Insuring Long-term Care Chap 2: History of LTC Products Flashcards
The Beginnings
- Medicare enacted in 1965 - Insurers then start looking for ways to enhance or supplement this coverage
- Nursing home benefits very limited
(1) Only for coverage in skilled nursing facility, if insured needs skilled care and had a prior hospitalization >= 3 days within the last 30 days
(2) Benefits limited to: first 20 days - approved charges; Days 21-100 - charges after a copay - Medicare Supplement Plans - cover additional benefits and copays or deductibles not covered by Medicare
- Generally didn’t focus on nursing home benefits - Supplement plans with nursing home benefits
- Plans often added as riders to Med Suppl plans to cover copays for Days 21-100
- Other plans give benefit extension for Days 101-200
- Eventually other plans expanded benefits (e.g. skilled and intermediate coverage)
First Nursing Home Products
- Early to mid 1980s - first stand alone products offered
- Provided care in all state licensed Nursing Homes; Skilled, intermediate or Custodial Care (some gave reduced benefits for custodial care in the early years) - Benefit Triggers - same as Medicare - medically necessary and prior hospitalization of >= 3 days within the last 30 days
- Some companies took away the 3 days requirement soon after - Benefit Options (insured could often choose):
- Daily Maximum Benefit - usually $20 - $200, in $10 increments. Sometimes paid as indemnity (if triggered, full amount if paid per day) or actual charge (up to max)
- Benefit Period - usually 1 - 5 years
- Elimination Period - 0-100 days - Initial products available to ages 60-79 at time of issue
- Underwriting - answers to health questions on application
- Some policies had additional benefits such as Home Health Care (HHC)
- Inflation of Daily Maximum - some policies had simple interest inflation of maximum (e.g. 5% per year) for a fixed period of time such as 10-20 years
- Initially most policies were conditionally renewable, but guaranteed renewable become the standard quickly
Initial LTC Insurance Regulations
- Regulators had to figure out appropriate standards for initial LTC products
- NAIC created first long-term care insurance model act and model regulation in 1986 - to standardize state regulation of LTC products
- Developed based on input from state insurance regulators, insurers and consumer group representatives - Key Provisions of NAIC Model Act and Regulations (these have evolved over time)
(1) Definition of LTC Insurance
- What is and is not LTC
- Established minimum period of time that LTC policy covers - coverage must not be less than 12 consecutive months
(2) Levels of Care
- Can’t just provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than for lower levels of care
(3) Conditions for Benefit Eligibility
- Can’t be conditioned on prior hospitalization requirement
(4) Policy Renewability
- Either guaranteed renewable (insured always able to renew, through premiums can be changed), or noncancelable (insured always able to renew, and premium schedule can’t change)
- Model Act reviewed and updated frequently - helped evolution of products in the marketplace
(1) Two provisions appearing in late 1980s/early 1990s: Inflation Protection and Nonforfeiture
- Significant debate about whether LTC policies should be mandated to include these provisions
- Benefits add significant cost and greatly limit the market for LTC insurance products
- Agreed that consuers should be able to choose and have option to purchase these benefits
(2) Inflation Protection
- Must offer at least no less favorable than one of the following:
- 5% compounded annual increase on benefit levels
- Guaranteed right to purchase additional benefits periodically (at least 5%)
- Cover a specified percentage of actual/reasonable charges with no specified amount of time
(3) Nonforfeiture Option
- Must be offered at time of purchase
- Minimum offer became Shortened Benefit Period paid-up option
- If insured lapses after 3rd policy anniversary, they get nonforfeiture credit of 100% of sum of all premiums paid (with min. credit of 30 times the daily nursing home benefit at time of lapse)
- Provides paid-up coverage for same benefits, amounts/levels, elimination periods, etc - Benefit period ends when total amount paid equals nonforfeiture credit
Product Evolution
- Products evolved quickly in the 1990s - more and more insurers entered the marketplace
- Sales increased rapidly - Significant Product Evolutions in LTC Market
(1) Home Health Care (HHC) Benefits
- HHC covered without regard to being prior nursing home stay (removed limitation on early policies)
- Usually provided at additional cost via an optional rider
- Benefit maximums generally separate from Nursing Home max (though this quickly changed)
(2) Product Designs
- Many carriers offered Nursing Home (NH) and HHC benefits under one single set of benefit maximums (initially this was not the case)
