Well-known LTCI expert and author Phyllis Shelton, LTC Consultants, Hendersonville, TN, has responded to an article published by the New York Times on June 8, 2013, “Fine Print and Red Tape in Long-Term Care Policies,” written by personal finance reporter Tara Siegel Bernard. If you are selling LTCI, you need to be aware of the article (which can be found at http://nyti.ms/108Exbh) and prepared to discuss it with your clients. Phyllis Shelton’s excellent response follows:
“The fact that I’m writing this response shows how important it is to me that no one has doubts about LTCI. Please let me lay any concerns to rest by sharing how I responded to a client’s question about her CNA policy.
“Have there been ‘bad apples’ in long term care insurance? Of course, just like in most other industries. I just helped a daughter appeal her mother’s claim that I felt was unjustly denied, and the company honored the appeal and paid the claim. Is intervention the norm? No. Over the years, all of my clients who have used LTCI have had their claims paid with very little input from me.
“My client, who purchased a policy from CNA in 1999, expressed concern after reading the ‘Licensed Caregivers’ and ‘Alternate Plan of Care’ sections of this article that implied CNA no longer honors the alternate plan of care benefit. (FYI, CNA no longer sells LTCI, but certainly is paying claims on policies that are in-force.)
“I know the history of the alternate plan of care benefit, how it came about, and CNA’s approach to it (as well as how other carriers approach it). I can also interpret the CNA company representative’s remark in the article…
“First, the alternate plan of care (APC) option is a wonderful and important addition to any policy. But like many good things in life, it has been abused and sometimes misrepresented by well-meaning people who didn’t understand it.
“APC is intended to make a way contractually for a carrier to pay outside the contract when it is cost-effective and makes sense medically for the patient. Glen Kantor, the attorney quoted in this article, is incorrect when he says this provision wasn’t sold in a way that said the insurance company has the right to approve how this provision is used. The policy language is very clear that the insurance company, the doctor and the family must agree on how this provision is used.
“A great way the APC provision has been used is to pay for new services that come along. An example is that it has been used often to pay for care in an assisted living facility from a policy that was sold to pay only for a nursing home. Assisted living facilities didn’t exist 20-plus years ago, so policies didn’t have that coverage. Assisted living facilities (ALFs) are less expensive than nursing homes, and patients generally are much happier in them. Without an APC provision, however, an insurance carrier could deny assisted living facility claims because an ALF isn’t mentioned as a covered service in the policy.
“Another good way an APC provision is used is to allow the insurance company to pay for home modifications like widening doorways, installing a ramp, and installing handrails in the shower to make it easier for someone to stay home if it looks like the person could stay home longer than a few months. One carrier utilized the provision to buy a blind woman a seeing eye dog for $3,000, allowing her to stay home while her daughter was working.
“CNA was the first carrier to come out with APC, if my memory serves me correctly, and it was a great thing. Where it fell off the rails was when someone bought a CNA policy that paid only for a nursing home and didn’t buy the optional home care benefit. Some people bought the nursing home only policy with the impression that the APC provision would provide them with home care benefits even though they didn’t pay the extra premium for home care. That’s what the spokeswoman for CNA is trying to explain in this article. She is saying the APC provision was never intended to replace the optional home care rider. How could it, when you think about it?…
“Recently one of my oldest clients passed away after receiving about $400,000 from a CNA long term care insurance policy, so I can tell you first-hand that CNA is paying claims.
“The rest of the story is that she had me regularly review her policy. She lived in a high-cost area of California, so she started in 1999 with a $250 daily benefit with a four-year benefit period and 5 percent simple inflation, which means the benefits increased at 5 percent of the original amount each year until they doubled in 20 years. Her daily benefit grew at $12.50 each year, so her benefit pool was worth $730,000 ($425 times four years).
“My client and her husband bought the same policy, so together they had $1.46 million in benefits. There was a 30-day elimination period, thus they were responsible for the first 30 days in charges. (The New York Times article failed to mention that with many newer policies, the deductible is merely a one-time waiting period with no charges required.)
“My client and her husband were 59 and 60 when they bought their policies in 1999, and their combined premium was $4,424 annually. They paid about $62,000 in premium for the $1.46 million in benefits. If one of them had a claim today and used the entire daily benefit of $425, they would get all of their premium back in less than five months (145 days). Plus the premium would stop for the one on claim.
“Did these clients make a good decision? I certainly think so. The caveat here, however, is that premium and underwriting for a 60-year-old back in 1999 is now more for a 50-year-old, so please encourage your clients not to wait.
“In addition, health care reform means we will be paying more for acute care than we have planned, which leaves fewer dollars for LTCI, both on the private side as families try to pay for it, and on the public side as state budgets try to pay for it.” [SAC]
