for this coming surge of elderly citizens. Over 70% of all people with Alzheimer s live at home and receive 75% of the assistance they need from unpaid caregivers. For a couple turning 65, there is a 75% chance that one of them will need long-term care and over 50% of all Americans will need long-term care in their lifetime. About 19% of the baby boomers that are providing long-term care to their parents had to give up their jobs to do so. On the average, the informal caregiver provides about 41 hours a week of long-term care. About 20% of baby boomers provide t0 or more hours per week of care. Those baby boomers that leave their jobs due to the demands of care giving, forfeit an average annual salary of $29, We need, as a nation, to address our upcoming long-term care crisis. Medicaid budges in the nation are being strained. For example, in North Carolina there are over 23, 000 rest home residents who receive public assistance. At the present time, it is estimated that while only 17% of people on Medicaid are elderly, they account for 48% of the Medicaid budget. The Department of the Center of Medicare & Medicaid Services (CMS) indicated in 1995 Medicaid spent over 7 billion dollars for nursing home costs and over 4 billions for home health care. Please consider that by the year 2020 it is estimated the number of elderly living in nursing homes will increase by 58%. 3

4 No wonder the Federal and State governments are giving tax incentives to encourage the purchase of private Long Term Care insurance. MEDICARE COVERAGE Skilled Nursing Facilities Recent polls indicate that a large number of individuals are still laboring under the misconception that Medicare will pay the cost of long term care needs. Unfortunately, this is simply not true. Medicare, created in 1965 as part of president Lyndon Johnson s Great Society, is a federal government program that pays for the health care costs for certain individuals. Among these are people 65 and over, who have received Social Security Disability checks for 24 months and individuals who suffer with end stage renal disease (ESRD) (kidney dialysis and transplants) Medicare, actually, only pays for approximately 2% of long-term care. Medicare will only pay for skilled level care. For Medicare to pay for Skilled Nursing Facility care, (SNF) the following requirements must be met: A 3-day hospital stay, not counting the day of discharge, must precede the stay in the SNF The Medicare beneficiary MUST enter the SNF within 30-days of discharge and be admitted for the same reason for which they were hospitalized. The care must be ordered and supervised by the patient s physician. The care provided must be restorative in nature. The SNF facility must be a Medicare approved facility. Medicare will pay 100% of all expenses for the first 20-days in the SNF. If the stay is longer than that, then days are covered by Medicare after a daily copayment of ¼ of the deductible ($ in 2005). The copayment amount changes annually. This benefit is non-exhaustible, meaning that it can be used again, as long as the patient has been out of the hospital and/or SNF for 60 consecutive days and meets the requirements listed above. Home Health Care This Medicare coverage DOES not require a prior hospital stay. For Medicare to pay the care must be: Ordered and supervised by a physician Part-time care (or intermittent) Be restorative in nature Cannot be custodial Must be provided by a Medicare approved facility. 4

5 When all these requirements are met, Medicare will pay 100% of the home health care expenses. The only exception to this benefit is that Medicare will only pay 80% of Durable Medical Equipment (DME) that must be billed by the home health care agency. It includes, but not limited to, oxygen, walkers, canes, hospital beds, wheel chairs, etc. Medicare will NOT pay for any custodial care or for meals on wheels, food services, household chores, etc. Hospice Medicare will pay for hospice care if the individual is terminally ill with a life expectancy of 6-months or less and chooses to receive hospice care, rather than regular Medicare benefits for management of the terminal illness. Under Medicare, the hospice benefit is primarily a program of care provided in your home by a Medicare-approved hospice. Hospice services covered under Medicare Part A include: Physician serviced and nursing care. Medical appliances and supplies including drugs or biologicals (for pain management and symptom relief) Short-term inpatient care, including respite care Medical social services Physical therapy, occupational therapy and speech/language pathology services Dietary and other counseling Home Health aid and homemaker services. Some time off can be given to the primary care giver in the home by placing the Medicare (hospice) recipient as an inpatient in a hospice to receive care for up to five-days at a time per benefit period. The cost for the respite care is about $5.00 a day, depending on the area of the country. MEDICAID Medicaid expenses for nursing home cost continue to spiral in cost and beneficiaries. In 1985 Medicaid was serving about 3.1 million elderly clients. By 1995, the number had increased to 4.4 million. Of great concern is the fact that while the number of recipients did not double, the actual expense incurred was more than twice that in In 1995 the long-term care expense to Medicaid was over 106 billion dollars. Included in this amount are $61.1 billion of public funds and $45.6 billion of private funds. Medicare paid over 7 billion dollars for Skilled Nursing Care and over 11 billions for home health care. The federal and state government payouts for Medicaid nursing home benefits were over 36 billions and over $4 billions spent on 5

