Module 7: Private LTC Insurance: Premiums, Underwriting, Claims and Consumer Tips

1
Module 7 Private LTC Insurance Premiums,
Underwriting, Claims and Consumer Tips
2
Premiums Overview

• Premiums are based on coverage you choose and
  your age when you apply
• Designed not to increase
• Rates do not increase based on age or health
• Limited right to change rates on class basis
• Class may refer to age, state, tax status and
  benefit classification (e.g., institution,
  non-institution, comprehensive)

3
Rate Increase History

• Some earlier policies not priced adequately
• Poor underwriting, or overly aggressive
  assumptions about interest rates or lapse rates
  as primary factors
• Some companies have had significant rate
  increases
• Rate increases among the top eight insurers
  (representing about 80 of covered lives) have
  been modest and infrequent1
• 1Changes in Long-Term Care Industry No Cause For
  Alarm. Kiplingers Retirement Report, June 2000.

4
Consumer Protection Rates

• Rate Stability Guidelines NAIC 2000 Model
• Disclose history of rate increases
• Certify adequacy of rates under moderately
  adverse circumstances
• Difficult for insurers to raise rates in future

5
Advising Consumers Rate Increases

• What options does the consumer have (e.g.,
  decrease coverage)?
• How much is the increase and what is the rate
  increase track record of the insurer?
• Before dropping coverage, find out
• Are you still insurable?
• How much new coverage would cost at your current
  age?
• Do not drop coverage until you have an alternative

6
Buying Strategy

• Cannot compare apples to apples when comparing
  LTC policies or rates
• Many reasons for price differences between
  insurers
• Have more confidence in rates if insurer uses
  careful underwriting
• Be wary of multiple rate classes
• Rate increases are possible
• Consider what you can afford today and if there
  is a rate increase in the future

7
Premium Discounts

• Couples discounts
• Helps sell coverage to couples, but also reflects
  lower risk when buyer is married
• From 10 to 25 or more
• Retain discount for life of policy
• Usually when both have policies, but approaches
  vary
• Domestic partners/household discount
• Group discount (5 to 15)

8
Rate Classes

• Many insurers have single rate class
• Some have preferred rate for exceptional health
  (10 to 15 discount)
• Some have substandard rate for people with
  high-risk conditions
• Some insurers use these categories to expand
  access to coverage for people with health
  conditions
• Some insurers use substandard categories to
  make standard rates more competitive

9
Payment Options

• Lifetime payment (until premium waiver)
• Paid up at age 65
• 20-pay
• 10-pay
• 5-pay
• Single pay

10
Things to Consider

• Limited pay options cost more
• Limits exposure to future rate increases once you
  are paid-up
• Not all insurers offer limited pay options
• Some states do not like them because of sizable
  commissions on high premiums

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Factors Impacting Premiums
Pricing structure varies by insurer

• Features with greater impact
• Comprehensive vs. Facility Only
• Home care benefit amount
• Inflation protection
• Lifetime maximum
• Daily benefit amount
• Nonforfeiture

• Features with less impact
• Refund of premium on death
• Elimination Period
• Restoration of benefits
• Spousal benefits

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Impact on Premiums

• May depend on issue age
• Inflation protection has larger impact at younger
  ages
• Changes in daily benefit amount are roughly
  proportional (10 increase in benefit 10
  increase in premium)
• Home care benefit amount (50 vs. 100) has
  significant impact on cost

13
Underwriting

• Criteria, Protocols, and Acceptance Rates

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Purpose of Underwriting

• Keeps insurance affordable and viable
• Designed to accept as many applicants as possible
  without creating unstable risk pool
• Risk pool must reflect morbidity and mortality
  assumptions underlying rates
• Underwriting approach and acceptance rates vary
  by age

15
Underwriting Criteria

• Specific to LTC risks, not acute care
• Functional and cognitive ability more important
  than just medical condition
• Look at combination of factors
• A few conditions automatically exclude

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Typical Uninsurable Conditions

• Current or recent use of LTC services
• Need help with ADLs
• Height and weight outside acceptable ranges
• Have any of the following conditions
• Organic Brain Syndrome, Senility, Dementia, or
  Alzheimers
• Metastatic cancer
• Parkinsons Disease, Muscular Dystrophy, Multiple
  Sclerosis, Myasthenia Gravis, Amyotrophic Lateral
  Sclerosis, multiple strokes or Multiple
  Transcient Ischemic Attacks
• AIDS or AIDS-Related Complex (ARC)

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Differences Across Insurers

• Criteria vary by insurer
• Depend also on how many risk classes insurer
  offers
• Conditions that are often treated differently
• Cancer, diabetes, arthritis, wheelchair use or
  other devices and others

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Underwriting Tools

• Application
• Medical Records or Attending Physician Statement
  (APS)
• Phone History Interview (PHI)
• Face-to-Face Assessment (F2F)
• No medical exam (unless you have no physician
  visits within last 2 years)
• No laboratory tests

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Underwriting Requirements by Age

• Attending Phone
• Physician History Face-
• Age Statement Interview to-Face
• lt65 For specific All For specific
• conditions conditions
• 65-74 All All For specific conditions
• 75 All No All
• Company protocols vary but protocols above are
  typical.

