11 SENIOR NEEDS LEARNING OBJECTIVES Upon the completion of this chapter, you will be able to: 1. Identify when Medicare is the primary or secondary payor 2. Explain the types of enrollment periods for Medicare 3. Differentiate between the purpose and coverages of Medicare Part A and Part B 4. Understand the purpose and intent of a Medicare Supplement policy (Medigap) 5. Recognize the standardized core benefits provided by all Medigap policies 6. Identify the triggers in a Long-term care policy 7. Distinguish between skilled, intermediate, and custodial care 8. Identify the optional LTC coverages OVERVIEW The purpose of this chapter is to acquaint the student with both government and private sponsored plans available to address the health care needs of the aged population and special needs individuals in the United States. 11.1 Medicare Overview Medicare is a federal health insurance program that was originally designed to provide hospital and medical insurance primarily for people age 65 or over. The program has been expanded to provide coverage to persons of any age who have been: Diagnosed with chronic or permanent kidney failure, or End Stage Renal Disease Received Social Security Disability Income for at least 24 consecutive months Medicare is run by the Centers for Medicare & Medicaid Services (CMS), a separate department within the Department of Health and Human Services Administration, and is responsible for reviewing and approving Medicare claims. Note Originally, eligibility for Medicare coincided with eligibility for Social Security retirement benefits. Medicare eligibility remains at age 65, even though the Full Retirement Age for retirement benefits has increased. Primary vs. Secondary Payor If an individual is age 65 or over and continues to work, Medicare is usually the secondary insurer to any employer group health plan the individual participates in. A Group Health plan with 20 or more employees is primary to Medicare and pays first. If the employer s plan does not pay all of one s expenses, Medicare will pay secondary benefits for Medicare covered services to supplement the group plan benefits. A.D.Banker&Company 151
CHAPTER ELEVEN Employers who have 20 or more employees are required to offer the same health benefits and under the same conditions to employees and spouses age 65 or over, as offered to younger employees and spouses. Medicare Products The Original Medicare program consisted of two parts, Part A and Part B. Both parts are provided by the government for basic hospital and medical expense coverage, including amounts that the recipient must pay out-of-pocket, such as deductibles and coinsurance. There are currently four parts of coverage available under Medicare: Part A Hospital Insurance provided by the federal government Part B Medical Insurance and outpatient expenses provided by the federal government Part C Medicare Advantage plan combines Part A and Part B into a managed care plan offered by private insurance providers Part D Prescription drug coverage offered by private insurance providers Medicare Enrollment Periods Once eligible, individuals are required to enroll in Medicare Parts A and B for coverage to begin. The following enrollment periods apply: The Initial Enrollment Period lasts 7 months and begins 3 months before the month of an individual s 65th birthday and ends 3 months after the month following when the individual turned age 65. The actual month of eligibility is the month of the individual s birthday. The General Enrollment Period provides a make-up period from January 1 to March 31 each year for those who did not enroll in Medicare Part B when they first became eligible. For individuals enrolling during the general enrollment period, coverage begins on July 1. The Medicare Open Enrollment occurs every year from October 15 - December 7 and provides all individuals the chance to make changes to their Medicare coverage if needed. The Special Enrollment Period begins when a person past age 65, who was covered by an employer-sponsored group health plan, is no longer covered by the plan (whether the person elects COBRA continuation or not). This period lasts eight months and allows an individual the opportunity to enroll in Medicare Part B without incurring a penalty for failing to enroll at age 65. Retention Question 1 A 67-year-old individual works for a large company and plans on working until at least age 70. The individual signed up for Medicare at age 65 and the employer has a group health insurance plan. If a loss occurs, how will the claim be handled? a. Medicare will cover it all b. Medicare will be the primary payor while her group health plan will be the secondary payor c. Her group health plan will be the primary payor while Medicare will be the secondary payor d. The employer group health plan will cover it all 152 A.D.Banker&Company
SENIOR NEEDS 11.2 Part A Hospital Insurance (Inpatient) Medicare Part A is financed by payroll and FICA contributions and is premium-free to eligible individuals who qualify through Social Security, Railroad Retirement, or government employment. Individuals over age 65 who do not qualify may receive benefits for Part A coverage by paying a monthly premium. Part A provides coverage for medically necessary inpatient hospital related charges, skilled nursing, home healthcare, and hospice. Part A claim payments are made directly to the provider for covered services. Part A Benefits and Out-of-Pocket Expenses Medicare Part A requires a deductible before benefits are payable. Once the deductible is met, benefits are payable as specified based on the benefit period. Benefit Period A benefit period begins the first day the insured enters the hospital after being enrolled in Medicare and ends once the insured has been out of the hospital for 60 consecutive days. Inpatient Hospitalization Part A provides coverage for up to 90 days per benefit period. Medicare will pay 100% of covered charges for days 1-60. The insured will be responsible for a specified daily copayment for days 61-90 and Medicare will pay the balance. If the insured is hospitalized beyond 90 days in a benefit period, 60 nonrenewable lifetime reserve days are available for coverage with a higher daily copayment. Once the insured is out of