DOES LONG-TERM CARE INSURANCE MAKE SENSE?

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November is Long-Term Care Awareness month, and when thinking about long-term care insurance, where does it fall on your “must-have” list?

It’s estimated that 7 million to 9 million U.S. residents had private long-term care insurance in 2010.

It sounds like a lot, but not when you consider that 12 million Americans are expected to need long-term care in 2020.

Or when you consider that there is a close to 70 percent probability that someone over 65 will become either cognitively impaired or unable to complete at least two activities of daily living, necessitating the services of a caregiver. That care doesn’t come cheap.

The Genworth 2012 Cost of Care Survey puts the 2012 median annual rate for a private nursing home room at $81,030.

But despite the cost of long-term care being a top financial concern for most consumers (according to the LIMRA 2012 Insurance Barometer Study), less than 2 percent of consumers have LTCI policies currently in force.

So what are the alternatives?

A lot of people who are “on the fence” with “traditional” LTC coverage, are taking a closer look.

Traditional common obstacles:

– The “Use it or Lose It” structure.

A product people hope to never use..

– Some people do not qualify.

– The under age 40 group has other priorities.

– People with assets but lack disposable income.

– The carrier rate increases.

Good news! There are now alternatives that can help address some of these issues and that’s where LTC linked solutions come into play.

The Annuity/LTC Linked Solution

People who do not health qualify now have options through annuity products with LTC riders. These products can pay a tax-free benefit for qualifying LTC conditions (per provisions in the Pension Protection Act of 2006, which went into effect on January 1, 2010.

These products vary greatly, but generally, the contract value or the guaranteed income is doubled (sometimes tripled) when the annuitant qualifies for the LTC claim.

And there are companies offering annuity/LTC linked products that do not require underwriting.

Instead, there is an exclusion period in which a person will not be eligible to file a claim. Depending on how rich the LTC benefits are, these exclusion periods tend to run between 2 and 7 years.

The annuity/LTC linked solution may also have some appeal if there is a lack of liquid assets for annual premiums.

The annuity will provide either income for retirement or LTC benefits.

For example, some contract will allow taking a guaranteed income, then if qualifying LTC needs arise, the income is doubled. Note: provisions vary greatly among companies.

The Life Insurance/LTC Linked Solution

People with LTC concerns who have excess assets they wish to use to creat a tax-efficient legacy and the younger under 40 group fall into this category.

This solution also appeals to stand-alone LTC policies needing flexibility in funding premiums.

Here’s how it works: the LTC rider is added to a life insurance policy a person intends to purchase. The cost of the rider is generally quite inexpensive, especially for younger individuals to get some initial LTC planning started.

Should a person not qualify for additional long-term care coverage in the future, they at least have the benefits from the life insurance policy in place.

The death benefit from the life/LTC linked product creates a pool of money that can be used, while alive, to help pay for qualifying LTC expenses.

If LTC is never needed or only partially used, any remaining death benefit is paid to the beneficiary.

Exclusion periods generally do not exist with the life products, so the insured could file a claim on these contracts immediately after issue should an unexpected LTC need arise.

However, most products do have an eliminiation period the beginning of the claim. The benefit is normally paid monthly and is a percentage of the LTC rider specified amount, such as 2% of the death benefit per month.

Long-term care riders are generally available on permanent life insurance contracts and generally offer the following:

– A base life insurance policy that fits the person.

– Some products offering premium and death benefit guarantees.

– Leveraged premiums into a life insurance death benefit.

– Premium payment options (single or life pay)

– No “use it or lose it” obstacle.

– Indemnity plans (no bills or receipts to submit)

 

 

 

 

 

 

 

MEDIGAP IS NOT THE BAD GUY

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Members of the Senior Issues Task Force are trying to figure out how to tell U.S. Health and Human Services (HHS) Secretary Kathleen Sebelius just how important they believe generous Medicare supplement insurance products are to older consumers.

The task force, an arm of the Health Insurance and Managed Care Committee at the National Association of Insurance Commissioners (NAIC), has been working on an expression of support for Medicare supplement products, or Medigap products, that sharply limit consumers’ out-of-pocket health care costs.

The expression of support would go into a cover letter that would accompany an NAIC review of the existing NAIC Medigap model regulation.

Sebelius has asked the NAIC to think about ways to change the NAIC’s Medigap model regulation.

The Administration and Congress wants the NAIC and the states to change the rules governing Medigap plans C and F, which hold purchasers’ out-of-pocket costs to especially low levels.

Officials say Medicare enrollees who buy Medigap plans C and F now have no incentive to be good health consumers.

The Administration wants the plans to add “nominal cost-sharing” features, to get the users to shop for care more carefully.

The Administration has also talked about the possibility of raising $2.5 billion over 10 years by imposing a surcharge on the Medicare enrollees who buy the “near first-dollar” Medigap products. The government would collect the surcharge by adding an amount equal to about 15% of the average Medigap policy premium onto a Medigap policy owner’s Medicare Part B premium.

In the current draft of the NAIC cover letter, drafters state that, “We strongly disagree with the assertion that Medigap is the driver of unnecessary medical care by Medicare beneficiaries. Medigap insurance pays benefits only after Medicare has determined that the services are medically necessary and has paid benefits.

Medigap cannot alter Medicare’s determination and the assertion that first-dollar coverage causes overuse of Medicare services fails to recognize that Medigap coverage is secondary and that only Medicare determines the necessity and appropriateness of medical care utilization and services.”

America’s Health Insurance Plans (AHIP) has suggested adding language reporting that NAIC officials have reviewed the data they could get and found no studies showing whether Medicare enrollees with Medigap coverage are really overusing medical services.

“Instead, the majority of the available studies caution that added cost-sharing would result in delayed treatments that would only increase Medicare program costs later,” AHIP says in a proposed addition to the NAIC Medigap letter.

“Research suggests that decreasing use of some services among older populations can result in increased use of other services later on.”

Three individuals who officially represent consumer interests in NAIC proceedings – Bonnie Burns, David Lipschultz and Stacy Sanders – proposed adding language emphasizing that new cost-sharing requirements could hurt the sick people and low-income people who most need predictability in out-of-pocket health care costs.

Adding even “nominal cost-sharing” requirements “will disproportionately affect the populations noted above and may result in unintended harm and/or adverse health consequences for these beneficiaries,” the consumer reps say in their proposed addition to the letter. “

“Additionally, the relevant literature reinforces that it is health providers, not beneficiaries, who determine the appropriateness of health care services.”