Before Congress decided to severely limit home health care coverage for seniors with the passage of the Balanced Budget and the Health Insurance Portability and Accountability acts in 1997, most health care providers came from licensed agencies, whether it was for acute or chronic care.
Supported primarily by liberal Medicare payment policies for short-term home care, health care agencies proliferated in size and scope, making licensed care also available to long term care patients, allowing many care recipients to remain at home and avoid nursing institutions. The home-bound patient either paid for their own care through Medicare or long term care insurance, and benefits paid the agency directly as actual expenses up to the daily policy limit.
But within two years of the enactment of these bills, Medicare payments to skilled care agencies fell by nearly half, shutting down many home health care businesses and making families with chronic or custodial members scurry to find home-care providers from the dwindling licensed agencies. Care recipients wanted options other than licensed home health care agencies.
The change in LTCI
Long term care insurance companies responded by expanding coverage for home-bound patients to include paying for specialized home care of any kind, including "independent professionals," i.e., registered nurses or licensed home health care aides. Provisions for caregiver training, allowing more individuals to become qualified, also became included.
Along with these new standards, carriers began to offer two distinct customized home health care policy options to consumers, including choices between a professional reimbursement plan and one with a cash benefit option where insurers would receive a monthly cash check to be used however they saw fit.
These home care options, either as part of an overall personalized LTC policy or as a separate rider, create a great upsell opportunity for carriers and for the occasional LTC underwriter.
According to Medicare, roughly 9 million men and women over the age of 65 will need long term care this year, and by 2020, an additional 12 million older Americans will need long term care ... and most will be cared for at home.
In fact, according to research by the National Alliance for Caregiving and by AARP, up to 70 percent of older LTC recipients still live in their own homes, or with family or friends.
Hybrid plans are born
But LTCI can be a complicated product to sell, and no area is more complicated to explain to clients than coverage for home health care benefits. With nearly 80 percent of benefits paid out by long term care insurers to home health care providers, making sure insurers understand and select the most appropriate benefits for their individually designed LTC policies is a huge challenge.
To further complicate the sales approach, hybrid home health plans that combine a professional reimbursement plan with a cash benefit option are on the rise. Inspired insurers, along with their creative marketing departments, have come up with many different monikers for the new plans, including enhanced cash, flexible cash, additional cash, monthly indemnity, transition expense and others. The benefits of receiving cash are plentiful. Without claims to submit, the money can be used for any type of care selected, offering the ultimate in flexibility.
The downside to cash plans is the cost. Depending on the carrier, cash plans are usually 25 percent to 70 percent more costly than reimbursement programs with a similar level of benefits. That premium increase drives many consumers to either delay purchase until an older age or purchase the standard reimbursement plan.
Do These plans Make Sense?
The hybrid home health concept varies from carrier to carrier, but can be defined in two general benefit categories -- replacement benefits and enhancement benefits.
Here's a brief look at each plan that carries a cash benefit:
1) Replacement benefits -- A replacement benefit allows a policyholder to decide that instead of using their monthly home care benefit for reimbursement of professional home care, they would prefer a cash amount. That amount is typically a percentage of the monthly policy limit.
For example, the amount could be 40 percent of the monthly benefit maximum. Rules vary by carrier, whether they allow month-to-month payments or have limits on the flexibility.
2) Enhancement Benefits -- An enhancement benefit gives an above the limit amount of cash to the policy holder that can be used for any purpose. For example, a policy holder with one carrier may choose a benefit such as $250, $500 or $750 per month while another carrier may, instead, offer their customers an additional 15 percent of the monthly benefit amount.
Benefits are expressed in terms of cost per day, with the buyer selecting the amount at time of purchase (obviously, higher benefits cost more).
According to the National Council on Aging, payouts average $140 per day nationwide, but can exceed $250 per day in areas with higher living costs.
The Bottom Line
Typically, the first priority is a good balance of benefit amount and benefit period, based on a client's budgeted premium.
For home health care coverage, it makes sense to consider a worst case claims situation, such as dementia or Parkinson's disease, as opposed to a recoverable illness such as a broken hip. Only after the benefit amount and benefit period has been optimized is it recommended to look at optional riders, such as survivorship, waiver of premiums and cash benefit plans.
Many times a client will choose to self-insure some of the costs with the LTC coverage, providing a catastrophic base. Experience suggests that loading up on too many bells and whistles can be a red flag for a consumer that might feel they are being oversold.
Instead, it is best to handle objections by recommending riders as options to the current plan or for future consideration.
Remember, care providers never replace the care that friends and family can provide but, with a strong LTCI policy that addresses the consumers' specific home health care needs, it will allow them to provide care better and longer.
The bottom line is this: Take a look at these new home care options for LTC, but be realistic about what they provide.
From the March 2006 issue of Benefits Selling Magazine • Subscribe!
