Short Term Care Insurance
A Product Introduction Guide For The Public
Fifteen Minutes may save you $75,000 to $100,000 or more…
This guideline is designed as an educational overview of Short Term Care Insurance. These few pages will provide you with specifics on the market and how to understand the product, and the value of the product, to millions of Americans.
Short Term Care Insurance (STCI) is the nation’s best-kept insurance secret, unfortunately. The product is not new—it has been available for over twenty years—but, it has been ignored, while most of the nation’s emphasis has been on Long Term Care Insurance (LTCI). But, what do we have for people whose needs are not great enough for LTCI? Or, who simply cannot afford LTCI? Since so few agents have known about STCI, the result has been that literally nobody in the public has been made aware of the product.
The inability to get LTCI policies issued has caused a great deal of anxiety for some producers. Underwriting has toughened up even more over the years. Origination rates have increased, and many existing LTCI policyholders are receiving letters of rate increases with ways to reduce their coverage in order to maintain the existing rate.
However, some agents, who decided to concentrate on being a “full service” agent, have grabbed the opportunity to write Short Term Care Insurance. Their customers are satisfied that they can afford to purchase a policy that fit their needs, with less expense.
So, how do we help you understand STCI? This paper will give you the needed background to understand the basics of Short Term Care Insurance.
As we start, please remember this important background item:
STCI has nothing to do with Medicare. It can be sold to an age as low as 18, with the most logical prospects being in the 50+ age group. The plans pay regardless of how Medicare treats “skilled care,” (which incidentally, is becoming harder to qualify for), and also covers the kinds of care not covered by Medicare—intermediate and custodial care. So the market is far greater than simply Medicare aged people.
Some Q’s and A’s to assist your understanding of STCI:
Q1—Should STCI be considered a substitute for LTCI?
A1—Definitely not! They are two different products, and an agent who would indicate to you that STCI is a better answer to Long Term Care needs is simply derelict in his or her responsibilities. Why? Because LTCI policies cover a longer time period and provide a wider array of coverage. Thus, they serve a different need than STCI.
Q2—What are the main reasons people would want STCI?
A2—There are three.
1) There are many people—actually most people—who simply cannot afford comprehensive LTCI coverage. As a result, many people are left feeling that there is no alternative to LTCI, except to wait until such a time as they can go on Medicaid to cover their long term care needs, which, of course, includes the “spending down” of the assets they do have. STCI can provide up to 360 days of coverage at a more affordable price.
When you consider that about 83% of nursing home admissions (US Department of Health and Human Services study by the CDC, “National Nursing Home Survey,” Series 13, No. 152, June, 2002—latest data available) are dismissed in less than a year, it makes sense to provide STCI coverage for the most likely occurrence. In addition, a California nursing home study completed in 2009 found somewhat similar use—76% of nursing home residents stay less than three months, and an average of 90% were dismissed in less than a year. These numbers bear out the need for STCI, and verify the need for a product which we have been ignoring and overlooking. Would 9 out of 10 people liked to have known that their most likely needs could have been satisfied with an STCI policy of 360 days?
2) Secondly, many people cannot medically qualify for LTCI. Pre-existing conditions play a major role in getting policies issued. This is not meant to infer that STCI companies will overlook serious medical pre-existing conditions. They won’t—for obvious reasons. But, while LTCI may have as many as forty pages to an application, STCI apps are normally three to five pages, and will have a basic ten to fifteen health related questions, possibly including prescription drugs.
Those questions rule out severe medical conditions and simply state that if the proposed insured answers “yes” to any of these medical questions, the agent should not forward the application. So, immediately, an individual knows up front whether or not he or she is a logical candidate, in which case, the applicant does not have to wait six weeks to two months to receive a declination. Obviously, STCI underwriters take other factors into consideration, and STCI is not a guaranteed issue policy, but the total underwriting experience is less involved than in underwriting for LTCI.
3) Another important factor for LTCI applicants is the use of the “Suitability Form,” which is now required in most states, and above all, by every company in the LTCI business. The Suitability Form is reviewed by company underwriters to indicate whether or not the applicant is going to be financially able to spend $2,000-$4,000-$6,000-$8,000 per person, per year, for several years, to maintain the premium payments for the LTCI policy.
Because STCI policies (due to their shorter length of coverage options) may cost as much as 70% less than a three year LTCI policy, there is no requirement for using a Suitability Form for STCI. The expense risk factor for the STCI company is much less than for the LTCI company. Thus, lower premiums indicate a greater likelihood that the STCI applicant will be able to afford premiums during the life of the policy.
Q3—Is prior hospitalization required?
A3—No. Remember that STCI is not related to Medicare, or Medicare qualifications for skilled care. Therefore STCI is independent of any Medicare restrictions for receiving care. The policyholder may enter the nursing facility directly from their home.
However, for Medicare recipients, there is an important factor involved. Because of Medicare’s system of DRGs (Diagnostic Related Groups), it is possible that a person will be denied access to the benefits of Skilled Nursing Home care after a hospital stay because the DRG doesn’t exactly fit the “medical necessity” mold. And…Medicare is very tough on “admitted” vs. “observational” stays for obtaining the extended skilled care benefits of the patient. In other words, if the patient stay in the hospital is considered “observational” they will not be able to receive the 20 days of Medicare paid-for Skilled Care after dismissal from the hospital. Since 2009 over a million people on Medicare lose this benefit each year. STCI could be the only policy to cover nursing home claims of this nature, that very likely may arise.
Q4—Is nursing home coverage the only type of care that the STCI policy will cover?
A4—It depends on the company issuing the policy. Some choose to cover nursing home expenses only—but at any level of care. Others may cover nursing home expenses and assisted living expenses, and may cover Home Health Care by rider.