6 home health care. Individual payments for nursing home costs were $28.6 billions and $6 billions for home care. The Medicaid program is the largest insurer for long-term care for Americans. Medicaid covers 68% of nursing home residents and over 50% of nursing home costs. Although most long-term care expenses are incurred in a nursing home, Medicaid continues to change the program with the hope of shifting the care and services to the less expensive home and community settings. Custodial care in a nursing facility is by far the largest health care expense the senior citizen must face. Presently, the annual cost of a nursing home stay is between $38, and $60, It is projected that 80% of the elderly s cost of medical expenses will be utilized to defray the cost of nursing home care. It is also estimated that the majority of American households will be reduced to the poverty level after a 13-week stay in a nursing home. Once these individuals have spent down or reached the poverty level as proscribed by each individual state, they will qualify for Medicaid. Medicaid will pay for long-term custodial care in a nursing facility if: A physician certifies in writing that admission to a nursing facility is necessary and they specify the level of care needed. The financial resources are less than the state s allowable amount. They are US citizens or permanent residents and reside in the state. They are unable to pay for a nursing facility due to being impoverished or having exhausted all resources. They have not transferred their assets or given them away in order to meet the requirement of Medicaid. Under present law, the Medicaid beneficiary will be audited to determine their eligibility and will go back three years. They will go back, up to 5-years if the property has been transferred into a trust. Medicaid Transfer Rules Previously, attorneys and financial planners have counseled their clients how to shelter their wealth and still qualify for Medicaid. Recent legislation has closed many loopholes and has made many transfers illegal. The Health Insurance Portability and Accountability Act of 1996(HIPAA) imposed criminal penalties on certain transfers made to qualify for Medicaid. OBRA 1993 and the Balanced Budget Act of 1997 have closed many of the loopholes and made many transfers illegal. Advisors should take special note of a provision in Federal Medicaid legislation that it makes it a crime for any individual to knowingly advise an individual to dispose of or to transfer assets as a means to qualify for Medicaid eligibility. 6

7 Transferring property for less than the fair market value prior to applying for Medicaid may result in a denial of benefits. Many states delay eligibility for Medicaid benefits when it is determined that a person institutionalized in a medical institution or nursing facility has disposed of financial resources for less than the fair market value within 36-months (in some instances 60-months for trusts) before applying to Medicaid. A way to transfer assets legally would be to retain enough money to pay for nursing home expenses for the 36-month look back and apply for Medicaid at the end of that period. When applying for Medicaid, the assets are separated into non-countable (exempt) and countable. Non-countable assets include the home (regardless of value), jewelry, burial plots, burial funds up to $1,500.00, life insurance policies regardless of benefit (as long as they do not have cash value) and income producing property. Countable assets include cash, stock and property other than the home and income producing property. Allowable Transfers The home may be transferred within the 36-month period if the home is transferred to: A spouse. A child that is blind, disabled or under age 21. A sibling who owns part of the home and has resided there for at least one year. A grown sibling who has resided in the home and has provided care that has delayed the individual s need for being institutionalized for at least two years. The home will remain a non-countable asset as long as the community spouse (CS) or someone on the allowable transfer list lives in the home. If the community spouse dies before the institutionalized spouse (IS), then the home will remain a noncountable asset until the institutionalized spouse dies or it is certain that the institutionalized spouse will never return to the home. At that time, the state will seek to recover the amount of benefits paid by placing a lien on the home. Income Allowances When an individual applies for Medicaid, their income derived from pension(s), Social Security, interest, alimony, dividends and any other earned or unearned income will be counted. In 30 states, for a single individual, most of the income counted by Medicaid will be applied to the nursing home expense, less a small personal needs allowance. After spending all the income to pay for medical and nursing home expenses, Medicaid will pay the difference between the expenses and the Medicaid beneficiary s income. The remaining 20 states are considered to be income cap states. These states set a limit on the amount of income an individual may have to be eligible for Medicaid. An individual having income over the allowable amount will not be eligible for Medicaid. 7