the hospital for 60 consecutive days, a new benefit period begins which renews the 90 days of coverage and requires a new deductible. The lifetime reserve days do not renew. If an insured uses the lifetime reserve days and is hospitalized longer than 90 days in a benefit period, the out-of-pocket expense is 100%. Medicare Part A includes the following coverage: Semiprivate room and board Operating room costs Prescription drugs including anesthesia Miscellaneous hospital services and supplies Blood transfusions after the first 3 pints of blood Mental Health Care Medicare Part A will cover inpatient mental health care on the same basis as inpatient hospital care. Skilled Nursing Care Medicare Part A provides limited benefits for skilled nursing care following 3 days of hospitalization. The first 20 days are covered 100%. Days 21-100 are covered except for a daily copayment. After 100 days of skilled nursing care, there is no additional benefit from Medicare and the insured pays 100%. Once there is a break from skilled care of 60 consecutive days, the skilled nursing care benefit is renewed. Home Health Care Medically necessary care following the release from the hospital, including home health aide services, nurses visits, and medical supplies are covered. Hospice Care Pain relief and support services provided to the terminally ill and their family members is covered. Blood There is a deductible amounting to the first 3 pints of blood administered per calendar year. After the deductible is met, Part A will cover the cost of inpatient blood transfusions for the remainder of the year. A.D.Banker&Company 153
CHAPTER ELEVEN Retention Question 2 Which of the following statements is not true? a. Lifetime reserve days under Medicare Part A are not renewable b. Medicare Part A pays for outpatient hospital expenses such as Emergency Room c. Medicare Part A is premium-free for most persons covered by Social Security d. Medicare Part A does not pay for the first three units of blood needed in a year 11.3 Part B Medical Insurance (Physicians, Surgeons, and Outpatient) Medicare Part B is optional coverage and is offered to all applicants when they become eligible for Part A. All Part B recipients are required to pay a monthly premium. Medicare Part B pays 80% of covered expenses after an annual deductible has been met. The insured pays 20% coinsurance with no maximum out-of-pocket. Part B Benefits Medical Expense Medicare Part B covers Physician s and Surgeon s services (inpatient and outpatient), and medically necessary outpatient medical and surgical services and supplies. Additional coverages include physical, occupational, and/or speech therapy, diagnostic tests, certain durable medical equipment, and medically necessary ambulance or other transportation services. Medicare Part B will also cover kidney dialysis treatments. Preventive Care A one-time Welcome to Medicare preventive visit is covered along with yearly wellness visits. In addition, Part B will cover vaccines and preventive screenings for cancer and several other conditions. Laboratory Services Blood tests, biopsies, urinalysis, and other labs on an outpatient basis. Home Health Care Medically necessary skilled care, home health aide services, medical supplies, for those who are home bound in their personal residence, but who have not had a qualifying hospitalization. Mental Health Care Medicare Part B will cover mental health services on an outpatient basis when provided by a health care provider who accepts Medicare payment. An additional copayment or coinsurance may be required if services are provided in a hospital outpatient clinic or department. Outpatient Hospital (Emergency Room/Urgent Care) Treatment Reasonable and necessary services for the diagnosis or treatment of an illness or injury on an emergency basis. Blood -The cost of the first 3 pints of blood per year is excluded from coverage under both Part A and Part B. After the first 3 pints of blood, Part B will cover the cost of blood transfusions on an outpatient basis, since Part A covers blood transfusions in the hospital after the first 3 pints per year. Medicare Part B Exclusions Prescription Drugs unless administered at an outpatient medical facility Care received outside the United States Routine dental care including dentures Routine foot care Long-term care (private or custodial nursing care) in any setting 154 A.D.Banker&Company
SENIOR NEEDS Hearing and eye exams Acupuncture Cosmetic surgery Medicare Claim Terminology Appeal If an insured disagrees with a decision on the amount Medicare will pay on a claim, he/ she has the right to appeal the decision. Assignment The claim is paid directly to the doctor or provider. Medicare approved providers have agreed to accept Medicare assignment and must accept Medicare s payment as payment in full (in addition to any patient coinsurance). Certification of Providers Hospitals and other providers of health care that wish to participate in the Medicare program must be licensed by the state and certified by Medicare. Medicare will not pay for any services rendered by a provider that is not certified. Claim A request for payment that is submitted to Medicare or other health insurance when the patient gets items and services that they believe are covered. Durable Medical Equipment Certain medical equipment, like a walker, wheelchair, or hospital bed, that s ordered by a doctor for use in the home. Excess Charge If one has Medicare, and the amount a doctor or other health care provider is legally permitted to charge is higher than the Medicare-approved amount, the difference is called the excess charge. Limiting Charge In Original Medicare, the highest amount that can be charged for a covered service by doctors and other health care suppliers who don t accept assignment. Medicare-approved Amount In Original Medicare, this is the amount a doctor or supplier that accepts assignment can be paid. It may be less than the actual amount a doctor or supplier charges. Medicare pays part of this amount and the recipient is responsible for the difference. Medicare Summary Notice (MSN) A notice you get after the doctor or provider files a claim for Part A or Part B services in Original Medicare. It explains what the doctor or provider billed for, the Medicare-approved amount, how much Medicare paid, and what the patient must pay. Nonparticipating Provider A provider who does not accept assignment. Participating A provider who agrees to accept assignment and charges the Medicare approved charge. 