- Called a “Pool of Benefit” or simply “Pool”
- Usually daily max amounts, though could use weekly or monthly max
- Lifetime max benefit defined as days of care or benefit dolalrs
- Basis of Benefits paid
- Indemnity - daily benefit paid regardless of actual charges, as long as insured gets care
- Actual expense incurred - actual charges paid up to daily max - most common method
- Disability based model - less common - Similar to disability insurance, policy paid a full daily benefit if insured hit certain triggers, regardless of whether they actually got care that day
(3) Other Facilities / Alternate Care
- Coverage for more than just NH - recognizing different types of facilities
- Alternate Facility Care - coverage for lesser facilities if they meet policy definitions and in lieu of NH stay
- Assisted Living Facilities (ALF) - covered in same manner as NH
- Alternate Care covered to account for locations or types of care that may develop in the future
(4) Unlimited Benefit Periods
- Unlimited or limited benefit period instead of 1-5 years
- Quickly became the most frequently chosen benefit period
(5) Benefit Triggers (ADLs and Cognitive Impairment)
a. Medical necessity - initial trigger once policies removed the 3 day prior hospitalization clause
- Must be referred by doctor as medically necessary
- Too subjective
- Insurers decided on two measures: physical/functional measure and cognitive measure
b. Activities of Daily Living (ADLs)
- Bathing, Continence, Dressing, Eating, Toileting, Transferring
- Benefit eligible if needed assistance with usually 2 or 3 of the ADLs
- Variance in the ADLs, number needed to qualify and the definition of “assistance”
c. Cognitive Impariment
- Difficult to define and quantify (e.g. Alzheimer’s difficult to diagnose with certainty)
- Some carriers used triple trigger: Medical Necessity, Assistance X of Y ADLs, or Cognitive Impairment
(6) Expansion of Benefit Availability
- Issue age ranges increased (both young and old)
- Some offered up to age 89 issue age (but often limited benefit periods available at advanced age)
- Ages also pushed down to age 50, and eventually many went down to age 30 or even age 18
(7) Additional Benefits / Offers and Options
- To differentiate themselves in the market
- Most common Additional LTC Benefit Offers
a. Inflation Offers - additional, less costly options than the required compound 5% increases. Most common was 5% simple inflation
b. Return of Premium Riders - premiums returned upon death, death and lapsation, or target duration (10 or 20 years) if coverage not used fully
- Offset by claims paid
- Attractive to younger issue ages
- Some offered increasing percent of premiums returned over time (small portion in early years and up to 80% or 100% after 10 years or later)
c. Shared Care - spouses can share benefits
- May have separate maximums or shared maximums
- Separate max would exist for 2-3 years and then have access to excess benefit pool shared between the spouses
d. Restoration of Benefits - restore full max benefit if member’s claim episode ended for some period of time (90-18 days) without receiving care
e. Survivorship Options - may waive future premiums for a surviving spouse once one spouse died
f. Limited Pay - policy could become paid-up (no future premiums required) after certain number of years
- Targeted to younger individuals
- Often paid for a period of 10 or 20 years before becoming paid-up
- A couple of insurers offered on single pay
Health Insurance Portability and Accountability Act (HIPAA)
- 1996 Congress passed HIPAA - effective Jan 1,1997
- Clarified tax treatment of LTC insurance and benefits (for tax-qualified plans)
- Benefits paid - not consideredtaxable income to policyholders
- Premiums paid - can be included with insured’s medical expenses when filing tax return
- Grandfathered plans - in place prior to Jan 1, 1997 were tax tax-qualified as long as they made no material changes to coverage - Many HIPAA LTC standards were consistent with NAIC Model Act and Regulation
- HIPAA directly references Model in many provisions and requirements - “Chronically ill Individual” definition - key provisions in HIPAA
- Certified by licensed health care practitioner as either:
(1) Unable to perform at least 2 ADLs for at least 90 days (without substantial assistance)
(2) Requiring substantial supervision to protect their health and safety due to cognitive impairment - Third potential benefit trigger - allowed for a level of disability in the case that this measurement of disability may replace ADLs
- To date, this measure hasn’t been developed - Standardized the benefit triggers - tax-qualified policies can only pay benefits to “chronically ill” individuals
- After Jan 1, 1997, most companies only sold tax-qualified LTC plans
- LTC products continued to evolve and innovat in the 2000s