8 Whenever a Medicaid beneficiary is married, income will be credited to each individual according to the name on the instrument. This simply means that the amount of the check will be credited to whomever it is payable. Income payable to both spouses will be divided equally among the spouses and income payable to the non-institutionalized spouse will be credited to him/her. SERVICE FACILITIES AVAILABLE Nursing Homes - Nursing homes give long-term custodial care and medical services that are not as intricate as skilled and/or intensive as those needed in a hospital or skilled nursing facility. Most nursing homes usually provide all levels of care, skilled, intermediate and custodial. Many times these nursing facilities will be divided into areas to provide just the designated care. Assisted Living Facilities - These entities primarily give intermediate care by allowing the residents to maintain as much of their individual independence as possible. The residents may elect to have apartments, suite, or private rooms. Supporting personnel is available 24-hours a day to provide different levels of assistance as needed. Adult Day Care - These facilities function much like a child day care center. These facilities provide meals, administration of medicine, supervision, etc. They provide a safe and social environment for those individuals who need assistance with the activities of daily living. Continuing Care Retirement Communities (CCRC) - These facilities offer a wide range of health and social care as well as other amenities. They may provide individual apartments and condominiums. As the need arises for more services, due to declining health, the residents may move to other living facilities within the community. The residents are given access to nursing and custodial services. These facilities are very expensive. Religious or Fraternal Homes - These extended care homes have been established, either by a religious order or fraternal organization to provide care for their members. 8

9 On most occasions, the member may have to cede ownership of all of their property to the home. In return, the institution will provide whatever care is deemed necessary for the remainder of that individual s life span. LONG-TERM CARE LEVELS The term Long Term conjures up all kinds of meanings. However, they can be classified into four basic categories: Skilled Nursing Care Intermediate Care Home Health Care Custodial Care Skilled Nursing Care - It is the highest level of care an individual can receive. In order for Medicare to pay medical expenses, the care must be certified by a medical professional as necessary on a daily basis and provided under the direct supervision of a physician. The care must be restorative in nature, ongoing 24 hours a day and given by registered therapists, nurses or physicians. Intermediate Care - This type of care is, in essence, the same as Skilled Care. However, it does not have to be ongoing 24-hours a day and it can be provided by a licensed practical nurse (LPN) or physical therapist (PT). Home Health Care - To qualify for payment by Medicare, this level of care must be recommended by a physician. By definition, the care must be part-time, skilled care and restorative in nature. It also includes home health aide services, durable medical equipment and supplies and other services. The care must be provided by a Medicare approved home health agency. This benefit is unlimited as long as you meet Medicare requirements. Medicare will pay 100% of approved amounts for services and 80% of approved amounts for durable medical equipment. Home Health Care may include speech, occupational and physical therapy. Custodial Care - (Sometimes it is called personal care). Medicare DOES NOT pay for custodial care. This type of care requires the lowest level of intensity. Primarily, it consists of ongoing assistance with activities of daily living. These 9