11.4 Part C Medicare Advantage These plans are offered by private insurance companies that contract with Medicare to provide both Part A and Part B benefits and typically prescription drugs. Medicare Advantage plans include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Feefor-Service Plans, and Special Needs Plans. Enrollment in both Medicare Parts A and B is required and premium payments for Part B must be continued. Enrollment in Part C is a substitute for Original Medicare. Medicare pays the Medicare Advantage provider a monthly capitation fee to oversee the health care services of the enrolled participants. The services provided by these plans may differ by degree of choice of providers, out-of-pocket expenses, and extra benefits, but all must provide basic Medicare covered services. Some plans also offer prescription drug coverage. A.D.Banker&Company 155
CHAPTER ELEVEN Managed Care Organizations, including HMOs and some PPOs, that offer a Medicare Advantage Plan are responsible for coordinating health care services and reducing costs. These plans require the subscriber to select a Primary Care Physician to manage health care needs. The use of network providers, referrals to specialists, and pre-authorization of scheduled procedures are methods used to manage care. Plans offered through PPOs that are not managed care plans do not require a Primary Care Physician or referrals and allow the subscriber to choose out-of-network providers at higher out-of-pocket expenses. A Medicare Supplement plan is unnecessary with Medicare Advantage. Sale of a new Medicare Supplement plan to a Medicare Advantage enrollee will result in automatic disenrollment from Medicare Advantage. Retention Question 3 A Medicare beneficiary enrolled in a Medicare Advantage plan may have any of these other insurance plans, EXCEPT: a. Medicare supplement b. Long-term care c. Disability income d. Life insurance with cash value in excess of $1,500 11.5 Part D Prescription Drug Benefit The Medicare Prescription Drug, Improvement, and Modernization Act, also known as the Medicare Modernization Act (MMA), established a voluntary prescription drug program known as Medicare Part D. These plans are offered by private insurers. Under the provisions of Part D offered by insurance companies, anyone entitled to or enrolled in Part A and/or Part B of Medicare may enroll in a voluntary prescription drug program. Beneficiaries must enroll in a standalone plan with a participating approved Medicare Part D Prescription Drug Provider (PDP) or a Medicare Advantage plan that offers prescription drug coverage integrated with medical coverage. Individuals enrolled in the standalone plan from a PDP will have to pay a monthly premium, an annual deductible, and copays. Medicare prescription drug coverage and premiums vary based on income, and between insurers approved to offer prescription coverage. Once the insured has paid the deductible, a copay will apply until the out-of-pocket exceeds a certain amount. These limits change annually. Once the limit is reached, the Part D beneficiary enters the donut hole which is a gap in coverage. During this gap, the beneficiary will receive a discount on prescription drugs but must meet an additional out-of-pocket limit. Once the beneficiary reaches the limit, catastrophic drug coverage kicks in automatically and the plan will pay 95% of the remaining drug costs until the end of the year. This cycle repeats each year: Deductible initial coverage with copays coverage gap (donut hole) catastrophic coverage Formulary The grouping of prescription drugs under Medicare - Part D. A formulary is a listing of prescription drugs that are covered under Part D, the insurance plan. Only payments for formulary drugs will count toward the benefit limits. 156 A.D.Banker&Company
SENIOR NEEDS 11.6 Medicare Supplement Insurance (Medigap) Overview Purpose Medicare supplement plans, often referred to as Medigap, are private insurance plans that are designed to supplement Medicare coverage and fill in the gaps in Original Medicare. These plans pay all or some of the Medicare deductibles, copayments, and coinsurance. Some policies also offer coverage for services not covered by Medicare. In order to purchase a Medicare Supplement, an eligible individual usually must have Medicare Parts A and B. A separate premium payment is required for the purchase of a Medigap policy. As long as the premium is paid, the Medigap policy is guaranteed renewable, or automatically renewed each year. A Medigap policy only covers one person. Medigap policies are standardized and must follow federal and state laws. The front of a policy must clearly indicate that it is Medicare Supplement Insurance. The standardized policies that insurers offer must provide the same benefits, but the premiums may vary. Open Enrollment A person 65 years of age or older may also purchase a Medicare Supplement by paying the necessary premium. The Medigap open enrollment period lasts for 6 months beginning the month an individual turns age 65 and enrolls in Medicare Part B. If enrolled during this period, the insurer cannot use medical underwriting, refuse coverage, charge a higher premium, or impose a waiting period for pre-existing conditions. Retention Question 4 What advantage do persons have when applying for a Medicare Supplement insurance plan at the same time they are first eligible for Medicare? a. They will be accepted at preferred rates even if declared substandard by underwriting b. They cannot be declined for the insurance c. They will be issued noncancellable policies d. They will be subject to pre-existing condition waiting periods, higher premiums and exclusions 11.7 Standardized Medicare Supplement Coverage Requirements The NAIC Model Law with respect to Medicare supplement policies was amended to revise the standardized Medicare Supplement plans delivered or issued for delivery in any state. Plans A, B, C, D, F, F with High Deductible, G, K, L, M, and N are available. Plan A Core Benefits Plan A is the basic Medicare Supplement plan and must be offered by all insurers marketing Medicare Supplements. Plan A provides the core benefits that must also be included in all other Medigap plans. The core benefits include: Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period. Coverage of Part A Medicare eligible expenses incurred for hospitalization to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used. A.D.Banker&Company 157
