Module 6: Private LTC Insurance: Features and Benefits

1. Module 6: Private LTC Insurance: Features and Benefits

2. 2 Features and Benefits Covered Services Benefit amounts Inflation protection Nonforfeiture provisions Elimination period (deductible) Other coverage options Consumer protection features This session provides an overview with key terms and features of long-term care (LTC) insurance. Long-term care insurance policies vary in terms of the specific services they will cover and the nature and extent of coverage provided for those services. This session provides an overview with key terms and features of long-term care (LTC) insurance. Long-term care insurance policies vary in terms of the specific services they will cover and the nature and extent of coverage provided for those services.

3. 3 LTC Insurance Once you’ve read one long-term care policy, you’ve read one long-term care policy! Every policy is different. That is what makes this product so complicated. Companies are still experimenting, looking for the best way to design & market these plans. That makes it almost impossible to give you a set of hard & fast shopping guidelines. But we can talk about some of the policy features and options involved when considering LTC insurance. Every policy is different. That is what makes this product so complicated. Companies are still experimenting, looking for the best way to design & market these plans. That makes it almost impossible to give you a set of hard & fast shopping guidelines. But we can talk about some of the policy features and options involved when considering LTC insurance.

4. 4 Covered Services “Facility Care Only” or “Home Health Care Only” or “Comprehensive” policy Comprehensive policy includes: Nursing home Assisted living Home care Adult day care Respite care Hospice care Supportive services Most people (70 percent) buy comprehensive care policies, which cover both facility care and care at home or in the community. Some people though prefer “facility care only” coverage because it is less expensive. “Facility care only” coverage covers the most catastrophic of LTC costs – care in a nursing home. Today’s facility care policies also include coverage for nursing home and assisted living facility care. Older people or those with family members who can provide care at home are more likely to buy “facility care only” policies. Most people (70 percent) buy comprehensive care policies, which cover both facility care and care at home or in the community. Some people though prefer “facility care only” coverage because it is less expensive. “Facility care only” coverage covers the most catastrophic of LTC costs – care in a nursing home. Today’s facility care policies also include coverage for nursing home and assisted living facility care. Older people or those with family members who can provide care at home are more likely to buy “facility care only” policies.

5. 5 Facility Care Nursing home Assisted living facility Hospice care facility In Texas a definition of such a home or facility may not be more restrictive than one requiring that it be operated pursuant to state and federal law. Alternate care facility Different types of facilities are covered. The nursing home benefit is not just limited to a skilled nursing facility (SNF) or a Medicare-certified facility. All levels and types of nursing homes are covered. In Texas, a definition of such a home or facility may not be more restrictive than one requiring that it be operated pursuant to state and federal law. Assisted living facility is a general term describing a broad range of care facilities that combine care and residential living. These facilities are generally more “independent” than nursing home care. Residents may have their own room or apartment, but receive supportive and personal care services from the facility. Many policies today cover an alternate care facility which is a facility that the policyholder, the policyholder’s physician, and the insurer agree will meet the needs of the policyholder. This is important because there is no way to know what type of facility will develop in the future. Different types of facilities are covered. The nursing home benefit is not just limited to a skilled nursing facility (SNF) or a Medicare-certified facility. All levels and types of nursing homes are covered. In Texas, a definition of such a home or facility may not be more restrictive than one requiring that it be operated pursuant to state and federal law. Assisted living facility is a general term describing a broad range of care facilities that combine care and residential living. These facilities are generally more “independent” than nursing home care. Residents may have their own room or apartment, but receive supportive and personal care services from the facility. Many policies today cover an alternate care facility which is a facility that the policyholder, the policyholder’s physician, and the insurer agree will meet the needs of the policyholder. This is important because there is no way to know what type of facility will develop in the future.

6. 6 Home Health Care Adult day care services Skilled nursing care Physical, speech, occupational, respiratory and other therapies Personal care (home health aide) Hospice care Respite care May include, homemaker services (meal preparation, housekeeping) Many services provided at home or in the community are covered, including all the services listed above. “Homemaker” services are paid for only if they are provided in conjunction with personal care needs. Adult day health care is covered, but a senior center that is only focused on “social events” and does not have the staff or training to meet personal care needs would not qualify. It is important to review the policy language to understand who can provide care at home. Allowing care to be provided by independent providers helps enhance consumers’ access to care at home, but it is also important for them to be sure that the provider coming into their home is trustworthy and qualified by training and experience to provide the care they need. When choosing a policy, it is important to consider the following: assessing who can provide care at home, what types of services in the policy help support informal (family) caregivers, and where hospice and respite care can be provided. While most people prefer care at home, being able to receive temporary respite care in a facility might be a less costly option for some families. Many services provided at home or in the community are covered, including all the services listed above. “Homemaker” services are paid for only if they are provided in conjunction with personal care needs. Adult day health care is covered, but a senior center that is only focused on “social events” and does not have the staff or training to meet personal care needs would not qualify. It is important to review the policy language to understand who can provide care at home. Allowing care to be provided by independent providers helps enhance consumers’ access to care at home, but it is also important for them to be sure that the provider coming into their home is trustworthy and qualified by training and experience to provide the care they need. When choosing a policy, it is important to consider the following: assessing who can provide care at home, what types of services in the policy help support informal (family) caregivers, and where hospice and respite care can be provided. While most people prefer care at home, being able to receive temporary respite care in a facility might be a less costly option for some families.

7. 7 Supportive Services Can include some or all of the following: Training for informal caregivers to assist with personal care Equipment and devices Home modification Medical transportation ‘Meals on Wheels’ Many policies pay for a variety of services or devices to support the needs of people with disabilities living at home. Examples of minor home modifications include wheelchair ramp or in-home monitoring device (e.g., “lifeline alert”). Most policies provide training to family members, friends, or other informal caregivers on how to safely and appropriately provide personal care, if requested. Many policies pay for a variety of services or devices to support the needs of people with disabilities living at home. Examples of minor home modifications include wheelchair ramp or in-home monitoring device (e.g., “lifeline alert”). Most policies provide training to family members, friends, or other informal caregivers on how to safely and appropriately provide personal care, if requested.

