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The following article takes excerpts
from the accredited continuing education course "Basic Long Term Care from A-Z
(NYCR-207894)" offered through the New York Center for Financial Studies in
New York City. For a schedule, call 212-221-3500.
The author, Laurel Stauffer-Daly, CLU, ChFC, LUTCF speaks, writes and consults
to the financial services industry. She can be contacted at continuum@nyc.rr.com.
Whether a seasoned financial services professional, or consumer shopping for
long term care choices, today we need to be very conscious of language. Here is why:
-all of us use the Web more and more to research and shop for answers,
-it is common practice to "spreadsheet" a comparison of Long Term Care
insurance product features that summarizes large amounts of detailed and legalistic,
contractual information,
-insurance policies are legal contracts-rights and claims are dependent on the interpretation
of terms and words
Previous articles in the series (access the Archives or contact Laurel) have looked
at terms commonly found in long term care coverage and/or used in the senior care
field. This article completes our dictionary of terminology (at least until contracts
change in the future, which they likely will...)
Tax Qualified Plans- Society is experiencing not only
increasing longevity and medical technologies never before imagined, but the highest
ever percentage of our population in their "senior" years. Recognizing
the coming need for long term care services, in 1996, the government, under Clinton,
took action and passed legislation (the Health Insurance Portability and Accountability
Act) encouraging Americans to purchase Long Term Care Insurance (LTCI). In return
for planning financially, purchasers benefit from tax incentives.
On January 1, 1997, insurance companies began offering "Tax
Qualified Plans" which must at least meet the following requirements of the
HIPAA Act:
- "Chronically ill or disabled" was defined very specifically.
A certified professional must declare that the senior "qualifies" as needing
long term care services and write up what is referred to as a "Plan of Care"-
how and when services will be delivered to the senior.
- "Qualified services" are left open-ended (the insurance
company can pick and choose which services to insure, and write their own definitions).
However, the government's "trigger" to qualify for services
is that the senior
- need "Substantial Assistance" performing 2 or
more "Activities of Daily Living"- either hands-on assistance, where the
aide literally lifts the person in and out of the bath, or feeds the person, or,
"stand-by assistance" where someone is nearby in case the senior needs
help
or alternatively,
- if cognitively impaired, needs "Substantial Supervision"
to keep the person (and others) out of danger. Substantial supervision includes verbally
cueing the person to keep them focused on what they are supposed to be doing.
- The certification, if describing services needed due to trouble
performing "Activities of Daily Living" (see first article in the series)
must include an expectation that the need for "substantial assistance"
will continue 90 days or longer.
For example, a typical hip replacement case might not qualify
for a long term care claim- the person may wish a home attendant when first back
from their surgery and initial physical therapy, but the majority of patients are
independent in their Activities of Daily Living within a month or two.
- With a cognitive impairment claim, there is no requirement that
this condition last at least 90 days. However, the diagnosis must be by clinically
accepted testing.
- The certification (and Plan of Care) must be renewed/updated
at least every 12 months. (Claims departments may want copies of the Plan update
each time the senior's care changes.)
- With HIPAA qualified plans, there is no longer a "medical
necessity" trigger. In the past, a Doctor's note sufficed for a claim and there
was no need that the senior be declared chronically ill.
- Qualified plan insurance contracts must be "Guaranteed Renewable",
meaning that the insurer must guarantee it will always allow clients to renew (continue)
coverage (up to the age or benefit limit stated in the contract). However, the insurance
company is allowed, if needed, to raise their premiums for a group of insureds, subject
to Insurance Department approval of the new rates.
- A "Non-forfeiture Option" must be offered to all clients
purchasing Tax Qualified LTCI (see previous article). This gives the senior rights
to at least some continuation of coverage, or money back if they "forfeit"
their policy by missing a payment. Companies can charge for this option and seniors
may decide to forgo adding it to their plan because it pushes up the price, but the
sales rep must at least offer NFO at the time of sale.
- Tax deductible premiums- The government recognizes that tax incentives
motivate Americans. They also acknowledged that premiums may represent a significant
expense, so according to the chart below, people buying LTCI are entitled to tax
deductions on some or all of their premiums.
The amount from the chart below can be included with other unreimbursed
medical expenses itemized on Schedule A of the tax return. The deduction is available
to the taxpayer, their spouse and dependents. If both spouses buy, both may take
the appropriate deduction. If the Schedule A items exceed 7.5 percent of the Adjusted
Gross Income, the IRS gives tax relief. (Additional deductions are available to self-employed
business owners.)
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Age of Tax Payer,
Spouse or Dependent
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Amount of Deductible Premium
in 2003 (record on Schedule A)
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Age 40 or younger
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$250
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41-50
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$470
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51-60
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$940
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61-70
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$2150
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Age 70 +
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$3130
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- Tax free benefits-With "reimbursement style policies",
the insured submits their receipts for long term care services and is reimbursed
by their insurer, income tax free, up to their policy limits.
On the other hand, people that purchase an "indemnity style
policy" (refer back to the third article in the series for the difference in
contract design) could receive back more from the insurer than they spent. This year's
IRS cap on the daily amount you can receive income tax free from your long term care
claim is $220 per day. So, for example, if someone purchased a $300 per day indemnity
plan and paid a relative for looking after them, or used the money to have some gardening
done to cheer them up, $80 per day would be reported on a 1099-LTC and be income
taxable. However, keep your receipts- many accountants are saying that if you show
receipts, indemnity plans will not create taxable income. (This area does need clarification
by the IRS-please seek your own tax advice!)
