Understanding long-term care insurance

11/17/17

By Brad Breeding

If you or a loved one own long-term care insurance (LTCI) it is important to understand how the policy works and what it covers so you will be better equipped to incorporate it into your overall retirement plan. Here is a description of the key components of LTCI:

Type(s) of Care Covered

If you own long-term care insurance (LTCI) or are thinking about purchasing coverage it is important to understand how the policy works and what it covers. Adult children should also be familiar with the details of their parents’ coverage because they will likely be involved with coordinating LTCI benefits when the time comes. By understanding the details of the policy you will be better equipped to get the most out of your coverage when it is needed.

What type of care is covered?

The earliest forms of LTCI (issued more than two decades ago) were considered “nursing home” policies, which covered skilled nursing services received in a nursing facility. Long-term care delivered at home or in an assisted living facility were not covered expenses.

Eventually policies began covering care in assisted living facilities and sometimes at-home care, but often at a discounted amount. For example, the policy might cover care in an assisted living facility at 50 percent of the benefit amount that would be paid for care received in a skilled nursing facility.

Most policies issued within the last five to 10 years are more comprehensive, providing the same amount of coverage regardless of where care is received. These policies may also cover expenses like adult day care and respite care.

LTCI Benefit Amount

The benefit amount is usually a daily or monthly amount, and the total lifetime benefit amount is expressed in years. For example, a policy might provide a daily benefit of $200 for three years. This amounts to a total lifetime benefit of $219,000 ($200 x 365 x 3). This does not mean that the policy must be used within three years, but rather that the policyholder has the equivalent of three years of coverage over their lifetime. However, a policy will not pay more than the stated benefit amount in any given day or month. Therefore, using the example above, the policy would not, for instance, pay out $300 for any one day of coverage.

Inflation Rider

Many policies include an “inflation rider” which increases the benefit amount annually to help ensure that the coverage amount reflects the increased cost of care over time. The formula used to determine the increase can vary from one policy to another. If your policy includes an inflation rider, you should know the current coverage amount, as opposed to the originally stated coverage amount. If this information is not clear, contact the insurance company and ask about the current benefit.

Coverage Elimination Period

Most LTCI policies have an elimination period. This is similar to a deductible, but is measured in days, not dollars. A policyholder chooses the elimination period (from zero to 180+ days) at the time of application. A longer elimination period lowers the premium, and vice versa. A policy’s elimination period can be based on days of care or calendar days. For example, a policy with a 90-day elimination period would specify if that means 90 calendar days (beginning with the first day of care), or 90 days of care. In some cases there could be a substantial difference in time between the two if there is a break in care within the 90-day period. Additionally, a policy could have different elimination periods for different care settings.

If you are thinking about buying coverage and want to keep your premiums lower, or if you want to lower premiums on your existing coverage, consider extending the elimination period. You may decide that you are willing, and able, to pay out of pocket for a certain amount of time but want to cap your exposure for all care beyond that.

Benefit Triggers

Before LTCI coverage will pay benefits, the policyholder must be unable to perform at least two of the six activities of daily living (ADLs): feeding, toileting, dressing, bathing, walking/transferring (i.e., moving from bed to wheelchair), and continence. Some policies may require that the policyholder be unable to perform three ADLs instead of two. Policies may also specify what is required before the policyholder is declared “unable” to perform a certain ADL. Additionally, some policies may include cognitive impairments, such as dementia or Alzheimer’s, as a benefit trigger. In some cases, a policy will not pay benefits unless a doctor certifies that the care is medically necessary.

Benefit Payment Methods

LTCI policies are generally categorized as either expense-incurred (reimbursement) or indemnity (set dollar amount). Under an expense-incurred policy, a policyholder only receives benefits when care is received. The policyholder, or a representative for the policyholder, must submit receipts for services. If it is an approved service, the insurance company will pay the insured or the care provider for the cost of services up to the daily (or monthly) benefit amount.

The less common indemnity plan pays the daily or monthly benefit amount stated in the policy, regardless of the actual cost of services. Once the claim is approved the benefit is paid directly to the policyholder, up to the stated benefit amount, and continues as long as eligible services are being received. The premium for an indemnity policy is typically higher than it would be for comparable coverage under an expense-incurred policy.

Hybrid Policies

An increasingly popular type of long-term care plan is actually a hybrid that combines life insurance (or a deferred annuity) and long-term care insurance. If you meet the benefit triggers, which are typically similar to those described above, then you can tap into the long-term care benefit. If, however, you never require long-term care insurance then your heirs will receive the death benefit. Additionally, if you cancel the policy anytime in between you will receive the cash surrender value at that time.

The appeal of a hybrid policy is that the policyholder (or the heirs) is assured to receive cash back whether he or she uses the long-term care insurance or not. The trade-offs are that a traditional policy will buy more coverage per dollar and a hybrid policy requires premiums to be paid in a lump sum — usually $50,000 or more, or at least within 10 years. When premiums are spread out over 10 years the amount per year will be higher than for a traditional plan since traditional plans spread payments over lifetime.

Those who own a cash value life insurance and are interested in getting long-term care insurance may be able change their existing policy into a hybrid plan without having to pay any additional premiums. This can be particularly beneficial for those who, due to health issues, may not be able to qualify for traditional long-term care insurance because hybrid plans sometimes have more flexible underwriting guidelines. This is particularly true of annuity-based hybrid plans.

For a more detailed explanation of LTCI, request a Long-Term Care Insurance Buyers Guide from your state’s insurance department. To understand how long-term insurance can be applied to living at The Culpeper, contact Helen Burnett, Director of Marketing, at hburnett@theglebe.org or call 540-591-2100.