8. 8 Daily Coverage Amounts Choose daily benefit amount for facility care Choose home care benefit amount Can be specific dollar amount or a percentage of the facility care amount (e.g., 50%, 75% or 100%) Some policies automatically set home care and assisted living facility benefit the same as facility care Older policies may pay non-nursing home care at 50% of nursing home amount In the market, there is a variety of choice regarding the amount of daily coverage. Individuals can choose the amount of the nursing home (facility care) daily benefit. Nursing home costs vary based on geographic location. Individuals should have a sense of the care costs in their area, so they can choose a benefit amount that makes sense for them. Choosing an amount slightly below average care costs can help make coverage more affordable. The home care daily benefit amount is generally pre-defined. Individuals may be able to select a preferred amount or percent. Older policies may have fewer options and are more likely to pay for home care at a lower benefit amount than nursing home care. However, this may not be much of an issue since home care, on average, costs less than care in a facility. If an individual wants a policy that will pay for 24-hour home care (if required), then a policy that pays a higher home care amount is needed. The typical policy bought in 2000 paid $109 per day for nursing home care, although over one-third of people buying coverage had $120 per day or more. In the market, there is a variety of choice regarding the amount of daily coverage. Individuals can choose the amount of the nursing home (facility care) daily benefit. Nursing home costs vary based on geographic location. Individuals should have a sense of the care costs in their area, so they can choose a benefit amount that makes sense for them. Choosing an amount slightly below average care costs can help make coverage more affordable. The home care daily benefit amount is generally pre-defined. Individuals may be able to select a preferred amount or percent. Older policies may have fewer options and are more likely to pay for home care at a lower benefit amount than nursing home care. However, this may not be much of an issue since home care, on average, costs less than care in a facility. If an individual wants a policy that will pay for 24-hour home care (if required), then a policy that pays a higher home care amount is needed. The typical policy bought in 2000 paid $109 per day for nursing home care, although over one-third of people buying coverage had $120 per day or more.

9. 9 Variations – Weekly or Monthly Benefit Amount Some policies have weekly or monthly maximums More flexibility to cover high expenses on days when no family care is available This example shows that having a weekly or monthly maximum provides more dollars overall (that can be used to pay for care) than a daily benefit limit. This is important because most people who receive care at home do not receive the same amount of care each day. Some people receive more care on days when there are no family members to help and maybe less care on weekends. Some people may need a more costly visit (e.g. registered nurse visit), but maybe only once a week. On other days, their care needs might be met with a less costly home health aide visit. A weekly or monthly benefit allowance provides flexibility to account for these differences. This example shows that having a weekly or monthly maximum provides more dollars overall (that can be used to pay for care) than a daily benefit limit. This is important because most people who receive care at home do not receive the same amount of care each day. Some people receive more care on days when there are no family members to help and maybe less care on weekends. Some people may need a more costly visit (e.g. registered nurse visit), but maybe only once a week. On other days, their care needs might be met with a less costly home health aide visit. A weekly or monthly benefit allowance provides flexibility to account for these differences.

10. 10 Example Comparison of Policy A Daily Benefit and Policy B Weekly Benefit Scenario: Leo needs 8 hours of home health care on Monday to Friday It costs $80/day On the weekend, he can get care from family Leo’s expenses are 5 x $80 = $400 The following slides illustrate the advantages of having a policy with a weekly home care benefit to cover one’s LTC expenses versus a policy with a daily benefit. Many people who need care receive more care on some days of the week than other days. For example, on the weekends, in this example, Leo gets care from his family. But on the weekdays, he needs care 8 hours per day. The following slides illustrate the advantages of having a policy with a weekly home care benefit to cover one’s LTC expenses versus a policy with a daily benefit. Many people who need care receive more care on some days of the week than other days. For example, on the weekends, in this example, Leo gets care from his family. But on the weekdays, he needs care 8 hours per day.

11. 11 Example (continued) Policy A Daily Benefit Policy A pays home care expenses up to $60/day Policy A pays Leo $300 for the week of care ($60 x 5 days) He has an additional $100 of expenses that the policy will not cover Policy B Weekly Benefit Policy B pays home care expenses up to weekly maximum of $420 ($60/day x 7 days/week) Policy B reimburses all of Leo’s costs of $400 because he has not reached his weekly maximum of $420 The weekly benefit approach does not take into account the fact that Leo does not receive care every day – but pays an amount based on the number of days in the week in which Leo is disabled (i.e., needs help with 2 or more ADLs or has a cognitive impairment). This approach pays him more overall. Leo can then use the additional payment to cover the higher costs of care he incurs on days when family care is not available. The weekly benefit approach does not take into account the fact that Leo does not receive care every day – but pays an amount based on the number of days in the week in which Leo is disabled (i.e., needs help with 2 or more ADLs or has a cognitive impairment). This approach pays him more overall. Leo can then use the additional payment to cover the higher costs of care he incurs on days when family care is not available.

12. 12 Daily Benefit Amount Choices Nursing home choices $50 to $350 per day Other benefit amounts (e.g., home care or assisted living) can be the same or less than nursing home care Consumer preference and affordability are important factors in choosing Consider average costs in your area Many states specify the minimum amount of benefit that can be sold. This ensures that coverage amounts are meaningful based on costs of care. For consumers, choosing a benefit amount is very personal. Consumers should consider the following: cost and affordability of care and willingness to pay for some costs of care on out-of-pocket to keep premiums affordable. Consumers should also keep in mind that home care and assisted living facility care often cost less than nursing home care. However, if 24-hour or skilled care at home is required, costs could be higher. Long-term care insurance does not have to cover all the costs to still be meaningful – it is important for consumers to consider what is important to them. Many states specify the minimum amount of benefit that can be sold. This ensures that coverage amounts are meaningful based on costs of care. For consumers, choosing a benefit amount is very personal. Consumers should consider the following: cost and affordability of care and willingness to pay for some costs of care on out-of-pocket to keep premiums affordable. Consumers should also keep in mind that home care and assisted living facility care often cost less than nursing home care. However, if 24-hour or skilled care at home is required, costs could be higher. Long-term care insurance does not have to cover all the costs to still be meaningful – it is important for consumers to consider what is important to them.