10 activities include bathing, eating, dressing, toileting, continence and transferring. This type of service may be provided by licensed practical nurses, (LPNs), certified nursing assistants, (CNAs), etc. REASONS TO BUY LONG-TERM CARE INSURANCE It is very obvious that there is a definite need for long-term care insurance coverage. Presently, there are over 35 million Americans over the age of 65. Citizens over the age of 50 are projected to surpass 75 million in the next 30 years. Life expectancy continues to increase. The reason for purchasing LTC coverage varies among the public. While it is presumed that the majority is purchased to preserve assets, recent surveys have shown that the main reasons seniors purchase LTC contracts is to: Maintain their independence Not become a burden to their family Avoid Welfare (Medicaid) Not leave any debts upon their death Maintain access to quality care Not deplete their savings Preserve assets for heirs. Primarily, they want the option to choose how and where they will receive care. Estate preservation, while important to some, was listed as one of the least most important reasons for purchasing a policy. Many seniors purchase their LTC policies for the simple reason they do not want to become a burden to their family and/or children. The average purchaser has a net worth in excess of $100, She is a 68-year old female. A 1992 study determined that only 21% of LTC purchasers had income of $50, and above. This study also indicated that 18% of the purchasers of LTC policies had income below $15, % had incomes between $15, and $19, and 13% had incomes between $20, and $25, Lifetime use of nursing home care, a study published in the New England Journal of Medicine in 1991, indicates of the approximately 2.2 million persons who turned 10

11 65 in 1990, more than 900,000 (43%) are expected to enter a nursing home at least once before they die. The study also indicated that among people who live to age 65, only 1 in 3 will spend three months or more in a nursing home. About 1 in 4 will spend one year or more in a nursing home. Only about 1 in 11 will spend five years or more in a nursing home. In other words, 2 out of 3 people who turned 65 in 1990 will either never go to a nursing home or will spend less than three months in one. Women are more likely to need nursing home care than men. The study discussed above projected that 13% of women will spend five or more years in a nursing home. Only 4% of men will be in a nursing home that long. Also, as an individual grows older, the risk of needing nursing home care goes up! As an aside, while women are more likely to buy long-term care coverage, men overall, tended to buy more coverage than women. Particularly interesting is the fact that more coverage is purchased in the states that are more aggressively pursuing Medicaid Estate Recovery than those that are not. QUALIFIED Versus NON-QUALIFIED POLICIES There are important differences between these two types of policies. A federally taxqualified long-term care insurance policy offers certain federal income tax advantages. If you own a qualified policy, and you itemize your deductions, you may be able to deduct part or the entire premium you pay for the policy. You may be able to add the premium to your other deductible medical expenses. You may then be able to deduct the amount that is more than 7.5% of your adjusted gross income on your federal tax return. The amount depends on your age. Below is a table showing the amounts that can be deducted for 2013: Your Age Maximum amount you can claim Age 40 or younger $ More than 40 but less than 50 $ More than 50 but less than 60 $1, More than 60 but less than 70 $3, More than 70 $4, **2005 figures. These amounts will increase, annually, by the Medical CPI The state of North Carolina, up to 2004, was giving the lesser of $ or 15% of the premium as a tax credit to promote the purchase of long-term care insurance. Regardless of which policy your client purchases make sure the benefits and triggers will meet your client s needs. For example, benefits paid by a qualified 11

12 Policy are generally not taxable as income. Benefits from a non-qualified policy may be considered taxable income. If your client has an LTC policy purchased prior to January 1, 1997, that policy is probably qualified. HIPAA allowed these policies to be grandfathered or considered qualified, even though they may not meet all of the standards that new policies must meet to be qualified. Policies sold after January 1, 1997, must meet certain federal standards to be taxqualified. The requirements are as follows: Must be issued guaranteed renewable. Must cover only long-term care services Generally cannot have a cash surrender value. Qualified long-term care services are those generally given by long-term care providers. These services must be required by chronically ill individuals and must be given according to a plan of care prescribed by a licensed health care practitioner. You are considered chronically ill if you are expected to be unable to do at least two of the six activities of daily living (bathing, continence, dressing, eating, toileting and transferring) without substantial help from another person for at least 90-days. Another way to be considered to be chronically ill is if you need substantial supervision to protect your health and safety because you have cognitive impairment. A policy issued prior to January 1, 1997, does not have to define chronically ill this way. Some life insurance policies with long-term care benefit riders may be tax-qualified. You may be able to deduct the premium you pay for the long-term care benefits that a life insurance policy provides. However, be sure to check with a tax advisor to learn how much of the premium can be deducted as a medical expense. With some companies you may purchase a life insurance policy that also serves as long-term care coverage. The policy may say they will pay up to 2% of the death benefit for long-term care whether the care is given at home or in a nursing facility. You must not be able to perform two or more of the activities of daily living in order for the policy to pay benefits. With these policies and/or riders, it is important to remember that if you use money from your life insurance policy to pay for long-term care, it will reduce the death benefit your beneficiary will get. For example, if you purchased a $100,000 death benefit and you utilize $35, for long-term care, then your beneficiary will get the remaining $65, Of course, if you do not use any amount for long-term care, then your beneficiary will get the full death benefit. 12

