LTC Insurance: Policy trends and the Role of the GCM. Agenda. What is Long Term Care (LTC) Insurance

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1 LTC Insurance: Policy trends and the Role of the GCM Stuart Armstrong, CFP, CLU, CLU Centinel Financial Group Needham Heights, MA Phone: Web: The long-term care insurance policy describes coverages under the policy, exclusions and limitations, what you must do to keep your policy in-force, and what would cause your policy to be discontinued. Please contact the licensed agent or John Hancock for more information, costs, and complete details on coverage. Long-term care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA MLI of 34 Not for use with the general public Agenda What is Long-Term Care (LTC) Insurance? Industry & Consumer Trends Utilization of Benefits Role of GCM 2 of 34 What is Long Term Care (LTC) Insurance 3 of 34 1

2 Long Term Care Three levels of care Custodial Care Intermediate Care Skilled Care 4 of 34 The Need for LTC Is Growing The Aging of America In 2050, the number of Americans aged 65 and older is projected to be 88.5 million, more than double its projected population of 40.2 million in 2010.¹ Societal Changes Expense of Care On average, one year in a nursing home can cost $94,000 today². Projected annual cost in 30 years for nursing home is $286,000³. Will I need care? 70% of people over age 65 will require some long-term care services during their lives. 1. THE NEXT FOUR DECADES: The Older Population in the United States: 2010 to 2050, U.S. Census Bureau, Issued May John Hancock Cost of Care Survey, conducted in Projected increases are calculated using 9-year increases, based on a comparison of data collected from providers across the country for John Hancock s 2007, 2008, and 2011 Cost of Care Surveys. Information available from John Hancock upon request. 4. U.S. Department of Health and Human Services, national clearinghouse for long-term Care Information, accessed June of 34 Long Term Care Insurance Premiums Based on age, health and policy options and gender (most companies) Pays a daily or monthly benefit¹ Expense Incurred/Expense Reimbursement Indemnity Method 1. Policy options will vary by carrier, policy and state, and may be restricted at certain ages. 6 of 34 2

3 Long Term Care Insurance Lifetime or Policy Maximum Daily/Monthly Benefit X Benefit Period = Lifetime Maximum $150 Daily Benefit X 3 Year Benefit Period = $164,250 Lifetime Maximum 7 of 34 Long Term Care Benefit Not health insurance Home Care Adult Day Care Center Assisted Living Facility (ALFs) Nursing Home Facility Combined daily/monthly benefit TIP Many clients will receive care in several settings Most long-term care (about 80%) is provided at the home¹ 1. U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information, of 34 Home Health Coverage Home Health Care Home Care Personal care Homemaker services Adult Day Care Hospice Care Respite Care 9 of 34 3

4 Benefit Triggers Activities of Daily Living (ADLs) Dressing, eating, bathing, etc. Needing help with any two qualifies Cognitive Impairment Plan of Care / Doctor Certification ADL disability expected to continue for at least 90 days Prior Hospitalization Banned in most states Required for Medicare 10 of 34 Elimination Period Waiting Period You pay for the first X days X= 30, 60, 90, 100, 180 or 365 Zero-day elimination period TIP Lengthening the elimination period lowers the premium 11 of 34 Inflation Protection Automatic CPI Compound Simple Guaranteed Purchase Option Participating returns 12 of 34 4

5 Monthly Benefit Monthly Benefit Automatic CPI Inflation Annual Compound increases based on the Consumer Price Index Average return of 4.1% over 50 years¹ Tied Urban Index Includes housing & labor costs No limit to the CPI increase 1. Benefit increases are hypothetical and are based on the average annual increase in the CPI of 4.1% over the 50-year period ending December of 34 5% Simple Inflation Historical Performance $8,000 $7,500 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ Simple Years Policy in Effect 14 of 34 5% Compound Inflation Historical Performance $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Simple 5% Compound $12,966 $ 7,500 Years Policy in Effect 15 of 34 5

6 Inflation Protection Guaranteed Purchase Option Option of increasing benefit every 3 years 5% increase 10% increase 15% increase Premium increases 16 of 34 Participating Policy Lower priced alternative to compound inflation Automatically increases benefits with no corresponding increase in premium Annually when the investment return on the general account portfolio supporting this option exceeds a set amount. The daily/monthly benefit automatically increases. 17 of 34 Additional Built-In Features Third Party Notification Waiver of Premium Negotiated Discounts Marital/Partner Discount 18 of 34 6

7 Optional Riders¹ Restoration of Benefits Nonforfeiture Benefits Premium Refund at Death Shared Benefit Riders 1. Policy optional riders will vary by carrier, policy and state, and may be restricted at certain ages. Riders may require additional premium. 19 of 34 Industry & Consumer Trends 20 of 34 Industry Overview Low interest rates impact insurance pricing All time historic lows for a prolonged period of time In our current environment, 1% interest rate decrease equates to a 10%-15% premium increase¹ 1. Quote from Jessie Slome, Executive Director, American Association of Long Term Care Insurance, of 34 7

8 Industry Overview Higher premiums on long-term care (LTC) insurance reflect the new environment paradigm Fixed inflation options, such as 3% and 5% Compound, are offered at significantly higher premiums that have been rising rapidly with the continued low interest rate environment Carriers are forced to adapt by Updating pricing Exiting the market Developing innovative new inflation choices 22 of 34 Trend in Industry Sales 2002 industry sales of approximately $1 Billion, average premium $1, industry sales of approximately $545 Million, average premium $2,400 4 Industry sales decreased by 45% average premium increase 36% 4. LIMRA Individual Long-Term Care Insurance Sales 2002 and of 34 LTC Buyer Trends Consumer Needs Younger Baby Boomer purchasers average age million Americans age 55 and older had private long-term care insurance coverage, accounting for 10.7% of adults in this age group 3 AHIP 2010 LTC Buyer/Non-Buyer Study Conclusions: Most non-buyers indicated that cost was the most significant barrier to purchase (consistent 20-year trend) 3. Who Purchases Long-Term Care Insurance, March 2011, estimates are from 2008 Health and Retirement Study (HRS), page of 34 8