13. 13 Things to Consider Cost of care in your area Cost at specific facilities or providers Family or friends who might help with care Policy with weekly or monthly home care benefit Can be difficult to support 24-hour care needs at home Policy that covers less than the full cost of care to keep premium costs down Consumers should consider several factors in selecting benefit amounts for their coverage. Some people may consider only area costs or “worst case” costs, but there are many other factors that are important. Consumers can generally reduce their benefit amount if they have over bought, but it may be difficult to increase the benefit amount if there are changes in health status. Consumers should consider several factors in selecting benefit amounts for their coverage. Some people may consider only area costs or “worst case” costs, but there are many other factors that are important. Consumers can generally reduce their benefit amount if they have over bought, but it may be difficult to increase the benefit amount if there are changes in health status.

14. 14 Benefit Payment Method Reimbursement – Policy pays 100% of LTC expenses up to a pre-set amount you choose Indemnity – Policy pays a pre-set amount each day you have LTC expenses even if your expenses are less than that Disability – Some policies pay “cash” for each day you are disabled, even if you do not incur any LTC expenses You decide how to spend that money Most policies today use reimbursement approach, which is less costly and more efficient for insured. The policy only pays as much as incurred in expenses – not more. Most indemnity policies only pay flat amount for facility care and do not pay for home care. These policies are intended to cover the “extra charges” beyond room and board. But many reimbursement plans include “extras” in the expenses that can accumulate for reimbursement. The disability model is more expensive (about 40 percent more). It is less critical today than in prior years because policies today now cover a broad range of care settings and provider types. When disability products first emerged in 1980s, that was not the case – so having a cash payment made more sense then than it does today. Still, it is simpler to understand and to administer. It provides advantages to a younger person, because there is more uncertainty regarding what LTC services and providers may exist in the future than today. This approach gives more flexibility to pay for care without everything having to be defined in the policy contract. Most policies today use reimbursement approach, which is less costly and more efficient for insured. The policy only pays as much as incurred in expenses – not more. Most indemnity policies only pay flat amount for facility care and do not pay for home care. These policies are intended to cover the “extra charges” beyond room and board. But many reimbursement plans include “extras” in the expenses that can accumulate for reimbursement. The disability model is more expensive (about 40 percent more). It is less critical today than in prior years because policies today now cover a broad range of care settings and provider types. When disability products first emerged in 1980s, that was not the case – so having a cash payment made more sense then than it does today. Still, it is simpler to understand and to administer. It provides advantages to a younger person, because there is more uncertainty regarding what LTC services and providers may exist in the future than today. This approach gives more flexibility to pay for care without everything having to be defined in the policy contract.

15. 15 Example Marie is in nursing home that costs $120/day Reimbursement policy pays her actual expenses up to $150/day Policy pays $120 for Marie’s nursing home care Indemnity policy pays $150/day Policy pays fixed amount, so pays Marie $150/day Disability policy pays Marie $150 per day Marie decides to move out of the nursing home after 3 days and live with her daughter Marie continues to receive $150 per day from her policy even though she is not incurring any LTC expenses and is receiving care from her family Trainers should use this example to clarify the differences in these policy types. Keep in mind that with all of these policy types, if Marie’s expenses are $170/day, the most that she will get from any of these policies is $150/day. This slide helps explain why the indemnity and disability policy approach costs more than the reimbursement policy – products that use the Indemnity and Disability approach pay out a higher amount on any day when care costs are less than the “full” benefit amount. Trainers should use this example to clarify the differences in these policy types. Keep in mind that with all of these policy types, if Marie’s expenses are $170/day, the most that she will get from any of these policies is $150/day. This slide helps explain why the indemnity and disability policy approach costs more than the reimbursement policy – products that use the Indemnity and Disability approach pay out a higher amount on any day when care costs are less than the “full” benefit amount.

16. 16 Payment Method Example This table summarizes the “net payment” to the consumer with each of these types of policies. The reimbursement policy pays all of Marie’s expenses, but does not pay more than that, so there is no net payment to her. In contrast, the disability model provides Marie with $280 additional cash in excess of the LTC costs she incurs. This is just one example. The net payment will obviously differ if the type and amount of LTC someone receives is different than what is shown here. This table summarizes the “net payment” to the consumer with each of these types of policies. The reimbursement policy pays all of Marie’s expenses, but does not pay more than that, so there is no net payment to her. In contrast, the disability model provides Marie with $280 additional cash in excess of the LTC costs she incurs. This is just one example. The net payment will obviously differ if the type and amount of LTC someone receives is different than what is shown here.

17. 17 Things to Consider Reimbursement approach is most cost-effective (and most common) Indemnity approach gives more additional flexibility to pay for some “extras” that might not otherwise be covered Disability approach gives the most flexibility, but costs about 40% more in premiums Trainers should summarize the pros and cons of each option. Least costly is the reimbursement approach. Most costly is the disability model. Indemnity is in the middle. The flexibility of the disability model is its biggest advantage, but less critical today where policies already cover a wide range of services. Companies that offer the disability model also offer one or both of the other approaches.   Most of what is bought today is the reimbursement approach. Trainers should summarize the pros and cons of each option. Least costly is the reimbursement approach. Most costly is the disability model. Indemnity is in the middle. The flexibility of the disability model is its biggest advantage, but less critical today where policies already cover a wide range of services. Companies that offer the disability model also offer one or both of the other approaches.   Most of what is bought today is the reimbursement approach.