CHAPTER ELEVEN Upon exhaustion of the Medicare hospital inpatient coverage including the lifetime reserve days, coverage of 100% of the Medicare Part A eligible expenses for hospitalization subject to a lifetime maximum benefit of an additional 365 days. Coverage under Medicare Parts A and B for the reasonable cost of the first 3 pints of blood. Coverage for the coinsurance amount of Medicare eligible expenses under Part B regardless of hospital confinement, subject to the Medicare Part B deductible. Hospice Care Coverage of cost sharing for all Part A Medicare eligible hospice care and respite care expenses. Additional Benefits In addition to the basic benefits, a number of other benefits are included in Plans B through N in different combinations and with some limitations. The key benefits include: Plans C and F pay the Part B deductible. All plans, except A and B, pay for skilled nursing facility care: Covers the coinsurance amount from the 21st day through the 100th day in a benefit period for post-hospital skilled nursing facility care eligible under Medicare Part A. Plans F and G pay Medicare Part B excess doctor charges: Pays 100% of a doctor s excess fees. Plan F High Deductible Plan: This Plan offers all the regular Plan F benefits, but in return for a lower premium, the policyholder accepts an annual deductible to be met out-of-pocket before benefits kick in. The deductible amount is set by Medicare and is subject to an annual adjustment. Plans K and L: Plans K and L cover the same basic services as other Plans, but at different levels. In exchange for lower premiums, Plan K has a 50% coinsurance and Plan L 75%. Both Plans have annual out-of-pocket limits, which are adjusted for inflation annually. Once the annual limits are reached, the supplement pays 100% for the remainder of the year. Plans C, D, F, G, M and N pay for foreign travel emergency care as an additional benefit. The calendar year deductible is $250 and the lifetime maximum benefit is $50,000. The following chart provides a snapshot of the various plans and coverages available: Plan Benefits Medicare Supplement Plans A B C D F* G K L M N Part A Coinsurance Hospital Costs (Up to 365 days) Part B Coinsurance or Copay 50% 75% Blood (1st 3 pints) 50% 75% Part A Hospice Care Coinsurance or Copay 50% 75% Skilled Nursing Coinsurance 50% 75% Part A Deductible 50% 75% 50% ** Part B Deductible Part B Excess Charges Foreign Travel Emergency (Up to Plan Limits) Out-of-pocket Limit Out-of-pocket Limit Out-of-pocket Limit * Plan F has a high-deductible option ** Plan N requires a $20 copayment for some office visits and a $50 copayment for emergency room visits that don t result in an inpatient admission 158 A.D.Banker&Company
SENIOR NEEDS Retention Question 5 Which of the following is not a core benefit in a Medicare Supplement policy? a. The first three units of blood administered in a calendar year b. Up to 365 days of hospital charges after Medicare benefits run out c. Up to 365 days of long-term care expenses after three days of hospitalization d. Coinsurance amounts payable under Part B 11.8 Medicare Supplement Minimum Benefit Standards Policy Requirements A Medicare Supplement policy must contain a 30-day free look provision on the first page in bold print. The policy must also contain an Outline of Coverage in bold print containing information on benefits, deductibles, exclusions, and premiums. The insurer is required to explain the relationship of this coverage to the benefits of Medicare. Insurance laws require that a question about replacement appear on the application form. The agent must retain a copy of the replacement form for a specified number of years. The insurer must also provide a Buyer s Guide and an Outline of Coverage at the time of application. A signed acknowledgment indicating receipt of these documents is required. Federal standards require a minimum loss ratio of 65% for individual policies and 75% for group plans. Note Please refer to the state law chapter for additional information that may apply. Guaranteed Issue, Renewability and Cancelation A Medicare Supplement policy must be a guaranteed issue if applied for during the open enrollment period (6 months after eligibility for Medicare). A pre-existing waiting period (probationary period) may still apply for the first 6 months after the policy is issued under certain circumstances, such as if there is more than a 63 day gap in coverage. Medicare supplement policies must be issued at least guaranteed renewable and cannot be nonrenewed or canceled on the basis of the health status or for a reason other than nonpayment of premium or material misrepresentation. Pre-existing Conditions The policy must not exclude coverage for any pre-existing conditions that occurred more than 6 months prior to the effective date of coverage. A preexisting condition may not be defined more strictly than as a condition for which one received or sought treatment within the 6 months prior to the date of policy inception. Duplication An agent cannot sell a policy that duplicates the coverage benefits already provided by Medicare or sell more than one Medigap policy to an insured. Permitted Compensation An agent selling Medicare supplement insurance is limited to the commission paid on the policy. The first year commission cannot exceed 200% of the renewal commission in the 2nd year. A.D.Banker&Company 159