9 Hybrid Life/LTC products Life Insurance with LTC benefits Two types available today 1. Life Insurance death benefit with LTC rider For example, $500,000 policy with 1%, 2%, or 4% LTC rider. If the insured buys the above policy with a 4% rider, the LTC monthly benefit cap would be $20,000 and no inflation of the benefit. Whatever is not used to pay LTC costs can be left to beneficiaries as a tax-free death benefit. 2. Life insurance death benefit with lower death benefit but higher relative LTC benefit. For example, $175,000 policy with a LTC benefit of $7500/month with a pre-selected inflation option. Whatever is not used for LTC benefits would be paid as a death benefit. 25 of 34 Linked-Benefit LTC Insurance Deferred Annuities that allow for capped monthly withdrawals for qualifying long term expenses Premiums are typically single premium and the policies have surrender charges Some contracts allow for an optional continuation of benefits even after the annuity value is exhausted Elimination Period varies by product Reimbursement method of claims most common 26 of 34 Client Utilization of Benefits 27 of 34 9

10 Leading Carrier Claims Experience More people reaching the age where claims occur $ Average claim lasts 2.7 years 2 We expect 21% of our claims to last longer than 5 years 2 We pay out an average of $3,000 per month to each claimant 2 Home Health Care claims cost 70% of Nursing Home claims 2 2. Based on John Hancock internal data as of 12/31/11. Total includes individual and group LTC insurance, and the Federal Long Term Care Insurance Program. 28 of 34 Leading Carrier Claims Experience As a % of all JH LTC Claims 2 36% Less than 10% of our claims are closed due to benefit exhaustion 66% of claimants who begin the Elimination Period end up as an active claim 10% 8% 7% 6% Dementia Nervous System Stroke Heart Disease Musculoskeletal & Connective Tissue Less than 5% of claims are closed due to recovery 2. Based on John Hancock internal data as of 12/31/11. Total includes individual and group LTC insurance, and the Federal Long Term Care Insurance Program. 29 of 34 LTC Policy Care Advisory Services Many policies offer care advisory services as a built-in benefit. Some policies offer a more robust benefit if the policyholder uses a network of company approved providers while others offer alternatively or in addition a benefit for a care advisor or manager of their choice. Many policies also do NOT require the elimination or waiting period to be satisfied before benefits will be paid for care advisory services. And most policy care advisory benefits do not reduce the main policy LTC benefits. 30 of 34 10

11 Understanding the Claims Process It s very important to understand the Claims Process first and then understand the specific policy coverage. Here are common claims steps with most insurance companies: Step 1: Benefit Eligibility the insurance company will determine whether the policyholder meets the eligibility requirements outlined in the policy and may contact: The facility where the policyholder resides to collect clinical details about the client s functional status The policyholder to arrange a visit to assess the client s functional status The policyholder s care provider for more information Step 2: Provider Eligibility KEY step the insurance company will determine whether the policyholder s care provider meets the policy requirements. The policyholder is then notified in writing. 31 of 34 Understanding the Claims Process Step 3 Ongoing Bill Submission Policyholders will need to submit bills for covered services on an ongoing basis in order to satisfy the elimination period and continue to receive policy benefits. This is routine for policies that provide policy benefits through reimbursement. Indemnity policies will also require their own ongoing claims verification even if they are paying benefits without a formal reimbursement approach but rather through typically a monthly payment. Step 4 Satisfy the Elimination Period The elimination period must be satisfied before benefits can be paid. Step 5 Claims Payments Begin Once the policyholder receives required documentation, payments begin. In order to continue receive payments, the policyholder must submit invoices as long as she remains benefit eligible. Reimbursements are usually processed within 15 to 30 days. Step 6 Ongoing Claims Assessment The insurance company will review the claim periodically to ensure the policyholder remains benefit eligible and the policyholder will be notified when clinical information is requested 32 of 34 What can a professional care manager do to assist in a LTC policy claim? 1. Be sure to read the policy to understand how the care advisory benefits can be claimed. It s common that a LTC provide will require a written assessment and an itemized bill. 2. How is the elimination period satisfied? Is it calendar days or dates of service? Is there any flexibility i.e. some policies allow for 1 day of home care to qualify for 7 days of the elimination period. C 3. an the care be appropriately managed? 4. Does the policy offer available discounts for certain home care aides/agencies, assisted living facilities, nursing homes and other care management options? If a particular provider is not already on an approved list, can it be added to the approved list and under what terms? Tip: if the provider of choice is not on the list, steps must typically be taken to install the discount BEFORE the client applies for benefits as otherwise it s usually too late to obtain the discount. This is an area the GCM can potentially make a big difference to the client financially. 5. Be aware of how policy premiums can be waived if available. It s common for premiums to be waived only after main policy benefits begin being paid out to the policy holder. Can the care be appropriately managed? 6. Last but not least, encourage your client to file a claim as early in the process as feasible so the claims process can get underway and the requirements properly completed. All it takes is one accidental omission or incorrect box checked to result in a delay of review of the claim. Accuracy and thoroughness are critical here. 33 of 34 11

12 Thank You!! Stuart Armstrong, CFP, CLU, CLTC, ADPA Centinel Financial Group 160 Gould Street, Suite 212 Needham Heights, MA Phone: Web: 34 of 34 12