Peter M. Goldstein
Sr. Vice President of Strategic Marketing
Long Term Care Group, Inc.
El Segundo, CA
Disability-Model LTCs Can Be An Option For Some ClientsSeptember 11,
2000 Life & Health/Financial Services Edition, National Underwriter
Most long-term care insurance policies currently being sold are structured
on the so-called "reimbursement model." That is, they provide
for reimbursement for services used.
However, another model, what is called the "disability model",
may be gaining greater attention, so the market will have more choice
What follows is a brief look at the two kinds of plans, with emphasis
on the advantages of the disability model. But first, a short LTC overview.
The LTC insurance market has continued to grow in recent years as more
carriers enter the market, and LTC product development teams roll out
offerings to differentiate their designs from those of competitors.
Fueling this growth has been anticipation of tax benefits to LTC consumers,
a federal employee program for LTC, and higher consumer awareness, among
The Health Insurance Portability and Accountability Act of 1996 did help
create some policy standardization by allowing for tax-qualified LTC policies.
But plan design options still exist. One of those options is the "disability
model" approach to LTC coverage, mentioned earlier.
Actually, this model has been around since 1987, well before HIPAA. But
it has seen only limited use in the market, even though some sellers have
long voiced fervent support for it.
The mainstay design, to date, has been the reimbursement model. Such
LTC contracts pay up to a daily benefit maximum, ranging from $50 to $300
per day. They cover a wide range of services—from care in a facility to
various forms of community-based care—and they typically offer a pool
of dollars from which to draw down benefits.
This reimbursement approach has some inherent risk management controls
built in. Therefore, it has been widely adopted by LTC insurers.
For instance, for the policy to pay benefits, the insured must obtain
care from covered service providers. This helps hold down utilization
for the carrier, because if formal care is required, it often occurs only
on an intermittent basis.
Additionally, the payments made under the reimbursement model come out
of a benefit "account" (the pool of dollars mentioned above).
This creates an incentive for the insured to spend wisely, so as to make
the benefits last longer.
Finally, nothing is paid without corresponding expenses, thereby making
the verifying of eligibility, tracking deductible days, and monitoring
provider fraud less challenging.
But the reimbursement model is not without its detractors. For example,
some people dislike being constrained by the specified list of covered
services in the policies. They believe their greater need is for freedom
of provider selection, so they prefer LTC policies that give them the
money to spend how they see fit.
Enter the disability model LTC. As noted, it is still not widely
used. But with today’s pressure to differentiate product, more companies
may start embracing it and/or offering it as an alternative to the reimbursement
What’s the attraction? The disability model is simple. If the insured
meets the benefit trigger, the policy pays him or her a cash benefit—regardless
of whether the insured actually ends up obtaining care. This follows the
same approach used in long-term disability insurance.
The advantages to this approach can be summed up in one word: Flexibility.
Since the policyholders are receiving cash, they can use the money as
they see fit. For example, they can use the payments to cover care provided
by non-licensed providers, services not covered in the policy, and/or
reimbursement to family caregivers—as well as more formal types of care.
In addition, they can use the dollars for non-LTC expenses such as housing,
transportation, or future services that may become available.
Agents love it, particularly financial planners who sell to more affluent
buyers. Why? This product is easy to pitch. The presentation takes a "qualify
and get paid" direction. There is no discussion about what’s covered
and what’s not. For producers who are oftentimes hamstrung by tangled
and confusing policy features, this offers a lot of freedom.
Like all good things, flexibility has a price. Since the disability-style
policy is more likely to pay— it pays whether or not services are used—the
cost is higher, typically 30 percent to 50 percent higher, than comparable
reimbursement type plans.
Also, there is no disincentive to claim. Therefore, you expect and get
Two other downsides are:
a) Policyholders must manage their expenses. This means they must deal
with providers and bills when they are least able to do so—when they are
disabled or impaired.
b) The cash may not be used for its intended purpose. This is a more worrisome
concern. The natural tendency of many people will be not to spend the
money on care, but rather to get by with informal help or lower cost alternatives.
While this does free up the cash for other uses or as income replacement,
when the time comes that services are really needed, no benefit dollars
may be available.
Whichever way the market trends in the future, regarding greater use
of disability model LTCs, their mere existence has been a force for good—because,
if nothing else, it has spurred enhancements into the reimbursement approach.
For example, several insurers have broadened the definition of covered
services under reimbursement designs to include non-licensed or independent
providers, informal caregivers, and even family members in some cases.
Similarly, community care services covered by these policies are now likely
to include caregiver training, homemaker services, meals and transportation.
Some reimbursement policies even have a one-time cash benefit, called
a transitional care or informal care benefit.
Lastly, the reimbursement models have become more flexible regarding benefit
payments. Many of the policies now pay based on a weekly or monthly amount,
rather than the traditional daily approach. This allows the insured to
"stack" services, which might otherwise put them over a daily
cap (i.e., physical therapist, registered nurse, and aide all in one day).
LTC insurers have clearly tried to cover the types of care people need.
This makes the consumer the winner, because buyers now have many more
options from which to choose.
Comment from Phyllis Shelton: Another downside of the disability
model is the policyholder has to fulfil the duties of being an employer
with taxation and reporting obligations when using the money to hire anyone
other than licensed professionals (i.e. friends, family members, neighbors,
Peter M. Goldstein is senior vice president-strategic marketing at Long
Term Care Group Inc., an El Segundo, Calif., LTC consulting and administration
firm. E-mail him at: firstname.lastname@example.org.
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