CHAPTER ELEVEN Notice of Medicare Benefit Changes A policy that pays benefits according to the cost sharing percentages of Medicare must automatically change to coincide with any changes in the Medicare laws. The insurer must notify the insured of the changes in Medicare deductibles and copays as well as any adjustments to the policy. Premium Rates and Increases Any premium rate adjustments and increases must be provided to the insured in writing by the insurer at least 30 days prior to the effective date of the change. Continuation and Conversion If a group policy is terminated by the group policyholder, the insurer must offer a certificate holder one of the following: An individual policy providing the same benefits as the group policy. An individual policy that provides only benefits required to meet the minimum standards. If the group policy is replaced with another group policy, the replacing insurer must offer the same coverage to all persons covered under the former policy without any new or additional waiting periods and exclusions. If a group policy is purchased during the open enrollment period, the policy must be issued regardless of the group s health status. 11.9 Medicare Supplement Replacement Requirements When replacing a Medicare Supplement policy the agent must: Be sure that the replacement does not result in decreased benefits at an increase in premium. Use an application containing questions that elicit information to determine if the applicant has or has had a Medicare Supplement in effect or if the application is for replacement of an existing Medicare Supplement. Provide a notice of replacement to the applicant prior to issuance or delivery of the new Medicare Supplement policy. 1 copy of the notice, signed by the applicant and the agent, must be provided to the applicant. 1 signed copy must also be retained by the insurer. When recommending the purchase or replacement of a Medicare Supplement policy, an agent must make reasonable efforts to determine the appropriateness of the purchase or replacement. If a Medicare Supplement policy replaces another Medicare Supplement policy that has been in force for 6 months or more, the replacing insurer cannot impose an exclusion or limitation based on a pre-existing condition. If the original policy has been in force for less than 6 months, the replacing insurer must waive any time periods applicable to pre-existing conditions to the extent that they have already been satisfied under the original policy. 160 A.D.Banker&Company
SENIOR NEEDS 11.10 Medicare Select Medicare Select insurance is the managed health care version of the traditional Medicare Supplement policy that has been offered through indemnity insurers. Medicare SELECT plans must cover the same benefits as any non-select Medigap plan if the plan s network for care is used. Services are provided to the insured through network providers who have contracted with the insurer to provide medical care. By using hospitals, physicians, and surgeons on the approved provider list, the insured receives benefits. If the insured seeks services from a non-network provider, higher deductibles and coinsurance will be required, unless in an emergency. In the event the Medicare Select program is discontinued, the insured will have the right to convert coverage to a traditional Medicare Supplement policy without having to prove insurability. 11.11 Other Options for Individuals with Medicare Employer Group Health Plans Disabled employees must be provided coverage under a large group health plan (100 or more employees) if the employee is under age 65 and not retired at the time of disability. Employer group health plans will be the primary payer for 30 months of coverage for individuals who are eligible for Medicare because of End Stage Renal Disease (kidney failure). After 30 months, Medicare will become the primary payer. Individuals age 65 or older who are still working may continue to be covered under an employer group health plan (employers with 20 or more employees) as the primary coverage and Medicare will provide secondary coverage. If the employer has less than 20 employees, Medicare will be the primary payer. 11.12 Medicaid Medicaid provides increased assistance to those with a financial and medical need. Depending on the state, Medicaid eligibility is based on income of 133% to 138% of the federal poverty level (FPL), and is adjusted for household size. Eligibility The Medicaid program also assists individuals receiving public assistance and who are: 65 years of age or older Blind or disabled Receiving payments under the Temporary Assistance to Needy Families program Medically needy or medically indigent refugees in this country (for 18 months or less) Pregnant women Persons in skilled nursing or intermediate care facilities Children under age 21, including those who may be in foster care Individuals needing kidney dialysis due to ESRD (End-Stage Renal Disease) A.D.Banker&Company 161
CHAPTER ELEVEN Benefits Medicaid pays for hospital care, outpatient care, certain nursing facilities, doctors, laboratory and x-ray services, prescriptions, Long-Term Care, and some home health care after current assets are exhausted. Medicaid is a federal program that is administered by the state. The federal government provides most of the money to provide benefits, the state provides the administrative services necessary to run the program. Any state-mandated benefits under Medicaid not required by the federal government must be paid for with state funding. Retention Question 6 How does Medicaid differ from Medicare? a. Medicaid is optional coverage for Medicare beneficiaries b. Medicaid is only for persons over age 21 and under age 65 c. Medicaid is health insurance for persons who do not have access to group health insurance d. Medicaid is a federal-state partnership providing health care benefits for low income persons 11.13 Long-Term Care Insurance Overview Long-Term Care Insurance Defined Long-Term Care insurance includes any individual policy, group policy or rider that is advertised, marketed, offered, solicited, or designed to provide coverage for no less than 12 consecutive months, also referred to as Extended Care. It may cover diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. The Long-Term Care Need National studies indicate that at some point, 40% of people over age 65 will enter a nursing home. The older a person, the greater the possibility he/she will need some kind of long-term care. Medicare provides very limited coverage (skilled nursing) for long-term care. Only certain low income individuals will qualify for assistance through Medicaid. The need for coverage can arise at any age. Types of Contracts Long-term care coverage may be written as any of the following: Riders/Endorsements for Life insurance policies. Hybrid long-term care policies combine the benefits of a life insurance policy with a traditional long-term care contract. This product guarantees long-term care benefits, but will provide a death benefit if no care is needed. Individual Policies (issue ages 18 to 84) are the most common form of LTC being sold today. These policies are regulated by the state and can be customized to meet the insured s needs. Group (Voluntary) Policies: Must be guaranteed renewable. Must be convertible in the event the group policy is terminated for any reason. More economical than individual due to risk pooling and reduced administrative expenses. Voluntary plans do not require mandatory enrollment. 162 A.D.Banker&Company