13 The long-term care benefits paid from a tax-qualified life insurance policy with longterm care benefits are generally not taxable as income. These policies must meet the same federal standards as other tax-qualified policies, including the requirement that you must be chronically ill to receive benefits. LONG TERM CARE POLICIES The first LTC polices were sold by CAN approximately 32 years ago. At that time most companies only covered nursing home care. Due to the lack of empirical date, the pricing of these products was an educated guess by most actuaries. The majority of these early policies required a prior hospital stay before the insured could qualify for benefits under the contract. These policies also did not include coverage for Alzheimer s disease. You could purchase coverage for Alzheimer s disease by paying an extra premium. Because of the stringent requirements, companies only paid benefits for the extreme cases. Prior hospitalization requirements eliminated most claims. Also, companies were denying payment of benefits by instituting Post-claims Underwriting procedures. Simply stated, the companies were actually doing actual underwriting at the time of the claims. As most of you know, this practice is strictly prohibited by state regulations. (Dept. of Insurance regulation Section ). In the late 1980s, the National Association of Insurance Commissioners, (NAIC) promulgated model legislation that set the standard for long-term care policies. The legislation provides some flexibility to the states and insurance companies to add and/or improve the coverages provided. The policy model requires: All policies must be issued guaranteed renewable Coverage cannot be limited to skilled care only Must not require prior hospitalization Companies cannot use the word level in connection with LTC policies as that may imply that premiums cannot be increased Must offer the inflation protection option Home Health Care cannot be limited to just Registered Nurses (RNs) and/or Licensed Practical Nurses (LPNs) Applications for coverage must be clear and unambiguous 13

14 COMPONENTS OF A LONG-TERM CARE POLICY Even though long-term care policies have not been standardized, as Medicare Supplement policies have, the primary policy provision and/or coverages are basically the same among all companies. The underwriting of long-germ care policies is somewhat different. The insurance company must either issue or deny coverage. Insurance companies cannot use waivers, limitation or exclusions. They may, however, charge extra premium to provide coverage to an individual. By law, all long-term care policies issued in North Carolina must have, as a minimum, a 30-day Free Look. Any pre-existing condition declared on the application must be covered after the policy has been in force for 6-months. All currently issued policies must provide coverage for Alzheimer s disease. Most likely, no one company s policy will have all of these benefits built in as the range of benefits offered varies from one company to the other. In this section, we are trying to address every benefit that could be included in a long-term care policy now or in the future. Elimination Period - During the elimination period, the policy will NOT pay expenses incurred due to long-term care services provided. The insured will have to pay for care during the elimination period! Of course, you may select to pay a higher premium for a shorter elimination period. As it stands to reason, the longer the elimination period is, the lower the premium. There are a wide variety of policy provisions in the market place. Some companies require that the elimination period must be met during one period of needed care. Other companies will say they will count any time met within the next 180 days of the first confinement. Still, some companies will say that once you have satisfied a day toward your elimination period requirement, you will NEVER have to satisfy it again! With some companies, if benefits are received at home and/or Community based care, these days will count toward the satisfaction of the Elimination Period. The Enhanced Elimination period provides that if you receive care, anywhere from one day to three or more days, the company will count it as if you had met seven days toward your elimination period. Length of Benefit Period - Most companies will give the proposed insured a variety of choices. Most companies will offer a benefit period anywhere from 1 to 10-years of benefits or unlimited (lifetime). The longer you want to put the company on the risk, the higher the premium will be. If the benefit is expressed in a dollar amount, called a pool of money, then once all the money has been paid out in benefits, the coverage ceases. 14