Brad Breeding is co-founder and president of myLifeSite, a website designed to provide objective information about continuing care retirement communities. A certified financial planner, Brad’s extensive knowledge of the senior living industry, combined with his financial planning background, allows him to provide valuable insights about lifestyle, healthcare, and financial planning considerations for seniors. This article is legally licensed for use.  

 

 


10 Questions to ask a CCRC

09/01/17

If you or a loved one is considering a continuing care retirement community, here are ten of the most important questions you should ask:

10. What is the ratio of independent living residences to assisted living and healthcare residences?

Some CCRCs are mainly independent living communities with a proportionately small number of assisted living or skilled care units available. This is particularly concerning for newer communities, where very few residents require care now but may in the future. The question is whether there will be enough availability in the healthcare center for residents requiring care at that time. On the flip side, some CCRCs evolved out of established nursing care facilities that added a few independent living residences. In this case, you may find proportionately more residents requiring care services than living independently. On average independent living residences represent 60-75 percent of the total residential units.

9. How have your monthly rates changed over the last five years?

This is important to ask for two reasons. First, it gives you an indication of what to expect going forward so you can plan accordingly. Second, it could also be an indication of the community’s financial viability. Average fee increases of 3-4 percent per year are not uncommon in the industry. If you find there have been years when the increase has been substantially more, you should find out why. Be sure you ask what the increases have been each year over the past 3-5 years, as opposed to an average. Averages can sometimes hide larger increases in a given year.

8. What services are included in my monthly fee, and what will cost extra?

When a provider shares with you their monthly rates, be sure to find out what types of services are included, and which are extra. In some cases, you could ultimately spend considerably more than the published rate each month. This is particularly important if you are comparing two communities and one operates à la carte, while the other operates under an all-inclusive model. One example of this would be the number of meals per day included in the monthly rate.

7. What is the level of experience of your management team and board of directors?

An experienced management team is vitally important to maintaining high operating standards and diligent financial management. Ask whether the management team has a track record of managing other CCRCs. Also look for a board of directors that is culturally and professionally diverse. The board should have directors with strong backgrounds in healthcare, hospitality, finance, and real estate. You can learn more about LifeSpire’s management team here.

6. What happens if I run out of money and can’t pay fees?

Most CCRCs, particularly not-for-profit providers and even some for-profits, will do everything possible to help residents stay put and receive services if the resident runs out of money due to no fault of their own. In fact, many providers maintain a financial assistance or endowment fund to help with this effort. Yet, there are some CCRCs that will ask you to vacate your residence if you are no longer able to pay. LifeSpire’s VBH Foundation raises funds to help LifeSpire’s life care residents who outlive their financial resources remain in their homes. In 2016, the VBH Foundation provided more than $1.1 million in benevolence to 59 residents across all four LifeSpire communities.

5. How will my monthly rate be impacted if I require assisted living or skilled nursing care?

There are several different types of residency contracts offered by CCRCs. The key with each one is to understand what happens to your monthly fees if you ultimately require assisted living services or skilled nursing care. All other things being equal, there is generally a trade-off between the amount of the entry fee and monthly fees, and the amount you will ultimately pay if you require care services.

4. Does your published rate for healthcare services include a semi-private or private room?

The published rates for a room in the healthcare center may reflect only semi-private rooms. You may be required to pay the difference in cost for a private room. Some providers only offer private rooms.

3. What are the stipulations for receiving a refund (if the community offers refundable entry fees)?

If you are considering a CCRC that offers partially or fully refundable entry fees, ask if your home or apartment within the community has to be resold before the refund will be paid. Is there a maximum time limit whereby the refund will be paid regardless of whether the residential unit has been resold or not? Also, are you or your heirs required to continue paying the monthly fees during that time period?

2. What information can you provide to help assure me that the level of care provided in your healthcare center is of the highest quality?

Although it could be years before you require assisted living or healthcare services, you want to know that when that day comes, you will receive the best care possible. Ask to take a tour of the healthcare center, and closely observe the facilities and the care team. Does the staff seem happy and attentive to residents? Is the facility clean and without odor? Ask about staff turnover ratios. The industry average for skilled nursing centers is around 40 percent. A low turnover rate generally indicates a happy staff, which translates into better care for residents. If the healthcare center is Medicare certified you can also visit Medicare.gov to find information on complaints, deficiencies, staffing, and more. All of LifeSpire’s communities have received either a 4- or 5-star CMS rating.

1. What information can you provide to help assure me that your community is financially positioned to meet its long-term commitment to residents?

In order to fulfill its long-term obligation to residents, a CCRC must maintain a strong financial standing. A financial professional who is well-versed in the financial operations of CCRCs can help you analyze key financial ratios, such as operating margins and debt service coverage, but a few things to look for initially are a willingness by representatives of the community to share their audited financial statements, positive net worth, strong demand (usually indicated by occupancy ratios above 90 percent), well-kept facilities, and an experienced management team. Also consider whether the community is located in a state that regulates CCRCs. If so, the state may have minimum financial requirements that must be met on a year-to-year basis. Read more about LifeSpire’s current financial standing.

Retirement counselors at The Glebe are available to answer all these questions and any others you may have. Contact them today at 540-591-2100.

 

 

 

Content provided by MyLifeSite.com


Compare us with other CCRCs

Choosing a continuing care retirement community is one of the most important decisions you will ever make, and knowing and comparing your options is an important part of the selection process. “Where you live matters,” a website sponsored by the American Seniors Housing Association, has developed a CCRC visit checklist to help you identify the amenities and services that will best fit your lifestyle in your retirement years. We encourage you to download and print this resource and bring it with you when you visit The Glebe and other CCRCs. We think you’ll find we have everything you need to make your next move your best move!

Schedule an appointment with one of our retirement counselors for a visit today!