18. 18 Lifetime Coverage Amounts Buyer selects lifetime maximum they prefer Most policies have a “pool of dollars” approach Some older policies count “days of care” Most policies have a single maximum for all covered services Some older policies have separate maximums for facility care vs. home care Some benefits may also have specific limits (e.g., home modification or caregiver training) Most policies in the market today are “pool of dollars” designs that pay up to a dollar maximum. Older policies counted “days of care”. There might be additional benefit limits, not only the overall “lifetime maximum”. Some benefits have specific dollar limits, such as home modification, devices, or caregiver training. Most policies in the market today are “pool of dollars” designs that pay up to a dollar maximum. Older policies counted “days of care”. There might be additional benefit limits, not only the overall “lifetime maximum”. Some benefits have specific dollar limits, such as home modification, devices, or caregiver training.

19. 19 Pool of Dollars Maximum You decide how to use your benefits when you need care Can use all of it for home care or all for nursing home or any combination you prefer Pool of dollars approach lets you stretch how long benefits last Best aspect of this “pool of dollars” is that consumers decide how benefits will be spent (e.g., all on facility care, all on home care, or a combination). Consumers can “stretch” the length of their benefits by receiving care that costs less than the daily maximum or deciding that care is not needed on a daily basis. This allows consumers to be in control of their benefits and how long they last. Some people think a “three-year policy” only lasts for the three years. However, counselors should help consumers understand that it is three years worth of care and that days can accumulate (not consecutively). Furthermore, the limit is an overall dollar amount based on a factor of “three years” not literally limited to three years. Best aspect of this “pool of dollars” is that consumers decide how benefits will be spent (e.g., all on facility care, all on home care, or a combination). Consumers can “stretch” the length of their benefits by receiving care that costs less than the daily maximum or deciding that care is not needed on a daily basis. This allows consumers to be in control of their benefits and how long they last. Some people think a “three-year policy” only lasts for the three years. However, counselors should help consumers understand that it is three years worth of care and that days can accumulate (not consecutively). Furthermore, the limit is an overall dollar amount based on a factor of “three years” not literally limited to three years.

20. 20 How the Pool of Dollars is Calculated Nursing home daily benefit x 365 days per year x number of years selected Examples: $100/day x 365 x 3 years = $109,500 $100/day x 365 x 5 years = $182,500 This example shows how the lifetime maximum is derived based on “years”. In this example, the daily benefit is $100 per day, but shows what happens with other amounts like $200 per day. A few policies have a flat dollar amount (e.g., $150,000, $250,000, or $1,000,000) but most use this “formula” of days multiplied by dollars. This example shows how the lifetime maximum is derived based on “years”. In this example, the daily benefit is $100 per day, but shows what happens with other amounts like $200 per day. A few policies have a flat dollar amount (e.g., $150,000, $250,000, or $1,000,000) but most use this “formula” of days multiplied by dollars.

21. 21 How Long Will Benefits Last? Depends on type, amount and frequency of care you receive Benefits last longer if you do not need care every day or if care costs less than the allowable benefit amount The duration of the benefits depends on type, amount, and frequency of care received. The advantage of the “pool of dollars” design is that consumers can stretch how long benefits last if care is received less often than everyday or costs less than the policy’s daily maximum. The duration of the benefits depends on type, amount, and frequency of care received. The advantage of the “pool of dollars” design is that consumers can stretch how long benefits last if care is received less often than everyday or costs less than the policy’s daily maximum.

22. 22 Example Policy pays: $100 per day nursing home care $100 per day assisted living facility $50 per day home care Lasts 3 years if you receive all your care in nursing home every day at $100/day Lasts 3 years if you receive all your care in assisted living facility every day at $100/day Lasts 6 years if you receive all your care at home every day at $50/day This example illustrates the flexibility found in “pool of dollars” policies. The duration of the benefits depends upon care costs and frequency of care. Benefits will never last shorter than the “multiplier amount.” Thus, a “three-year plan” will never last less than three-years worth of days of care. But, it can often last longer. This is important to understand because some consumers will be concerned, often asking, “what if I use up all $109,500 of my coverage in one year?” The answer is you can’t! The most the policy will pay in one year in this example is $100/day x 365 days or $36,500 This example illustrates the flexibility found in “pool of dollars” policies. The duration of the benefits depends upon care costs and frequency of care. Benefits will never last shorter than the “multiplier amount.” Thus, a “three-year plan” will never last less than three-years worth of days of care. But, it can often last longer. This is important to understand because some consumers will be concerned, often asking, “what if I use up all $109,500 of my coverage in one year?” The answer is you can’t! The most the policy will pay in one year in this example is $100/day x 365 days or $36,500

23. 23 Lifetime/Unlimited Coverage Most policies offer “unlimited” or lifetime coverage option Benefits last as long as you need care No overall dollar limit, but daily limits still apply Many people like “lifetime coverage” since they cannot “run out” of benefits if they need care for a long time Costs more About one-third of people buying LTC insurance today buy “unlimited” coverage that lasts as long as they continue to need care. This type of policy is more expensive, but it is appropriate for people who anticipate never having care needs that extend beyond their benefit amount. This type of policy may be appropriate for younger consumers who might need LTC longer, especially if they begin to need care when they are still young. However, consider a consumer who bought “three-years worth of coverage”. If care lasted for four years, this person had coverage for 75 percent of his or her care needs. About one-third of people buying LTC insurance today buy “unlimited” coverage that lasts as long as they continue to need care. This type of policy is more expensive, but it is appropriate for people who anticipate never having care needs that extend beyond their benefit amount. This type of policy may be appropriate for younger consumers who might need LTC longer, especially if they begin to need care when they are still young. However, consider a consumer who bought “three-years worth of coverage”. If care lasted for four years, this person had coverage for 75 percent of his or her care needs.

24. 24 Inflation Protection Important for benefits to keep pace with rising costs Nationally, LTC costs are rising at 4% per year All LTC plans must offer 5% compound inflation protection Applicant must sign a statement rejecting it if he/she does not want it Inflation protection is one of the most important topics within LTC insurance. People have strong and differing opinions about inflation protection. It is important that consumers are aware of the need to think about and plan for inflation. Policies in the market provide choice for how to include inflation protection. Inflation protection is one of the most important topics within LTC insurance. People have strong and differing opinions about inflation protection. It is important that consumers are aware of the need to think about and plan for inflation. Policies in the market provide choice for how to include inflation protection.