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About the Attending Physician Statement (APS)

• Insurer pays expense of obtaining information
• Average turnaround time is 24 days
• APS used in 78 of applications
• About 75 of policy declines based on information
  from the APS
• Important underwriting tool
• Information in APS often differs from information
  provided on the application

21
About the Phone History Interview (PHI)

• Newer feature, mostly used for ages 65-74
• Takes about 20 minutes, conducted by trained
  nurse
• Confirms and expands on information from the
  application
• Asks about ADLs
• Used by 80 of insurers, but only about 5 of
  declines are based on PHI
• More often used to supplement other information

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About the Face-to-Face (F2F) Interview

• Trained nurse or paramedic, based on structured
  and tested questionnaire
• Interviewer does not make underwriting decisions
  just collects objective information
• Asks about ADLs, medications, medical history
• Includes cognitive test (Delayed Word Recall)
• Mostly used for 75 applicants
• Almost all companies use F2F
• About 12 of declines based on F2F, but it is
  critical in identifying early cognitive loss and
  avoiding costly claims

23
Acceptance Rates

• Vary by age and insurer
• Representative acceptance rates
• lt 65 years 91
• 65-74 years 79
• 75-84 years 64

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Preferred Risks

• Many companies do not differentiate
• Criteria that might make someone preferred risk
  include
• No uninsurable conditions
• No use of mechanical devices
• No help needed with household tasks
• No medical condition with likelihood of
  progression
• No tobacco use in last 1 to 5 years
• Height and weight within preferred range

25
Sub-Standard Risk

• Not all insurers have sub-standard risk
  category
• Substandard might mean coverage issued with
  limitations (e.g., 2 years maximum)
• Or with added premium charge
• Or (less often) both coverage limits and
  additional premium charge

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Sub-Standard Risk (continued)

• Conditions that might be accepted on sub-standard
  basis
• Congestive heart failure, stable and controlled
  with medication
• Angina, post heart attack but stable
• Fibromyalgia
• Seizure disorder, well-controlled
• Lupus, in remission
• Cirrhosis, mild/moderate, controlled on
  medication
• Diabetes, onset less than 35 years, or greater
  than 10 years from first diagnosis
• Malignant lymphoma, five years post-diagnosis

27
Employer Group Market

• Different underwriting methods because of younger
  average age and actively at work population
• Larger employer plans may be guaranteed issue
  for all employees actively at work
• Many employer plans are modified guaranteed
  issue with only 2 to 5 underwriting questions

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Employer Group Market (continued)

• Some employer plans are short form applications
  with 5-10 underwriting questions
• Most employer plans do not use phone history
  interview, attending physician statement, or
  face-to-face for employees
• Underwriting for spouses of employees, retirees,
  and parents generally the same as in the
  individual market

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Claims

• Qualifying for Benefits

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Qualifying for Benefits Benefit Triggers
ADLs Activities of Daily Living Bathing,
Dressing, Eating, Continence, Toileting,
Transferring, (Mobility)
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Plan of Care

• Developed by a Licensed Health Care Practitioner
  (LHCP)
• LHCP physician, any registered nurse, or
  licensed social worker.
• Freedom of choice
• Not put into place unless you agree
• Modified as your needs change

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Claims Process

• Process can vary from company to company
• Usually starts with phone call to insurers claim
  or customer service line
• Provide necessary claims form, medical records
  authorization, and/or plan of care as required by
  insurer/contract provisions.
• You, your spouse, or legal representative can
  file a claim

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Claims Process (continued)

• Insurer gathers information needed to determine
  nature and extent of loss
• Use medical records, information from care
  providers, or in-person assessment
• Evaluate if services and providers are covered
• Determine if deductible has been met
• Process time can vary between 2 to 4 weeks
• Benefit decisions can be appealed

34
Assignment of Benefits

• Can pay benefits to you or your care provider
• Can get help with bills and reimbursement from
  Care Coordinator
• Good idea to review bills for accuracy

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If a Claim is Denied

• Find out why
• Review policy language, definitions, and
  exclusions
• Is the service/provider covered?
• Has deductible been met?
• Do you have the degree of loss required?
• You have the right to get details on why the
  claim was denied, and the right to appeal
• Important to read policy BEFORE you buy so you
  are not surprised to learn service or provider
  you use is NOT covered!

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Most Common Reasons for Claim Denial

• Most common reasons for denial of initial
  requests for benefit are
• Do not meet definition of ADL or cognitive loss
• Administrative reasons (e.g., coverage lapsed)
• Most common reasons for denial of request of
  reimbursement
• Service received is not a covered service
• Duplicate claim
• Claim amount exceeds coverage amounts defined by
  the policy
• Source LTCG claims database. May not be
  representative of industry experience.