SENIOR NEEDS Note When a policyholder has cancelled a group Long-Term Care policy, continuation of coverage must be offered to each individual who was covered by the policy. The replacement coverage is individual insurance and will most likely be provided at a higher premium cost. However, the issue age must be the same as that which the person was first insured under the group policy. Elimination Period, Benefit Period, and Benefit Amount Rates are affected by the length of the elimination and benefit periods and the amount of the benefit. The elimination period may be as short as 30 days and as long as one year, with 90 days being the most common. The elimination period is a waiting period after a loss occurs before the benefit period begins. The shorter the elimination period, the higher the premium. The elimination period qualification can be achieved one of two ways: Service Days The elimination period is based on the number of days in which the insured actually received care. For example, if the insured was receiving home care for 4 days a week, only 4 days would count toward the elimination period. Calendar Days The elimination period is based the number of calendar days starting with the first day of the claim. The policy benefit period is the amount of time the benefits will be paid upon a loss, which is not the same as how long the policy is in force. The benefit period begins at the end of the elimination period. The policy will pay benefits for a stated benefit period (such as 2, 5, or 10 years, to age 65, or a lifetime benefit may be selected). The longer the benefit period, the higher the premium. Long-Term Care contracts are usually indemnity plans that are structured to pay a daily benefit amount as specified in the contract, such as $50 - $200 per day. Benefit amounts will vary based on the level of care provided. The contract will pay up to the policy maximum limits. The coverage will continue until the last dollar has been spent. If spent below the daily limit, the benefit will last longer than the stated benefit period; if spent at a faster rate, the benefit will be exhausted prior to the stated benefit period. Either way, the insured will have obtained the full benefit of the policy. Benefit Triggers There are conditions that initiate or trigger the benefits to be paid under a Long-Term Care policy. A Physician Certification stating the patient is chronically ill and in need of long-term care is required. Prior hospitalization is not a requirement to trigger benefits. There are two classifications of benefit triggers: Activities of Daily Living The Activities of Daily Living (ADLs) include bathing, continence, dressing, eating, toileting, and transferring. Insurers may include the definition of ambulating within the definition of transferring, but ambulating by itself cannot be included as an ADL in a tax-qualified LTC policy. If the insured is incapable of performing or requires stand-by assistance with any two or more of these ADLs, the benefits will be triggered. The insured is considered to be functionally impaired. Cognitive Impairment Involves the loss of memory and deductive or abstract reasoning due to an organic mental illness, including Alzheimer s disease and senile dementia. Also includes impairment due to traumatic brain injury, such as a stroke or blunt-force trauma. Impairment in any of the ADLs is not required under this classification. A.D.Banker&Company 163
CHAPTER ELEVEN 11.14 Long-Term Care Coverages and Conditions LTC Facilities and Levels of Care Skilled Nursing Care Continuous 24-hour care provided by or under the supervision of a registered nurse Includes specialized services such as feeding tubes, IV therapy and wound care Provided in a licensed facility, such as a nursing home, that operates according to the laws of the state and requires a licensed physician to be responsible for all patient care Intermediate Care Daily, but not 24-hour care, provided by or under the care of a licensed medical professional Includes care designed to assist with daily medical needs such as dispensing medication Considered in-between care to help patients requiring less than skilled care remain independent and to prevent unnecessary hospitalization Usually provided in a nursing home, intermediate-care unit, or assisted living facility that is licensed by the state and requires a licensed physician to be responsible for all patient care Custodial (Non-skilled) Care Nonmedical care to provide assistance with activities of daily living such as bathing, toileting, eating, dressing, transferring, and continence Does not require the caregiver to be a licensed medical professional May be provided in a licensed facility or in one s own home Comprehensive LTC Coverages Long term care insurance may be issued to provide coverage for institutional care or home and community based care. A comprehensive long term care insurance policy includes coverage for institutional, home and community based care. The following are standard coverages provided by all LTC policies: Home Health Care Noninstitutional care received in one s own home or the home of another under a planned program by an attending physician. Hospice Care Provides pain control, comfort, and counseling for the terminally ill patient. Hospice care also includes a family counseling benefit. Assisted Living A system of housing and limited care that is designed for senior citizens who need some assistance with daily activities but do not require care in a nursing home. Adult Day Care Designed to provide custodial care and supervision on a day care basis outside the home for individuals not requiring 24-hour confinement in a nursing home, but who continue to live at home. Respite Care Provides relief to a primary caregiver and can include a service, such as someone coming to the home while the original caregiver tends to other matters. Most policies will include benefits for temporary institutionalization of the insured during a period of respite. Policy Options Waiver of Premium Most Long-Term Care policies include a waiver of premium benefit that provides for premiums to be waived after the stated elimination period has elapsed and for as long as disability continues. The elimination period in a long-term care policy is a one-time requirement. 164 A.D.Banker&Company