15 Home HealthCare - This optional benefit, with some companies, provides coverage for services provided by RNs, LPNs, respiratory, occupation, speech and physical therapists, registered dieticians or licensed social workers. In addition, it will cover personal care provided by certified aides and homemaker and companion services that can be provided by any of the above individuals during the same visit in which they are providing, primarily, professional or personal care. This valuable coverage may also provide coverage for Adult Day Care, or respite care for your primary care giver. The latter will provide your caregiver a break from their daily responsibilities of care giving (about 21-days a year). May also cover Alternate Facility treatments such as in an Assisted Living Facility, domiciliary care facilities, Alzheimer s and community-based residential facilities. Daily Benefit Amount - This is the amount of insurance benefit, in dollars, a person chooses to purchase for long-term care expenses. Companies will sell the coverage in increments of $5.00 to $ The minimum coverage in North Carolina must be one-year. The Home Health Care minimum is $25.00 a day. Some companies will let you choose whether you want the coverage for Home Health Care or in a nursing facility. Most companies, however, will require you to purchase the Nursing Home benefit in order for you to have Home Health Care. The optional Home Health Care benefit could be 50%, 80%, 100% or 130% of the Nursing Home benefit.some companies will require you to purchase equal amounts of coverage. Waiver of Premium - This valuable coverage is included in most long-term care policies issued. Simply stated, this option allows the recipient to stop paying premiums once he/she is in a nursing home and the insurance company has started to pay benefits. With some companies, the premiums are waived as soon as the insurance company makes the first benefit payment. Other companies have an elimination period ranging between 60 and 90-days. Still, some companies provide that if both husband and wife are insured and one of them begins receiving benefits, then the premiums are waive for the noninstitutionalized spouse. Survivorship Benefits - Some companies will include in their provision that if both spouses are insured, and the policy has been inforce for a minimum of 10-years, then the policy of the surviving spouse will be fully paid-up, provided that neither spouse has received any policy benefits during the first 10-years. 15

16 Restoration of Benefits - If the policy purchased has a benefit period other than unlimited, this provision provides that once you no longer require the assistance necessary to be eligible for benefits, for at least 180 consecutive days, and if your benefits have not been exhausted, then your lifetime maximum benefit will be restored to its original amount. In most insurance contracts this is a built in option. Some companies, however, consider this an additional benefit; hence, it can be added to a policy as a rider and by paying a higher premium. Special Bed Reservation Benefit - This benefit will pay, for example, up to 21-days per calendar year to pay for your bed in a nursing facility. This benefit will pay, with some companies, whether your temporary leave from your nursing facility is to receive care in a hospital. Still, some other companies will allow you to visit your family, go home for the holidays, or for any other reason, to reserve your room while you are gone. If the policy does not have this invaluable provision, then you must pay in order to reserve your place in the nursing facility. Alternate Care Plan - Sometimes a stay in a facility might not be your preference nor serve your best interests. When this is the case, options, such as durable medical equipment or home modification that will help you remain in your home, can be explored and implemented. Caregiver Training - If you wish to have a family member or a friend to provide some services for you at home, on an informal basis, your benefits will allow for the training of this person in proper care procedures. The company may pay, for example, up to five times the home and community care daily benefit for the training of your informal care givers. OPTIONAL BENEFITS Inflation Rider - By law, all insurance companies that market long-term care insurance must offer inflation protection coverage. Most companies offer a 5% increase each year that the policy is in force. This percentage increase can be simple or compounded. This benefit will increase the premium from 30% to 40% annually. Return of premium Rider - This costly optional benefit will pay out, as a death benefit, an amount equal to the premiums paid. With some companies, you may purchase partial premium refund coverage. In essence, the company will pay, upon, death an amount equal to the total of all premiums less any amount paid out in long-term care benefits. A variation of this rider, more expensive, will pay a death benefit equal to the sum of the premiums paid regardless of the benefits paid out. Guaranteed Increase Option - This provision will allow the insured, for example, every two years, to increase their daily benefit by purchasing an additional $10.00 of coverage without 16

