Before Congress passed the Balanced Budget and the Health Insurance Portability and Accountability Acts in 1996, which severely limit home health care coverage for seniors, most health care providers came from licensed agencies.

Supported primarily by liberal Medicare payment policies for short-term home care, health care agencies had proliferated in size and scope. By making licensed care also available to long term care patients, they made it possible for many care recipients to remain at home and avoid nursing institutions. Care for the home-bound patient was either paid for by the patients themselves, through Medicare or by LTC insurance. Benefits were paid directly to the agency as actual expenses, up to the daily policy limit.

Within 2 years of the enactment of these bills, Medicare payments to skilled-care agencies decreased by almost half, shutting down many home health care businesses. Families with chronic or custodial members had to scurry to find home-care providers from the quickly dwindling licensed agencies. Care recipients wanted options other than licensed home health care agencies.

The change in LTC insurance

LTC insurance companies responded by expanding coverage for home-bound patients to include specialized home care of any kind, including “independent professionals,” i.e., registered nurses or licensed home health care aides. Provisions for caregiver training to allow more individuals to become qualified also was included. Along with these new standards, carriers began to offer 2 distinct, customized home health care policy options to consumers, giving them a choice between a professional reimbursement plan, or one with a cash benefit option where insureds would receive a monthly cash check to use however they saw fit.

A caregiver training benefit was added by most carriers to help pay for the cost of sending an unlicensed person to school to get licensed as a qualified home health care aide. The benefit usually pays as a multiple of the monthly benefit, such as 5 times the monthly benefit amount.

Eventually, the home-care rider disappeared from the LTC insurance plans of the leading carriers. Instead, comprehensive plans focus on care at home first, with assisted-living facilities and skilled-nursing facilities as additional locations where they may pay benefits.

According to Medicare, about 9 million men and women over age 65 will need long term care this year. By 2020, an additional 12 million older Americans will need LTC, and most will be cared for at home. In fact, up to 70% of older LTC recipients still live in their own homes or with family or friends, according to research by the National Alliance for Caregiving and by AARP.

Hybrid plans are born

As most of us know, LTC insurance can be a complicated product to sell, and no area is more difficult to explain to clients than coverage for home health care benefits. With almost 80% of benefits paid out by LTC insurers to home health care providers, making certain insureds understand and select the most appropriate benefits for their individually-designed LTC insurance policies is a huge challenge.

To further complicate the sales approach, hybrid home health plans, which combine a professional reimbursement plan with a cash benefit option, are on the rise. Inspired insurers, along with their creative marketing departments, have come up with many different monikers for the new plans, including “flex cash” (Prudential), “additional cash” (John Hancock), “full and monthly indemnity benefit” (Allianz) and “indemnity rider” (MetLife).

The benefits of receiving cash are plentiful. Without claims to submit, the money can be used for any type of care selected. This is the ultimate in flexibility.

The downside to cash plans is the cost. Depending on the carrier, cash plans are usually 25%-70% more costly than reimbursement programs with a similar level of benefits. That premium increase causes many consumers either to delay purchase until they are older or to purchase the standard reimbursement plan.

The hybrid home health concept varies from carrier to carrier, but it can be defined in 2 general benefit categories: replacement benefits and enhancement benefits. Here’s a brief look at each of these plans.

Replacement benefits. A replacement benefit allows policyholders to decide that instead of using their monthly home care benefit for reimbursement of professional home care, they can take a cash amount. That amount is typically a percentage of the monthly policy limit. For example, the amount could be 40% of the monthly benefit maximum. Rules vary by carrier. Some have month-to-month payments, while others may have limits on their flexibility.

Enhancement benefits. An enhancement benefit gives an above-the-limit amount of cash to the policyholder that can be used for any purpose. For example, a policyholder with one carrier may choose a benefit such as $250, $500 or $750 per month, while another carrier may instead offer their customers an additional 15% of the monthly benefit amount.

As a further explanation of replacement vs. enhancement, let’s say someone has one insurer’s LTC plan with a $5,000 monthly home health care benefit. Let’s say a client had a stroke and is recovering at home and needs a professional home health care agency that costs $4,000 per month. The plan would pay $4,000 to the home health care agency. However, since this insurer has a flexible home care benefit, that client could also choose to take a $2,000 cash benefit instead of receiving professional home care. Perhaps the at-home spouse feels they can take care of the stroke victim and wants the cash instead. In that case, the $2,000 cash benefit replaces the reimbursement benefit.

Now let’s look at the same situation with the enhancement benefit, where that client owned a plan with an enhanced cash benefit. The client would still get the professional care at home, but it would be enhanced by a 15% of the benefit amount cash payment. The client would receive an additional $750 ($5,000 x 15%) each month above the normal monthly benefit limit.

Benefits are expressed in terms of cost-per-day, with the buyer selecting the amount at time of purchase (obviously, higher benefits cost more.) According to the National Council on Aging, current home care costs average $140 per day nationwide but can exceed $300 per day in areas with higher living costs.

Typically, the first priority is a good balance of benefit amount and benefit period, based on a client’s budgeted premium. Only after providing a good base of adequate benefit amount and benefit period should you discuss the cash enhancement options.

Many times a client will choose to self-insure some of the costs with the LTC insurance coverage to provide a catastrophic base. Experience suggests that loading up on too many bells and whistles can be a red flag for consumers, who may feel they are being oversold. Instead, it is best to handle objections by recommending riders as options to the current plan or for future consideration.

Remember, care providers never replace the care that friends and family can provide, but with a strong LTC insurance policy that addresses consumers’ specific home health care needs, they are assured better care for a longer time. The bottom line is this: Take a look at these new home care options for LTC insurance, but be realistic about what they provide.