Why Advisors Need To Compare LTC Provisions

That would appear to make the daily benefit design a better buy for the customer. However, the advisor needs to be aware that, for someone needing home care services, the monthly benefit can offer significant advantages.

To illustrate, let’s say Kate based her purchase decision between two policies on the total pool of money available (slightly greater with the daily benefit) and the cost (slightly lower with the daily benefit). Unfortunately, she wound up needing physical and speech therapy at home following a stroke. The cost for this care in New York City where she lives was about $125/hour, but the skilled services that were typically provided on the same day increased her daily costs to $250. With only $200 in daily benefits, Kate’s policy left her having to pay, out of pocket, the remaining $50 per day.

Since Kate needed this care three days a week over a six-week period, her policy paid a total of $3,600 in benefits, but Kate herself wound up paying the remaining charges, amounting to $900.

By contrast, if Kate had purchased a policy with a monthly home care benefit of $6,000, her policy would have covered all expenses–because the $4,500 total charge for three days of home care over six weeks was significantly less than the $6,000 total monthly benefit available.

Lesson learned: When Kate chose her policy, she assumed she had coverage for LTC expenses up to $216,000, but she overlooked the fact that her coverage was limited to $200 per day. Had she been advised that home care services can often exceed the $200 daily amount, leaving her to pay the excess, she might have made a different and much wiser decision.

Since BPs ultimately determine the total pool of money for covered LTC services, which benefit period should a person choose? First, determine the annual budget for LTC insurance. In Table 2, the “short and fat” versus “long and thin” illustrations clarify the differences at time of claim.

Note that the total pool of money available in both cases is the same–$216,000. The important differences in the two policies come from the benefit amounts and the BPs. Claimants are reimbursed for covered services up to the maximum daily or monthly benefit they select. In both cases, if the entire monthly amount available is not needed, it remains in the pool of money for later use, thus lengthening the period over which benefits can be paid. It does not, however, increase the monthly benefit amount for any single month. That amount remains fixed.

For example, with a $6,000 monthly benefit in a “short and fat” plan, if the insured spends $4,500 in a given month for eligible benefits, the remaining $1,500 would stay in the pool of money until needed–but it would not increase the following month’s benefit from $6,000 to $7,500.

By contrast, if the insured spent that same $4,500 in a given month with a “long and thin” policy and the monthly reimbursement maximum was $3,000, the insured would be left to pay the remaining $1,500 out of personal funds. Even if there were no charges during the previous or following month, the insured cannot “borrow” that $1,500 from past or future month’s benefits or from the total pool of money. The monthly benefit amount remains limited to the amount specified in the contract, and any overage must be paid out of pocket.

In the two scenarios, then, the claimant with a “long and thin” policy would incur significantly higher out-of-pocket expenses on a monthly basis than would the person who chose a “short and fat” contract.

In sum, consumers should first be educated about basic policy provisions, how they differ, and how they may impact future claims before they choose a LTC policy. Choosing a knowledgeable LTC planning specialist capable of providing a clear explanation of these increasingly complex and varied policy provisions is an essential step when purchasing LTC insurance these days.

Vivian P. Gallo, CLU, AEP, CLTC, is a long term care planning specialist at Choices for Long Term Care Insurance, Hartsdale, N.Y. Her e-mail address is [email protected].