Q5—Is there a difference between Home Care and Home Health Care?
A5—Yes. Home Health Care means professional care received by a doctor; nurse; or physical, occupational, or speech therapist. Home Care means care of a personal nature, provided by a personal caregiver—one trained to provide care of a personal nature—such as Activities of Daily living, which, in insurance parlance, means assistance with eating, bathing, dressing, transferring, or continence. This is an important factor, which sometimes is misunderstood by insurance agents, and unfortunately, even those in Medicare insurance sales.
Q6—Does the product go by any name other than “Short Term Care Insurance?”
A6—Yes, each company will name their product by which ever name they choose, but there are four common descriptions of the need for STCI. They are: Recuperation, Recovery, Rehabilitation, and Convalescence. You will find those descriptions are the basis for any STCI product—because they are the most significant reasons people need care insurance coverage for a short term. Remember the old saying, “It takes only one day to get the bad news, but it may take months to recover.”
Q7—Does STCI pay in addition to an individual Major Medical policy, group health plan, or Medicare?
A7—Yes. Again, it depends on the company issuing the policy, but in most cases, there are no coordination of benefit clauses in the policies. The customer chooses the plan, pays the premiums, and the companies pay the bills submitted by the provider up to the daily amount of the plan chosen. A “Plan of Care” prepared by a healthcare professional may be needed.
Q8—LTCI policies cover activities of daily living as well as cognitive needs. Do STCI policies cover these needs as well?
A8—Yes. Depending on the policy, either in a nursing home or an assisted living facility, or both. Before Tax Qualified (TQ) LTCI policies became available several years ago, there was a third trigger for obtaining benefits. It was known as “Medical Necessity.” When TQ policies came out, Medical Necessity was removed as one of the “triple triggers” for qualifying for benefits.
However, most STCI policies include Medical Necessity as one of the triggers for obtaining benefits, in addition to ADLs in a nursing home or assisted living facility (if assisted living is chosen), and cognitive needs in either setting. This is an important feature. Medical Necessity, as a third trigger, is included if the insured requires medically necessary care as determined by a physician due to a covered injury or covered sickness.
Q9—What are examples of covered injuries or covered sickness?
A9—They are quite common. For instance, Americans have 1.1 million heart attacks per year. But, many of those people require further medically necessary care after the main event, and many “heart attack survivors” are able to return to work, after a period of recuperation, convalescence, recovery, or rehabilitation. However, these needs may require care for months, and STCI is designed to help cover the cost of those needs. Could your finances or savings take a $75,000 to $100,000 hit like this?
Stroke victims are particularly affected by a lengthy recuperative and rehabilitative process. There are two significant points of knowledge here. Stroke victims are surviving at a greater rate, but stroke incidence is up—particularly in the 40+ age bracket. Again, there are important needs involved with recovery, which may take several months. People or family members who have experienced the needs of a stroke victim know what the road to recovery may involve. STCI is designed to financially help and assist with those recovery and expense care needs.
Cancer numbers are scary as we all know. In relation to diagnoses, the incidence of cancer is up, but the death rate is down. The former is bad news, and the latter good news. But what brings the death rate down? Obviously, advancements in science and treatment have been discovered and employed. However, again, the recovery process may be slow, and people may find that their medical expenses have been covered, but their care needs during convalescence are not. STCI can serve here.
Now for some interesting news—knee replacements are up 130 times in 30 years, and hip replacements are becoming more common in the baby boomer demographic. In other words, the bar has been lowered from Medicare age people needing knee and hip replacements, to an ever-increasing younger age group. Age 50 to 65 replacements are becoming common, but again, who stands to pay for what has become a long period of recovery for some people—or a complication that sets in after the procedures have been completed? STCI is the obvious choice.
Another insurance phrase used is, “The big question remains. Who pays for surviving? Who pays the care costs after the event? Would you rather write checks for your recovery, or receive checks for your recovery?”
Q10—Are Alzheimer’s patients able to receive benefits from an STCI policy?
A10—Yes. Alzheimer’s disease is covered as a “Cognitive Impairment,” just as are other cognitive diseases, such as Parkinson’s. They are covered the same as any other diseases. We all know that cognitive diseases are normally long-term complications, but the availability of coverage even for a short time (360 days) still fills an important gap in the patient’s financial needs.
Q11—What length of coverage is available? How much benefit per day is available? What are the elimination periods, and is inflation coverage available?
A11—The choices are varied. Most companies offer a range of 180 day, 270 day, or 360 day coverage. They also offer a choice of daily benefits ranging from $50 to $300. The elimination period (deductible, so to speak) is normally 0 or 20 days. Inflation coverage depends on the company. Some offer 5% simple inflation amounts, and others offer 5% simple, or 5% compounded, or both.
Q12—Are the policies designed with a restoration of benefits available?
A12—Yes. Companies have a slight variance on their interpretation of Restoration of Benefits, but basically a six-month claims free period, after the first claims period, will restore the benefits at 100%, which means a 360 day benefit period can possibly become a 720 day benefit period—up to the limits of the lifetime maximum benefit.
Q13—What are the age limits of STCI policy availability?
A13—It depends on the company. Some use an issue age band from age 18 to age 85. Other uses an issue age band from 50 to 79.
In conclusion, we trust you have gained from this introduction. Your agent will be able to further answer any questions you may have, and discuss the various benefit choices, which, in turn, will determine the premiums you select. By all means choose a plan with a premium you know you can afford.
But, then, if you didn’t know about STCI to begin with….the secret is now out !!!
Copyright, 2013, Ronald J. Iverson—Guarding Your Gold, Inc.