25. 25 Inflation Protection (continued) Employer groups – inflation protection must be offered to the group policyholder but does not have to offered to each applicant Association groups – inflation protection must be offered to each members Upon rejection of the mandated offer of inflation protection, an insurer may offer other forms of inflation protection The group policyholder can choose to have inflation protection offered to their employees as an optional benefit or mandated benefit or not at all. Association group policyholder do not have the same choice as employer group policyholders. The insurer is required by rule to offer inflation protection as an option to all members of the association and must have a signed rejection if the member does not want inflation protection. Not until the insurer has received a rejection of the mandated offer of compound inflation protection can they offer alternative forms of inflation protection. In Texas companies are allowed to advertise other forms of inflation protection but must clear explain that the compound must be rejected in order to purchase the alternative form. The group policyholder can choose to have inflation protection offered to their employees as an optional benefit or mandated benefit or not at all. Association group policyholder do not have the same choice as employer group policyholders. The insurer is required by rule to offer inflation protection as an option to all members of the association and must have a signed rejection if the member does not want inflation protection. Not until the insurer has received a rejection of the mandated offer of compound inflation protection can they offer alternative forms of inflation protection. In Texas companies are allowed to advertise other forms of inflation protection but must clear explain that the compound must be rejected in order to purchase the alternative form.

26. 26 Types of Inflation Protection Compound annual increases, (premium based on issue age) Simple annual increases, (premium based on issue age) (optional form available upon rejection of compound) Periodic buy-up, (premium based on attained age) (optional form) This slide summarizes the major approaches to inflation protection. It is important to help consumers understand that an individual does not pay more in premiums to obtain the annual benefit increases. This is one of the major differences between “automatic” inflation protection and “periodic” buy ups. This does not mean that the premium cost overall for coverage is guaranteed never to change. (see premium information). But with these inflation options, a premium change would not be made as a result of the benefits increasing each year. That is already built-into the cost of these options. “Automatic” inflation protection options are more expensive initially than “periodic” options. (issue age versus attained age) This slide summarizes the major approaches to inflation protection. It is important to help consumers understand that an individual does not pay more in premiums to obtain the annual benefit increases. This is one of the major differences between “automatic” inflation protection and “periodic” buy ups. This does not mean that the premium cost overall for coverage is guaranteed never to change. (see premium information). But with these inflation options, a premium change would not be made as a result of the benefits increasing each year. That is already built-into the cost of these options. “Automatic” inflation protection options are more expensive initially than “periodic” options. (issue age versus attained age)

27. 27 Compound Inflation Protection Costs the most initially, but provides best hedge against inflation Can be more affordable in the long-run Policies offer 5% annual coverage increase Increases continue throughout the interval of coverage All coverage amounts increase (daily amounts and lifetime amounts) Many people prefer the predictability of this approach. This approach also keeps pace with inflation better than other options, however it is more expensive. Younger people are much more likely to buy a policy with compound inflation protection than older buyers. An advantage of this approach is that benefit increases continue while receiving benefits even though consumers are not required to pay premiums while receiving benefits. Many people prefer the predictability of this approach. This approach also keeps pace with inflation better than other options, however it is more expensive. Younger people are much more likely to buy a policy with compound inflation protection than older buyers. An advantage of this approach is that benefit increases continue while receiving benefits even though consumers are not required to pay premiums while receiving benefits.

28. 28 Example: Compound Inflation Year Daily Benefit Lifetime Maximum* 1 $130 $ 142,350 5 $158 $ 173,010 10 $202 $ 221,190 15 $258 $ 282,510 20 $329 $ 360,255 Rule of Thumb: benefits almost double every 15 years *Based on a 3-year policy, assuming no benefits have been paid out This example illustrates compound inflation. The increases each year are based on the prior year’s amounts. With five percent compound inflation, it takes about 15 years for benefit amounts to “double.” For example, if an individual buys a policy paying $100/day today, in 15 years, the benefit will grow to about $200/day. This example illustrates compound inflation. The increases each year are based on the prior year’s amounts. With five percent compound inflation, it takes about 15 years for benefit amounts to “double.” For example, if an individual buys a policy paying $100/day today, in 15 years, the benefit will grow to about $200/day.

29. 29 Simple Inflation Protection Similar to compound, except increase is the same each year – flat dollar amount 5% simply means 5% of the original benefit amount Benefits increase but premium does not change as a result Simple inflation is similar to compound inflation except for the rate and amount of the annual increase. Simple inflation means it is a fixed dollar amount increase each year. It is based on five percent of the original benefit amount. So, if an individual buys a $100/day policy, a five percent simple increase only adds $5 of benefit each year. Simple inflation is similar to compound inflation except for the rate and amount of the annual increase. Simple inflation means it is a fixed dollar amount increase each year. It is based on five percent of the original benefit amount. So, if an individual buys a $100/day policy, a five percent simple increase only adds $5 of benefit each year.

30. 30 Simple Inflation Protection (continued) Continues for life of the policy (even while receiving benefits) Costs less than compound because benefits increase more slowly In the long-run, does not keep pace with inflation as well as compound inflation protection Simple inflation increases are reasonably close to the compound inflation increases initially, but does not keep pace with inflation in the long run. Think about how costs increase – it is a percent of the prior year’s costs. Simple inflation increases are reasonably close to the compound inflation increases initially, but does not keep pace with inflation in the long run. Think about how costs increase – it is a percent of the prior year’s costs.

31. 31 Example: Simple Inflation Year Daily Benefit Lifetime Maximum* 1 $130 $142,350 5 $156 $170,820 10 $188 $205,860 15 $221 $241,995 20 $253 $277,035 *Based on a 3-year policy, assuming no benefits have been paid out Trainers should walk through illustration and show that the amount of the increase each year is exactly the same as the year before. Daily benefit amount increases $6.5 per year (Simple 5%) Trainers should walk through illustration and show that the amount of the increase each year is exactly the same as the year before. Daily benefit amount increases $6.5 per year (Simple 5%)

32. 32 Comparison – Daily Benefits Compound Inflation Year 1 = $130 Year 5 = $158 Year 10 = $202 Year 15 = $258 Year 20 = $329 Simple Inflation Year 1 = $130 Year 5 = $156 Year 10 = $188 Year 15 = $221 Year 20 = $253 This slide compares the two methods side-by-side and shows how each method keep pace with inflation. Initially, compound inflation and simple inflation start out close and diverge in later years. This slide compares the two methods side-by-side and shows how each method keep pace with inflation. Initially, compound inflation and simple inflation start out close and diverge in later years.