17 providing evidence of insurability and your premium, for the amount increase, will be at your attained age. This option will be available as you as you are not receiving covered benefits. One company s provision may say This offer will be given every two years up to the 10 th anniversary of the policy. With some companies, if you decline two consecutive offers then no further options will be available. Non-Forfeiture Benefit - For additional premium a consumer may purchase a Shortened Benefit Period Non-Forfeiture Rider. One company s rider says: When the policy has been in force for at least three years and the policy lapses due to nonpayment of premium, the coverage will continue and benefits will be payable based on the daily benefit in effect on the date of lapse. The maximum lifetime benefit payable under this rider will become equal to the greater of (a) total premiums paid for the policy and all riders; or(b) thirty times the Facility Care Daily Benefit in effect at the time of lapse. The Full Non-Forfeiture Rider provides that in the event of lapse the benefits payable will be equal to the sum total of all premiums paid and the benefit amount will be equal to the amount as of the date of lapse. Any benefits not paid for long-term care, upon the death, will be paid to the beneficiary. Pooled Benefits - Sometimes this benefit is called shared option. IT indicates that the insureds, for example, may have purchased a 4-year benefit. And a 4-year shared benefit. In this instance, one individual may have up to 8 years of coverage. Most companies offer one pool of money. Meaning that if the customer purchased a limited benefit period, the time period of coverage will be combined and apply to either Home Health Care, Alternate Living Facility (ALF) or in a nursing home. Very few companies offer two pools of money. For the companies that have two pools of money, assuming that you purchased a 3-year benefit, you would have a 3-year benefit for Home Health and Alternate Living Facility and another 3-year a benefit for in residence Nursing Home care, for a possible total coverage of up to six years. COMMON EXCLUSIONS Most long-term care insurance policies usually do not pay benefits for: 17

18 Mental disorder or disease, other than Alzheimer or other dementia Alcohol or drug addiction Illness or injury caused by an act of war Attempted suicide or intentionally self-inflicted injuries Pre-existing conditions declared on the application (up to six-months) Participating in a felony, riot or insurrection Aviation activity as a non-paying passenger Limitations for services provided outside the USA BENEFIT TRIGGERS The inability do activities of daily living or ADLs is the most common way insurance companies decide when you are entitled to benefits. These ADLs are: Bathing Continence (bowel control) Dressing Eating Toileting Transferring (moving about) Tax-qualified policies require that you cannot perform two or more out of the six ADLs in order for the company to pay benefits. Cognitive Impairment or the loss of deductive reasoning that results in an individual needing supervision and/or assistance will also trigger payment of benefits. This includes Alzheimer s disease, stroke, Parkinson s disease or any form of senile dementia that has resulted in cognitive impairment. HOW BENEFITS ARE PAID To qualify for benefits under the Activities of Daily Living definitions, the insurance company usually requires a physician s certification of the inability to perform the ADLs and that the condition will last 90-days or longer. The certification must be accompanied by a plan of care. The insurance company reserves the right to require additional evidence, such as a medical exam and/or assessment of functional capacity, at their expense. Long-term benefits are generally paid using either the indemnity or the expense-incurred method. The consumer should read the literature and policy to compare benefits and premiums. When the expense incurred methods is used, the company must decide if you are eligible for benefits. Benefits are paid to you or the provider of services the lesser of actual expenses or the policy limit. Most policies issued at the present are using the expense-incurred method. With the indemnity method the benefit is a set dollar amount. The insurance company will determine if you are eligible for benefits; if so, then the company will pay benefits directly to you. 18