SENIOR NEEDS Inflation Protection (Cost of Living) At the time of application, LTC policies must offer the insured the option of purchasing inflation protection which increases the daily benefit amount in the future, but is not required to be purchased. LTC plans typically offer simple and compound inflation protection. Guaranteed Insurability Option (Future Increase Option) Provides for future periodic increases without proof of insurability, even if the insured is on claim. Future purchase options will increase the premium each time an increase in daily benefit is accepted. Return of Premium This optional benefit provides for a refund of a portion of the premium to a named beneficiary if the insured dies before all benefits pay out. The refund is offset by the amount of any claims paid prior to the insured s death. Nonforfeiture Options This rider will provide paid-up coverage if the insured cancels or lapses the policy due to nonpayment of premium. The nonforfeiture amount will be used to provide future benefits based on the premiums that were paid into the policy. Nonforfeiture options include: Cash Surrender Value Provides a lump sum payment of surrender values accumulated in the policy Reduced Paid-Up Reduces the daily benefit for the duration of the benefit period once premiums have been discontinued Extended Term Provides for the current daily benefit limit to be paid for a reduced number of years based on the discontinuance of premium payments Underwriting Considerations As with any health insurance program, the underwriter for Long-Term Care is most concerned with the possibility of an immediate large claim against the policy. Note Generally an insurance company will not issue a policy and assume a Long-Term Care risk if the prospective insured is impaired in any one of the 6 ADLs or is suffering from a cognitive impairment. Pre-existing Conditions A Long-Term Care policy cannot more restrictively define a pre-existing condition than a condition for which advice or treatment was recommended or received within 6 months of the effective date of coverage. Prohibited Provisions A Long-Term Care policy may not contain a provision that: Cancels, nonrenews, or terminates the policy on the grounds of age or deterioration of the mental or physical health of the insured. A Long-Term Care policy may only be cancelled by the insurer for nonpayment of premium. Establishes a new waiting period when existing coverage is converted or replaced by a new form, except when the insured voluntarily selects an increase in benefits. Provides coverage for only skilled nursing care instead of lower levels of care. Provides for payments of benefits based on standards described as usual and customary or reasonable and customary or words of similar importance (policies must pay actual expenses, up to the dollar limitations of the policy). A.D.Banker&Company 165
CHAPTER ELEVEN A Long-Term Care policy may not place conditions on benefits: Based on prior hospitalizations. For institutional care, if insured received a higher level of institutional care. For home health care after prior institutional care. For noninstitutional care eligibility, other than home health care, on a prior institutional stay of more than 30 days. Retention Question 7 A comprehensive Long-Term Care policy will provide benefits in each of the following settings, EXCEPT: a. Intermediate care nursing facility b. The home of the insured c. Hospice care in a family member s home d. Therapeutic care in a an acute care hospital Retention Question 8 What is the purpose of a respite care benefit in a Long-Term Care policy? a. Gives a primary care giver a break b. Provides care for a person who is terminally ill c. Covers care in an adult day care facility d. Covers the cost of insurance when a person is disabled Retention Question 9 What is the requirement for inflation protection in an LTC policy? a. Inflation protection must be purchased b. Inflation protection cannot be sold to persons over age 75 c. Inflation protection must be offered d. Inflation protection is only available to persons over age 75 11.15 Long-Term Care Minimum Benefit Standards and Exclusions Every Long-Term Care policy must provide a 30-day free look period from the date the policy is delivered. If the applicant is not satisfied, the policy may be returned for a full refund and the policy is void. LTC policies also must contain a renewal provision that is not less favorable to the insured than Guaranteed Renewable. A guaranteed renewable policy requires the insurer to continue to renew, but may increase rates based on the class of insureds, such as a geographic location. The renewal provision must be stated on the first page of the policy. A Long-Term Care policy may be cancelled for nonpayment of premium. An Outline of Coverage must be delivered to an applicant on the initial solicitation and prior to the presentation of the application form. In addition, state laws generally require insurers to provide prospective buyers with an LTC Shoppers no later than the time of application LTC policies that pay on an indemnity basis have a maximum daily benefit. Every LTC policy must include basic policy requirements in the policy provisions. 166 A.D.Banker&Company