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Incontestability

• Policy provision that allows coverage to be
  rescinded or benefits denied based on false
  information on the application
• Within first 2 years, insurer must prove
  misrepresentation and an intent to deceive
• After 2 years, only fraudulent misstatements
  shall be use to rescind the policy
• Caution statement on application alerts
  consumers to this provision

38
Exclusions Limitations

• Circumstance in which policy will not pay
  benefits even if you otherwise might qualify for
  benefits
• Most common exclusions
• War, felony, riot
• Attempted suicide
• No expense is made
• Care in government facility, paid by workers
  comp or similar
• Medicare copays and deductibles (required as
  exclusion in tax qualified plan)

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Exclusions Often Used (but not always)

• Mental/nervous disorders (does not include
  Alzheimers and other biologically based brain
  diseases)
• Alcohol/drugs
• Care outside U.S.
• Care provided by family

40
Mental/Nervous Disorder Exclusion

• Does not exclude Alzheimers or similar disorders
• Meant to exclude paying for psychiatric care when
  there is no ADL or cognitive loss
• Difficult to distinguish between a person with
  cognitive loss or mental/nervous disorder

41
Pre-Existing Condition Exclusion

• Often confused with underwriting, but not the
  same thing
• Pre-existing condition clause allows insurer to
  delay paying benefits if LTC need emerges in
  first 6 months of coverage and is related to a
  pre-existing condition
• Pre-existing condition is a condition for which
  medical advice was given or treatment was
  recommended by, or received from, a physician
  within 6 months before the effective date of
  coverage

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Outline of Coverage
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Outline of Coverage What is it?

• Brief description of policy benefits,
  eligibility, exclusions, and premiums
• This is not the contract
• Follows state-mandated standard format and text
• Designed to help buyers compare policies
• Delivered prior to presenting application

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Whats Included?

• Caution statement
• Policy designation
• Purpose of Outline of Coverage
• Terms under which the policy or certificate may
  be returned and premium refunded
• Medicare supplement insurance disclaimer
• LTC coverage

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Whats Included? (continued)

• Benefits provided by this policy
• Eligibility of benefits
• Limitations and Exclusions
• Pre-existing conditions
• Relationship of cost of care and benefits
• Terms under which the policy or certificate may
  be continued in force and is continued
• Guaranteed renewable/noncancellable
• For group, describe continuation/conversion
• Describe waiver of premium or state there is no
  such provision

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Whats Included? (continued)

• Alzheimers Disease, other organic brain
  disorders
• Premium
• Rider amounts shall be listed separately
• Include statement of policy grace period
• Texas Department of Insurances Consumer Help
  Line
• Denial of application
• Offer of inflation protection

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Whats Included? (continued)

• Offer of nonforfeiture benefit
• Contingent benefit
• Disclosure regarding federal tax treatment of
  LTC insurance
• Additional features
• Indicate if medical underwriting is used
• Describe other important features such as
  unintentional lapse and reinstatement, etc.

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Consumer Tips
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Objectives

• Identify likely candidates for LTC insurance
• Explain considerations before buying
• Review important shopping tips
• Buying LTC insurance
• Selecting an insurance company
• Help consumer determine why they want LTC
  insurance, how they will pay for it
• Address commonly asked questions

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Good Candidate

• Has assets to protect
• Can afford monthly premiums
• Is unable or unwilling to pay for LTC
• Healthy
• Desires independence and control
• Will not qualify for Medicaid

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Unlikely Candidate

• Has few or no assets to protect
• Cannot afford insurance premiums
• Unhealthy
• Meets Medicaid eligibility limits
• Can self-insure
• No one to leave assets to

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Before Buying LTC Insurance

• What is need/motivation for LTC insurance?
• How will LTC insurance be used (supplement
  informal care or total care)?
• Is enough coverage being purchased?
• Research and select appropriate features
• Younger cheaper
• Does it fit in the budget?

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Shopping Tips

• Ask questions
• Comparison shop
• Understand policy and premiums
• Understand covered services and providers and
  find out if facilities you might consider are
  covered BEFORE you buy!
• Do not be misled by advertising
• Buy one policy
• Understand importance of medical history
• Do not pay in cash

54
Shopping Tips (continued)

• Get agents/insurance companys information
• Agent should ask you about your needs and
  circumstances before recommending coverage
  options
• Contact company if policy is not received in 60
  days
• Review policy during free-look period
• Reread the application
• Consider payment through automatic bank draft

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Tips for Selecting an Insurance Company

• Check companys financial rating and assets
• How long has the company been in business?
• How has the company grown?
• What is the underwriting process?
• What is the history of rate increases?
• What options are offered if there is a rate
  increase?

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Commonly Asked Questions

• Can the insurance company increase my rates?
• How do I know the company will be there in the
  future?
• I have never heard of this company, is it
  licensed?
• How many times has the company increased its
  rates?

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Commonly Asked Questions (continued)

• How much does the policy cost?
• How many and what kind of complaints has the
  company received?
• Do I have recourse if my claim is denied?
• What procedure should I follow if I want to
  cancel my policy?
• Should I switch policies?