33. 33 How FPO Works Able to buy additional coverage amounts every few years, without evidence of good health Premium for the additional coverage is based on your age at the time you accept the added benefits Additional amount may be based on consumer price index (CPI) or 5% annual increase from the last offer Approaches vary as to the mechanics of the FPO, but the above describes the most typical approach. Approaches vary as to the mechanics of the FPO, but the above describes the most typical approach.

34. 34 How FPO Works (continued) Offers may continue while you receive benefits, but usually they end once you go on claim You can usually “skip” some of the offers and still take others Offers may also end if you decline two of them Insurer offers to increase coverage usually end if an individual starts receiving benefits. A few insurers continue the increases even if an individual is “on claim”. This is advantageous because the individual receives the additional coverage for “free” even though premiums are not being paid. However, this approach is more expensive. Insurer offers to increase coverage usually end if an individual starts receiving benefits. A few insurers continue the increases even if an individual is “on claim”. This is advantageous because the individual receives the additional coverage for “free” even though premiums are not being paid. However, this approach is more expensive.

35. 35 How to Choose Inflation Protection This slide summarizes the differences between the two approaches. This slide summarizes the differences between the two approaches.

36. 36 Things to Consider Do not just ignore the issue Compare how the inflation choices work and what they cost Younger people are more likely to want compound inflation protection Older people may consider less expensive inflation approaches Important to be aware of the “pros” and “cons” of each option The slide lists the factors that consumers should consider with regard to inflation protection. It is important to consider inflation protection – it should not be dismissed as too complicated or expensive. Inflation will happen – so plan for it. Inflation increases in LTC are not as high as “medical care.” No one approach is best for everyone. Some people prefer “pay as you go” (FPO) and others prefer the peace of mind of paying more initially but being sure that the inflation increases will continue even while they are receiving benefits (Compound Automatic). The slide lists the factors that consumers should consider with regard to inflation protection. It is important to consider inflation protection – it should not be dismissed as too complicated or expensive. Inflation will happen – so plan for it. Inflation increases in LTC are not as high as “medical care.” No one approach is best for everyone. Some people prefer “pay as you go” (FPO) and others prefer the peace of mind of paying more initially but being sure that the inflation increases will continue even while they are receiving benefits (Compound Automatic).

37. 37 Nonforfeiture Option (NFO) All insurers are required to offer NFO to: the group policyholder (e.g., employer or association) applicants of individual policies Provides continuation of coverage, on limited basis, if you stop paying premiums and let coverage lapse The benefit becomes effective no later than 3-years after the effective date of the rider Most provide coverage equal to 30x the daily benefit amount or 100% of premiums paid (minus claims) at the time of lapse (whichever is greater) NFO is not always well understood option. It adds to cost but provides limited protection. It is a mandated offered. All insurers are required to offer Nonf. to the group policyholder or to the applicant of an individual policy. After you have had this rider for at least 3-years and your policy lapses for non-payment of premium, you can have some coverage available to you on a paid-up basis. Coverage amounts found in this option are only about one-month’s worth of care. There are other provisions that are equally or more important when considering “lapse protection” (e.g., rate history disclosure to determine stable premiums, right to decrease coverage, and contingent nonforfeiture). NFO is not always well understood option. It adds to cost but provides limited protection. It is a mandated offered. All insurers are required to offer Nonf. to the group policyholder or to the applicant of an individual policy. After you have had this rider for at least 3-years and your policy lapses for non-payment of premium, you can have some coverage available to you on a paid-up basis. Coverage amounts found in this option are only about one-month’s worth of care. There are other provisions that are equally or more important when considering “lapse protection” (e.g., rate history disclosure to determine stable premiums, right to decrease coverage, and contingent nonforfeiture).

38. 38 Contingent Nonforfeiture Included at no charge in newer policies Provides coverage on limited basis if you drop coverage due to a “substantial rate increase” you decide you cannot afford and/or lapse policy Policy defines “substantial increase” based on age Provide coverage equal to 30x the daily benefit amount or 100% of premiums paid (minus claims) at the time of lapse (whichever is greater) All policies sold after July 2002 have a contingent nonf benefit built into the policy. The contingent nonforfeiture option is similar to the NFO, but only “kicks in” if there is a substantial rate increase. Substantial rate increase is defined in the Outline of Coverage and in the Rate Disclosure Form. This benefit is included in a policy at no additional cost. All policies sold after July 2002 have a contingent nonf benefit built into the policy. The contingent nonforfeiture option is similar to the NFO, but only “kicks in” if there is a substantial rate increase. Substantial rate increase is defined in the Outline of Coverage and in the Rate Disclosure Form. This benefit is included in a policy at no additional cost.

39. 39 Comparison

40. 40 Things to Consider How much does NFO add to premium? Does policy have contingent nonforfeiture? How much coverage do these provide? Coverage amounts are limited (about one month’s worth of care) May help with “transition care” but limited Does policy have other protections like the right to decrease coverage anytime? It is important to consider the cost of the NFO relative to its benefits. The coverage is somewhat limited and the cost can be significant. Consumers should also consider whether the policy has other protections if there is a rate increase or if someone becomes unable to maintain their coverage because their financial or life circumstances change. It is important to consider the cost of the NFO relative to its benefits. The coverage is somewhat limited and the cost can be significant. Consumers should also consider whether the policy has other protections if there is a rate increase or if someone becomes unable to maintain their coverage because their financial or life circumstances change.