19 North Carolina Partnership for Long-Term Care Why should you plan? Because, at least 70 percent of people over age 65 will require some long-term care services at some point in their lives. And, contrary to what many people believe, Medicare and private health insurance programs do not pay for the majority of long-term care services that most people need - help with personal care such as dressing or using the bathroom independently. Planning is essential for you to be able to get the care you might need. With the Deficit Reduction Act of 2005, the federal government sent a clear message to Americans paying for long-term care is your responsibility. The Act made it more difficult to qualify for Medicaid paid long-term care. It also expanded the Partnership Program. A Partnership Program is a collaboration or partnership among a state government, the private insurance companies selling long-term care insurance in that state, and state residents who buy long-term care Partnership policies. The purpose of the North Carolina Long-Term Care Insurance Partnership program is to make the purchase of shorter term more comprehensive long-term care insurance meaningful by linking these special policies (called Partnership qualified policies) with Medicaid for those who continue to require care. Partnership qualified policies must meet special requirements that can differ somewhat from state to state. Most states require Partnership policies to offer comprehensive benefits (cover institutional and home services), be Tax Qualified, provide certain specific consumer protections, and include state specific provisions for inflation protection. Often the only difference between a partnership qualified policy and other long-term care insurance policies sold in a state is the amount and type of inflation protection required by the state. Income & Asset Protection An North Carolina Partnership for Long-Term Care qualified policy provides you, as the purchaser, with the right to apply for Medicaid under modified eligibility rules that include a special feature called an asset disregard. 19

20 This allows you to keep assets that would otherwise not be allowed if you need to apply, and qualify, for Medicaid in order to receive additional long-term care services. The amount of assets Medicaid will disregard is equal to the amount of the benefits you actually receive under your long term care Partnership qualified policy. Since these policies must include inflation protection, the amount of the benefits you receive can be higher than the amount of insurance protection you originally purchased. If you have a Partnership-qualified long term care insurance policy and receive $200,000 in benefits, you can apply for Medicaid and, if eligible, retain $200,000 worth of assets over and above the State s Medicaid asset threshold. In most states the asset threshold is $2,000 for a single person. Asset thresholds for married couples are typically more generous. The following is an example of how a North Carolina Partnership for Long-Term Care Qualified policy works. Let's say John purchases a North Carolina Partnership for Long-Term Care policy with a value of $200,000. Some years later he receives benefits under that policy up to the policy s lifetime maximum coverage (adjusted for inflation) equaling $250,000. John eventually requires more long-term care services, and applies for Medicaid. If John's policy was not a Partnership-qualified policy, in order to qualify for Medicaid, he would be entitled to keep only $2,000 in assets. He would have to spend down any assets over and above this amount. However, because John bought a Partnership-qualified policy, if he needs to apply for Medicaid and is deemed eligible, he can keep $252,000 in assets and the State will not recover those funds after his death. However, any assets John has over and above the $252,000 would have to be spent in order for him to be eligible for Medicaid. For a couple the exempt amounts would be more. Unfunded Liability Long-term care is one of the largest unfunded liabilities facing families and our government today. Recent legislative underscores the government s support for the idea that private insurance must assume the lead in providing for Americans long-term care. 20

21 Yet, many of the 78 million Baby Boomers who are fast heading into retirement have not planned for their future long-term care. In addition, many retirees who once thought they could afford to self-insure long-term care expenses are facing the need to protect their shrinking assets in a down market making it much more difficult to self-insure these expenses. Long-Term Care Partnership Policies North Carolina Partnership for Long-Term Care qualified policies are designed to preserve your independence, quality of life and protect assets. Partnership long-term care policies offer the same benefits and options as non-partnership policies and cost the same as non-partnership policies. North Carolina Partnership for Long-Term Care policy benefits include: daily or monthly benefit choice of elimination period or deductible comprehensive coverage including home, adult day care and facility coverage benefit period (pool of money) discounts One factor that distinguishes a partnership policy from a non-partnership policy is the mandatory age appropriate inflation protection. This automatically increases your benefits to keep up with the increased cost of care. Partnership policies must provide inflation protection at issue as follows: 60 and younger: automatic compound inflation 61 75: any inflation protection (compound, simple, CPI) 76 and older: inflation protection is discretionary The Guaranteed Purchase Option or Future Purchase Option inflation benefit offered by many carriers, also referred to as GPO or FPO, does not qualify as a inflation option under Partnership as this type of inflation protection is considered optional since the insured can opt not to exercise it. Policy Underwriting You must qualify medically for a North Carolina Partnership for Long-Term Care policy just as you would for traditional long-term care insurance. The younger you are, the better the chance to qualify at favorable rates and lower premium. 21