Third Party Notification- Please, please, please!!! One
of the reasons people purchase LTCI is in case they become senile later in life and
need help. The insurance will only be available if the person pays for it on a regular
basis- what if they forget or their debit account runs low??
Before the senior shows the first signs of becoming confused or
forgetful, be sure they sign a Third Party Notification form so that another family
member, or a trusted advisor will get duplicate copies of statements and bills and/or
be alerted if a payment is missed. (Be sure the Third Party receives notice AT A
DIFFERENT ADDRESS THAN THE SENIOR! This is one of the most common errors I see in
the policy reviews I conduct.)
Non-forfeiture rights may be available as a last resort, but using
the non-forfeiture privilege means the senior has essentially lost their coverage
and will only receive limited coverage for a short period of time. A third party
notice should prevent the client from going into forfeiture.
Unintentional Lapse Protection- This is the same as the
above concept but some companies go further. If a senior can be certified as having
dementia when they lapsed or lost their coverage for non-payment, some companies
include a provision that reinstates the coverage (within 5-6 months of the lapse-
but only once per contract).
Waiver of Premium (WP)- Read your contract for your specific
definition-policies vary on this one. The idea is that people on claim for long term
care have enough to deal with without continuing to pay their premiums. Most companies
will waive or forgive the premiums while the insured is on claim. Some insurers charge
for Waiver of Premium, some do not. Some insurers allow you to count your Elimination
Period days towards Waiver, others do not.
It may be safer for a claimant to keep paying premiums when initially
on claim until they are sure they have met the company's timeframe and conditions
for Waiver. Companies will retroactively reimburse any premiums that were overpaid
during the Waiver claim.
Weekly Benefit ñ Refer back to the first article in the
series that discussed Daily Benefits. Some companies offer a Weekly Benefit, meaning
that seven times the Daily Benefit is available, if needed, for your long term care
services budget. This gives the senior more flexibility to have, for example, all
their therapies on one day of the week, even if the combined charges are more than
the Daily Limit.
For example, a senior bought a plan allowing $200 per day in reimbursable
services. Medicare paid for physical therapy following their stroke, but the client
wants to have additional therapy beyond the Medicare limits. (Normally this would
be paid for "out of pocket"- let's assume that the Care Manager will write
up the plan for additional therapy in the Plan of Care.)
Say that physical therapy and occupational therapy both cost $50
per hour. The homecare companion comes at a rate of $12 per hour for a 12 hour shift
per day. The senior also has a meal service deliver lunch and dinner 5 days a week.
The housekeeper comes on Tuesdays and she charges $50 to clean the house, do the
laundry and cut the grass. Ideally, the senior would like their Occupational and
Physical therapy on the same day so two days per week are filled with appointments
and the rest of the week is open to whatever the person wants to do each day.
With a Daily Benefit contract, Tuesday's services would exceed
the Daily Benefit of $200 if the PT and the OT came, plus the home care worker and
the housekeeper (and meals). But with a Weekly Benefit allowance, the senior has
$200 x 7 days, or $1400 for everything. The senior can schedule their week so they
have their therapies and assistance on Tuesdays, and do nothing but sleep all day
Wednesday. There would be no reaching into their pocket to pull out money for services
on Tuesday that ran over the $200 Daily Benefit.
So now, if you put the whole article series together (use the
Archives on the Home Page), you have a fairly complete, general dictionary of the
terminology you will confront in the Long Term Care field.
Definitely request sample contracts from the insurance companies
you are considering. Read through the samples before deciding which company and which
LTCI policy makes the best sense for you/your client and your/their situation. Each
company should have its own dictionary and their interpretation of the language of
long term care included up front in the contract.
Under no circumstances, should you compare policies just by looking
at a pricing spread sheet. A cheaper quoted policy may cost less money because the
policy omits important provisions and rights, or is less generous, or more restrictive
in its claims definitions.
Don't feel that you need a lawyer to decide on an insurance package,
but please recognize that LTCI policies are legal contracts! These legal contracts
are based on a very specific language-"the language of Long Term Care".
It would be very frustrating to pay premiums in retirement, only to be denied a claim
later because the claim did not follow policy stipulations. Be sure you know how
the policy is meant to operate.
May you live your golden years to their fullest
and never need to use your Long Term Care policy!
© Laurel Stauffer-Daly,
CLU, ChFC, LUTCF Continuum Inc.... 2003
Laurel Stauffer-Daly, CLU, ChFC, LUTCF came into
the financial services industry in 1987. She has a Masters (in Education) from Columbia
University and this forms the foundation for all of her work. Her mission is to facilitate
adult learning and peak performance through clearer communication- in fact- her corporate
name and logo (Continuum... "learning for life") reflects that,
as adults, we still must, and are, continually learning.
Continuum trains both financial service professionals and their clients how
financial products and services change lives. If financial service reps really know
their products, and can explain them clearly to the public, this can have a huge
impact in the world, because--- at least for right now--- money makes a difference!
Laurel is a master trainer and coach. She has worked in large corporate settings,
and managed the sales and training needs of insurance agencies. She works with people
privately to improve their sales results. She also speaks regularly and gives seminars
for the public, corporate and non-profit clients. Laurel is active in several trade
associations, serving several terms on their boards. She holds three insurance designations
and her NASD Series 7.
Laurel may be reached at 212-717-8607 or continuum@nyc.rr.com
Additional credit for this article goes to David Dreifuss, JD, MBA, CEO and EVP
for The Alliance of Insurance and Financial Professionals. He can be reached at the
NY Center for Financial Studies (see article header) or at ddreifuss@taifp.com
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