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The Short Term Care Revolution

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With all the hoopla about LTC carriers going out of the market or raising rates, many agents have found clients are more willing to consider short-term care (STC) policies.

If you haven’t added them to your portfolio yet, you’re missing the boat.

Short-term care (also known as Recovery Care or “LTC Lite”) is not a new product but it has been gaining ground in the last 2 years as an alternative to traditional LTCi. With its shorter underwriting cycle, high-issue rates, and low premiums it’s becoming increasing popular – especially among the agents who traditionally sell Medicare supplements.

The standard STC policy provides coverage for 1 year or less. The benefits are usually reimbursement-type. Most are the “use it or lose it” type, although MedAmerica’s newest product called Transitions takes the pool-of-money approach.

STC elimination periods are much more consumer-friendly. Most don’t go longer than 60 days and some offer a 0-day EP. And since these policies are not true LTCi – there is no 90-day certification required before the client can receive benefits. This makes STC perfect for those who might have purchased a long-term care policy with a longer EP. Also, the policy can pay even if Medicare pays. In short, if your client chooses a 20-day EP, that’s exactly what he will get. Benefits will start on Day 21.

Underwriting is a breeze. You won’t be waiting 4 to 6 weeks for a policy – more like 7 to 10 days. Most STC applications are just 10 or 11 health questions. If the client answers “No” to the questions, then he/she is 95% through the underwriting process. Most carriers do a Prescription Drug Screen and a phone interview. The older ages will require a face-to-face interview with a cognitive screen. From time to time doctor records will be ordered, but that is pretty rare.

The health questions are similar to the questions you would find on an LTCi application and would be considered “knock-out” questions. Generally the carrier wants to make sure that the client isn’t already ADL deficient, cognitively impaired or affected by any life-threatening conditions? (Of course I’m generalizing – but you get my drift). A “yes” answer to any of the questions means the client will definitely not qualify.

Coverage can vary from policy to policy. They all cover care in a nursing home. While some policies only cover facility care, many offer benefits for care in the community as well. Some carriers may limit the amount of benefits they’ll pay for home care while others cover all types of care equally – just like a regular LTCi policy. One carrier offers a home care rider – but it only provides for 90 home care visits. Coverages vary from company to company so be sure to do your homework and understand exactly what the policy will pay.

The benefit triggers are the same as LTCi – 2 of 6 activities of daily living (ADL’s) or severe cognitive impairment.

A major difference between STC and LTCi is no 90-day certification requirement. This means if your client only needs care for 6 or 7 weeks (as she might while recovering from a broken hip), these handy little policies will pay for that care. A traditional LTCi policy would not.

Who Buys These Policies?

65+ and less than $100K in the bank: 15 years ago the 65-year-old was the perfect candidate for traditional LTCi. Now with rates the way they are, many have found they’ve been priced out of the market or they can no longer qualify due to health. If you are a MedSupp producer, you should be talking to every single client you have about STC. Here’s how the conversation could go:

“Mrs. Jones, according to the Medicare Guide , Medicare does not pay for most long-term care services. When they do pay, they will only pay for all charges up to 20 days. The next 80 days you will pay a co-payment of $144.50 per day and after 100 days, Medicare stops paying entirely. That’s when your long-term care policy will kick in, right?” At that point, Mrs. Jones will tell you what arrangements she has made for her long-term care – which in most cases, is nothing at all. This is the perfect time to talk about short-term care.

Of course, clients with significant assets should be considering a traditional LTCi policy which would offer better asset protection. However, there are many, many seniors in our country who only have $40,000 to $50,000 in savings. Even a 6-month stay in a facility would devastate them. STC is perfect for them.

Younger Clients with Competing Financial Priorities: This would be the 45-60 crowd who still have kids at home, or are putting a few through college. While they should be purchasing traditional LTC, they may not be able to afford it just yet. This age group is also most likely to need care due to an accident or injury. A 1-year STC plan is a great way to guard against invading their retirement funds to pay for a short-term serious injury.

Those who can’t qualify for traditional LTCi: As mentioned before, these applications are only 10 to 11 questions. Most of the underwriting is done off the application. One of the STC carriers doesn’t have a weight chart. The same company will also take insulin-dependent diabetics (regardless of the daily units used), as long as the client hasn’t been on insulin for over 10 years. Some other carriers don’t ask if the client has been declined by another carrier. While no carrier wants to purposely insure sick clients, there are plenty of times a client would be uninsurable for a traditional plan, but still OK for STC.

No Special Training Required: In most states, there is no special LTC training or continuing education requirement needed to sell STC. There are a few states where the policies have been approved as Non-Tax Qualified Long Term Care insurance, and in those states the LTC Partnership Certification is required.

For the most part, if you have a life/health license, you are good to go immediately.

In our practice, the average STC premium is $1,100 per year.

An agent selling just two of these a week could easily add $40,000 to $50,000 per year to his/her income.

Short-term care is not for everyone, that’s for sure. But it can be an important part of your business and give coverage to those clients who don’t have anything at all, but have everything to lose.