41. 41 Elimination Period (Deductible) Like a deductible for other insurance Usually satisfied in “days” not “dollars” like your auto deductible Helps keep premiums affordable Completed before benefits begin Policies give choice Options include specific amounts from 0 to 365 days It helps to explain an elimination period by comparing it to a deductible for other insurance. The elimination period is expressed in days not dollars in LTC insurance. Trainers should stress to participants that the purpose of the elimination period is to keep coverage more affordable and more focused on LTC needs. Deductible period does not mean an individual is left without care or support during this time period. It means that benefits do not begin on the day that care is needed. It helps to explain an elimination period by comparing it to a deductible for other insurance. The elimination period is expressed in days not dollars in LTC insurance. Trainers should stress to participants that the purpose of the elimination period is to keep coverage more affordable and more focused on LTC needs. Deductible period does not mean an individual is left without care or support during this time period. It means that benefits do not begin on the day that care is needed.

42. 42 Elimination Period (continued) Number of days before benefits begin Usually days do not have to be consecutive Deductible may be “once per lifetime” or “per episode” Most people choose 0 day, 60 day, or 90 day Many policies do not apply the deductible period to respite or hospice care The marketplace has seen a number of innovations in coverage made in this area. Most elimination periods today are met just once in the policy lifetime. Days can be accumulated. Sometimes days count even if they are not days in which an individual received any care or service, as long as he or she is “disabled” on those days (as defined by the policy). Some benefits can be provided even before meeting the elimination period. Easiest to meet: Once per lifetime; Calendar day; Allow days to accumulate over time (not consecutively); Count any day on which you have a covered expense, regardless of the amount; and Count days when other insurance or Medicare may pay. The marketplace has seen a number of innovations in coverage made in this area. Most elimination periods today are met just once in the policy lifetime. Days can be accumulated. Sometimes days count even if they are not days in which an individual received any care or service, as long as he or she is “disabled” on those days (as defined by the policy). Some benefits can be provided even before meeting the elimination period. Easiest to meet: Once per lifetime; Calendar day; Allow days to accumulate over time (not consecutively); Count any day on which you have a covered expense, regardless of the amount; and Count days when other insurance or Medicare may pay.

43. 43 Service Day vs. Calendar Day Service Day – counts any day on which you receive a covered service Calendar Day – counts any day on which you are disabled (need help with ADLs or have cognitive loss) even if you do not receive any paid service or care May have little or no out-of-pocket expenses with “calendar day” approach Some out-of-pocket expenses with “service day” approach but amount hard to predict It is important to help consumers understand the difference between calendar day and service day because it may result in little or no out-of-pocket expense during the elimination period with calendar day approach. Service day only counts days in which a covered service is received. A covered service is included in the policy (e.g., nursing home or home care day). A hospital stay is not covered, thus days spent in the hospital do not count as service days. A calendar day is any day an individual is disabled according to the policy definition (e.g., need help with 2 or more ADLs or have a cognitive impairment). It is important to help consumers understand the difference between calendar day and service day because it may result in little or no out-of-pocket expense during the elimination period with calendar day approach. Service day only counts days in which a covered service is received. A covered service is included in the policy (e.g., nursing home or home care day). A hospital stay is not covered, thus days spent in the hospital do not count as service days. A calendar day is any day an individual is disabled according to the policy definition (e.g., need help with 2 or more ADLs or have a cognitive impairment).

44. 44 Expenses During the Deductible Expense you can plan for, but difficult to predict amount Out-of-pocket expense depends on many factors Might only spend $40/day on home health aide (90 days x $40 = $3,600) Or might need nursing home care at $100/day (90 days x $100 = $9,000) Medicare or other insurance might pay some of these expenses, but only if all the conditions for payment are met Some people have concerns about having a deductible period, but it makes coverage more affordable. It is a common misperception to think that an individual will have the maximum out-of-pocket costs during the elimination period. Most people assume their costs during the elimination period will be their nursing home amount x 90 days (e.g., $100/day x 90 = $9000). It is more typical for people to be at home when they begin to need care and care costs are less. For example, home care visits of $50/day counts toward the elimination period. Thus, costs could be half of what was anticipated during the elimination period. Days in which Medicare or other insurance pays still count toward satisfying the elimination period and reduces out-of-pocket costs Some people have concerns about having a deductible period, but it makes coverage more affordable. It is a common misperception to think that an individual will have the maximum out-of-pocket costs during the elimination period. Most people assume their costs during the elimination period will be their nursing home amount x 90 days (e.g., $100/day x 90 = $9000). It is more typical for people to be at home when they begin to need care and care costs are less. For example, home care visits of $50/day counts toward the elimination period. Thus, costs could be half of what was anticipated during the elimination period. Days in which Medicare or other insurance pays still count toward satisfying the elimination period and reduces out-of-pocket costs

45. 45 Things to Consider Longer deductible provides premium savings How do you feel about paying some initial costs of care on your own? Does having a longer deductible allow you to afford more coverage on some other important feature? What amount of initial expense can you afford? How “easy” is it to satisfy the deductible? What services do not require a deductible be met? With regard to the deductible, there is no one right or wrong choice. Consumers should take into account their preferences and their ability to pay. There are different preferences about “pay more up-front” in premium to save out-of-pocket costs later and vice versa. Consumers should review the contract terms in order to determine how “easy” it is to satisfy the elimination period. There are many variations in how to satisfy the elimination period. With regard to the deductible, there is no one right or wrong choice. Consumers should take into account their preferences and their ability to pay. There are different preferences about “pay more up-front” in premium to save out-of-pocket costs later and vice versa. Consumers should review the contract terms in order to determine how “easy” it is to satisfy the elimination period. There are many variations in how to satisfy the elimination period.