SENIOR NEEDS An Extension of Benefits must be provided if institutionalization began while the policy was in force and continues without interruption after termination of the policy. The extension of benefits may be limited to the duration of the benefit period or to the payment of maximum benefits. Long-Term Care Exclusions Acute care (hospitalization) Rest cures Nervous or mental disorders which have no demonstrable organic cause (Alzheimer s disease cannot be excluded) Injury or sickness caused by war or any act of war, declared or undeclared Intentionally self-inflicted injuries Chemical dependency unless it results from the administration of drugs under a physician s prescription and direction Conditions covered under Workers Compensation Injury arising out of committing or attempting to commit a felony Services provided outside the United States 11.16 Replacement of Long-Term Care Policies In recommending the purchase or replacement of any Long-Term Care insurance, an agent must make a reasonable effort to determine its appropriateness. No insurer or agent may unnecessarily replace a policyholder s Long-Term Care insurance policy or replace it with a policy with fewer benefits and a greater premium. All LTC applications must contain questions which request information from the applicant concerning whether the new policy is intended to replace any other Accident, Sickness or Long- Term Care contract. When it is determined that the sale of the policy involves replacement, the agent must provide the purchaser with a Notice Regarding Replacement of Accident and Sickness or Long-Term Care Coverage. 1 copy of the notice is given to the applicant and a signed copy is retained by the insurer. If a policy replaces another Long-Term Care Policy, the replacing insurer must waive any time periods applicable to pre-existing conditions, satisfied under the existing policy. 11.17 Qualified Long-Term Care Insurance Favorable tax treatment is given to some Long-Term Care contracts that meet the eligibility qualifications. These plans must meet the following requirements: The only protection in the contract is for Long-Term Care. The contract does not pay any Medicare reimbursable expenses. The policy must be a guaranteed renewable contract. The policy has no cash value accumulation that may be assigned as collateral, borrowed or surrendered for value. (A policy may include a nonforfeiture option that allows conversion of an LTC policy to paid-up status, or refunds the balance of premiums paid which are in excess of claims paid.) All refunds or dividends must be applied to either reduce premiums or increase benefits. A.D.Banker&Company 167
CHAPTER ELEVEN The policy must comply with the NAIC Model Act which has been adopted by most states. The Act defines qualified long-term care services as required diagnostic, preventive, therapeutic, curing, treating and rehabilitative required for a chronically ill or injured person and the services are provided by a licensed care giver, OR The person is expected to be functionally unable to care for themselves for a period of 90 days due to the loss of 2 functions of daily living, and needing substantial assistance from another person. The Act allows 6 activities of daily living; a qualified policy must contain at least 5 to be considered a qualified Long-Term Care plan receiving the tax benefits set forth by the IRS. Chapter Eleven Lightning Facts 1. Medicare was initially designed to provide limited health care benefits to persons over age 65 and those with End Stage Renal Disease (ESRD). Later amendments extended the benefits to persons who have been receiving Social Security Disability benefits for more than 24 consecutive months, as well as those persons with Lou Gehrig s Disease (or ALS). 11.1 2. Normally, Medicare is a person s primary coverage, but when covered by a group health insurance plan, Medicare can be designated as either primary or secondary coverage to the group health insurance. 11.1 3. A person s first opportunity to enroll in Medicare begins three months prior to the month in which the person turns age 65, and is known as the Initial Enrollment Period. The enrollment period lasts for seven months, ending on the last day of the third month following the month a person turns age 65. 11.1 4. If the Initial Enrollment period expires without enrollment, a person must wait until the annual General Enrollment Period which runs from January 1 to March 31 each year. 11.1 5. When a person s coverage under an employer-sponsored health plan ends, an eight month Special Enrollment Period exists during which the person may enroll in Part B without incurring the 10% premium penalty. 11.1 6. Original Medicare is divided into Parts A and B. Part A is hospital insurance and covers most inpatient hospital expenses except physicians and surgeons. Most Medicare beneficiaries are fully insured under Social Security and pay no premium for Part A. Eligible persons over age 65 who are not fully insured may obtain coverage under Part A by paying a monthly premium. 11.1 7. Part A of Medicare generally covers medically necessary expenses when a beneficiary is admitted to an acute care hospital. There is a Part A per-benefit-period deductible due when a person is admitted to a hospital. A benefit period begins on the day a beneficiary is admitted to the hospital and continues for 60 days after discharge. 11.2 8. Medically necessary covered expenses are paid 100% during hospital days 1-60. Beginning with hospital day 61, through day 90, there is a daily co-pay and Medicare pays 100% of any excess covered expenses. 11.2 9. After 90 days of hospitalization in a benefit period, there is no more benefit from Medicare, except for a person s lifetime reserve days. There is a daily copayment associated with the lifetime reserve days. Once used, they will not be replenished. 11.2 10. Medicare does not pay for the first three units of blood administered to a person in a calendar year. Unless replaced through third-party donation, any charge for the first three units of blood per year is payable to the hospital. 11.2 11. Under Part A, if a person has been hospitalized for at least three consecutive days, claims can be paid for certain nonhospital expenses. Hospice benefits cover pain relief and support services to the terminally ill and their families. 11.2 168 A.D.Banker&Company