Your Customized Benefit Selection Process

The following is an abbreviated section from my book The ABC’s of Long-Term Care Insurance – keepin’ it REALLY simple for you, folks!

To simplify the benefit selection process, there are six major choices that impact a premium. Here is each choice and a recommendation.

1a) Daily or Monthly Benefit – Look at the average cost in your area for 8-10 hours of home care (or where you plan to move to when you retire), and decide if you want a plan that provides full coverage or if you are willing to pay part of the cost. If you are planning on self-insuring part of the cost, you can ask for an insurance quote that would pay 2/3 or 80%.

Tip: A monthly benefit is more flexible for home care.

1b) How do you want the benefit paid?

Reimbursement – the actual charge is paid up to the daily or monthly benefit. If you don’t use it all, you don’t lose it. The difference stays in your benefit pool to be used later. To collect benefits, you must provide proof of services from qualified caregivers.

Indemnity – you receive the daily or monthly benefit regardless of what the charge is. You still have to provide proof of services from qualified caregivers to receive benefits.

Cash – you receive a check each month and you can use the money however you need it, which means you can use it to pay informal caregivers like family friends, neighbors or sitters and companions provided by a caregiving agency. You don’t have to account for how you spend it

Pro: Cash can be especially helpful in rural areas when licensed caregivers can be difficult to find. It can also be helpful to pay for new services .

Con: if you hire your own informal caregivers, you will likely be responsible for the employer’s contribution of the caregiver’s Social Security, Medicare and state employment taxes.

Hybrid – For no additional premium, this is a new type of policy that allows you to take 40% of the home care benefit any month you like in cash and use however you need it.

2. Waiting Period (Elimination Period) – Shorter time periods are available, but most people choose a waiting period (deductible) of 90 days for two reasons:

• this is a one-time event in today’s policies no matter how many
times they have a claim;
• they aren’t worried about needing care for three months; they’re
worried about needing care for three years;
• many plans have made this a calendar day waiting period with no
charges required or some have even waived it for home care; or
• they bought the policy at work and 90 days was the only choice
available.

3. Inflation Protection – This is the factor that you choose to make your benefits grow each year.

Tip: BUY IT. Would you buy health insurance that only pays hospital room rates at what they cost today?

Here are common inflation options and how long it takes the benefit to double so you can see how fast they grow:

5% compound 15 years
4% compound 18 years
3% compound 24 years
5% simple 20 years

The cost of nursing home care has grown 5-6% compound in the last 20 years which means it has tripled in that time period.24 Home care and assisted living has grown much slower but the demands of the baby boomers may accelerate the growth rate.

The 5% compound inflation factor that grows until you have used all your benefits is the most desirable of course. Premiums for this benefit have increased dramatically in the last three years. There are still a few solid carriers that haven’t made this type of inflation extremely costly, so if you want it, now is an excellent time to get it.

If you use the lower compound benefits or an inflation benefit based on the Consumer Price Index which will grow also around 3%, just start at a higher monthly benefit since it takes them longer to double.

Important: To get the asset protection equal to benefits paid by your long-term care insurance policy in those states that offer Partnership policies, you have to buy a compound inflation benefit if you are under age 61 when you apply for coverage.

4. Home Health and Community Coverage
This will be difficult for some people to hear but you must have a primary caregiver before this becomes a viable option. If you are younger (30s-50s) and you don’t know if you will have a primary caregiver, include the home care benefit if affordable to provide maximum choice when care is needed.

Note: If you live alone and your state allows it, you may be better off buying a “Facilities-Only” policy with “Cadillac” benefit levels; i.e. a monthly benefit high enough to get into the nicest assisted living facility in the area, 5% compound inflation for life, a longer benefit period, and the like. Not everyone is a candidate for home health benefits. Think about it. Most people can’t afford coverage that will pay 24 hours a day of home care, which would require a daily benefit of $400 a day or more. Someone living alone has to manage medications as well as personal care, plus cook meals and maintain a home.

If you considering an option for little or no home care benefits either for affordability or because you live alone, remember that the policy will still make nursing home care the last resort by providing coverage for the beautiful assisted living facilities that are going up everywhere.

5. Benefit Period/Benefit Maximum – This choice should be made after all of the above choices have been made. This is not how long you can be covered, by the way. You can be covered until you’re 104 if you live that long. It’s how long the policy will pay benefits when you become impaired enough to qualify for benefits. Choices are two, three, four, five, six, ten years and a few companies still offer an unlimited benefit period. Some companies offer a benefit maximum of $100,000, $200,000, $300,000, $400,000, $500,000 or $1,000,000. The length of time is determined by the monthly benefit you choose; e.g. $300,000 ÷ $4500 = 66 months (5.5 years). All will grow with inflation coverage, of course.

The important point here is that you should never sacrifice inflation coverage for a longer benefit period or a larger benefit account. Why? Because if you can’t make up the difference at claim time, you may have to apply for Medicaid and lose your private pay choices sooner rather than later. Even if you bought a Partnership policy, it won’t help you because the asset protection feature is based on how much the policy has paid out when you apply for Medicaid.

To help you with this decision, a major claims study by the Society of Actuaries showed that less than 15% of claimants are using more than four years of benefits. The average duration for all claims is 1.9 years but the average duration for claims that last longer than a year is 3.5 years.*  So buy as many years as you can afford and if it’s only two years, that’s two years of private pay choices that you might not otherwise have. If the benefits aren’t enough, you can apply for Medicaid and a Long-Term Care Partnership policy will protect your assets equal to the benefits paid out.

If you are on the other end of the spectrum economically and want a long or unlimited benefit period, my advice to you is don’t wait. The insurance companies are pricing the longer periods higher so now is the best time to buy the longer periods.

6. Non-Forfeiture – This benefit is something you can do without.

Summary: You can give up the home care as long as assisted living is covered. Do not eliminate inflation coverage. If the benefit is too small at claim time and you can’t make up the difference, you could wind up on Medicaid quickly (or whatever type of public assistance/welfare benefit is available at the time).

*Society of Actuaries LTC Experience Intercompany Study, 1984-2007, Table E-1