46. 46 Other Typical Coverage Features Bed Reservation Caregiver Training Hospice Care Respite Care Caregiver Training Waiver of Premium Restoration of Benefits Alternate Care Companies offer various features to make their policies more attractive than the competition and the variety can be confusing! But most of these features/benefits are included in the policy without an additional charge. The problem is each company has its own labels and definitions for each one. That is why you must read the policy carefully to be sure of what you’re buying. For most policies, individuals may stop paying premiums once they start to receive benefits. This is called “premium waiver.” Some policies begin premium waiver on the first day in which benefits are received. Other policies begin premium waiver after having received benefits for a certain number of days (e.g., 90 days). Restoration of Benefits. This feature “restores” the total coverage amount or lifetime maximum to its full original amount even if benefits have been used, as long as the insured goes 180 days without any disability or care, following the use of benefits. Since it is unlikely that someone who has used a significant amount of their benefits will recover to the point of being independent for 180 days and then subsequently require care, this benefit provision provides illusory coverage. Alternate Care. Allows the policy to pay expenses not typically covered by the policy for alternative care or services that may emerge in the future or be unique to a location or situation. This provision helps coverage purchased today keep pace with a rapidly changing LTC service delivery setting. Services that did not exist today and are not written into the policy can still, on a case-by-case basis, be paid for under the policy in the future. The insurer does not “impose” alternate care on individuals – it is an optional feature provided if you, your physician, and the company agreed upon. Companies offer various features to make their policies more attractive than the competition and the variety can be confusing! But most of these features/benefits are included in the policy without an additional charge. The problem is each company has its own labels and definitions for each one. That is why you must read the policy carefully to be sure of what you’re buying. For most policies, individuals may stop paying premiums once they start to receive benefits. This is called “premium waiver.” Some policies begin premium waiver on the first day in which benefits are received. Other policies begin premium waiver after having received benefits for a certain number of days (e.g., 90 days). Restoration of Benefits. This feature “restores” the total coverage amount or lifetime maximum to its full original amount even if benefits have been used, as long as the insured goes 180 days without any disability or care, following the use of benefits. Since it is unlikely that someone who has used a significant amount of their benefits will recover to the point of being independent for 180 days and then subsequently require care, this benefit provision provides illusory coverage. Alternate Care. Allows the policy to pay expenses not typically covered by the policy for alternative care or services that may emerge in the future or be unique to a location or situation. This provision helps coverage purchased today keep pace with a rapidly changing LTC service delivery setting. Services that did not exist today and are not written into the policy can still, on a case-by-case basis, be paid for under the policy in the future. The insurer does not “impose” alternate care on individuals – it is an optional feature provided if you, your physician, and the company agreed upon.

47. 47 Other Coverage Options (Additional Premium Charge) Refund of premium rider Shared care rider Paid-up survivor rider Dual premium waiver Refund of premium is an optional benefit. This option is often for younger buyers or in the employer market. This option costs more but it is ideal for people worried about losing the value of all their premiums if they end up never needing LTC. Shared care – if one spouse uses up their benefits they can tap in on their spouses benefits. Paid-up survivor – if one spouse dies and the other pays premiums for 10 years then they will have a paid-up policy. This rider can work several different ways. Some policies require both spouses to live for the full 10 years without any claims before one spouse dies before the policy is paid up. Dual premium waiver – if one spouse is receiving benefits both spouses can have their premiums waived. Refund of premium is an optional benefit. This option is often for younger buyers or in the employer market. This option costs more but it is ideal for people worried about losing the value of all their premiums if they end up never needing LTC. Shared care – if one spouse uses up their benefits they can tap in on their spouses benefits. Paid-up survivor – if one spouse dies and the other pays premiums for 10 years then they will have a paid-up policy. This rider can work several different ways. Some policies require both spouses to live for the full 10 years without any claims before one spouse dies before the policy is paid up. Dual premium waiver – if one spouse is receiving benefits both spouses can have their premiums waived.

48. 48 Consumer Protections Guaranteed renewable Free look period (“right to review”) Third-party designee Grace period Added protection against lapse Continuation/conversion for group policy Guaranteed renewable – insurer cannot change the coverage or refuse to renew the coverage for other than nonpayment of premiums. Insurer may increase premiums, but only on a class basis. Free look period – a 30-day period to review your policy and return it for any reason for a full refund of any premiums paid. Third-party designee – a benefit which lets you name someone whom the insurance company would notify if your coverage is about to end due to lack of premium payment. This can be a relative friend or professional, such as a lawyer or accountant. Grace period – an individual has up to 65 days after the date that the premium payment is due to make that payment. Coverage cannot be cancelled for non-payment until after the grace period has expired and until after the “third party designee” has also been notified. Added Protection against Lapse (Extended Reinstatement) – if coverage lapses for non-payment of premium because you were “disabled” at the time (e.g., functional loss or cognitive impairment), you can automatically restore coverage if this is done within 5 months of the missed premium due date. Continuation/Conversion – most group policies continue unchanged if an individual leaves the group but wants to maintain his/her coverage and “take it with them.” There is usually no change to the premium or the coverage. Some policies allow “conversion” to the same coverage on an individual basis. Premium paid through a payroll deduction will be switched to a direct bill. A spouse can maintain coverage even if there is a divorce. Guaranteed renewable – insurer cannot change the coverage or refuse to renew the coverage for other than nonpayment of premiums. Insurer may increase premiums, but only on a class basis. Free look period – a 30-day period to review your policy and return it for any reason for a full refund of any premiums paid. Third-party designee – a benefit which lets you name someone whom the insurance company would notify if your coverage is about to end due to lack of premium payment. This can be a relative friend or professional, such as a lawyer or accountant. Grace period – an individual has up to 65 days after the date that the premium payment is due to make that payment. Coverage cannot be cancelled for non-payment until after the grace period has expired and until after the “third party designee” has also been notified. Added Protection against Lapse (Extended Reinstatement) – if coverage lapses for non-payment of premium because you were “disabled” at the time (e.g., functional loss or cognitive impairment), you can automatically restore coverage if this is done within 5 months of the missed premium due date. Continuation/Conversion – most group policies continue unchanged if an individual leaves the group but wants to maintain his/her coverage and “take it with them.” There is usually no change to the premium or the coverage. Some policies allow “conversion” to the same coverage on an individual basis. Premium paid through a payroll deduction will be switched to a direct bill. A spouse can maintain coverage even if there is a divorce.