WHEN YOU PURCHASE long term care insurance look carefully at how the benefit will be paid to once you become eligible to receive them. You are buying long-term care insurance for a future time when you may need professional services because you are unable to care for yourself independently. Some contracts deliver the benefit by the indemnity method while others deliver the benefit by the reimbursement method. Some contracts also deliver the benefit by a hybrid of the two methods.
The indemnity method pays your full daily benefit amount every day a covered service is received, regardless of the cost of that service. For example, if your plan has a $300 per day benefit at the time you become eligible for benefits and you receive services from a licensed professional costing $200 for that day you will still receive a check for $300 for that day. That extra $100 in excess of the charges will be very useful for other expenses associated with long term health care such as prescription medications, medical equipment, and specialized transportation. You can also put the excess money in your bank account for future needs.
The reimbursement method, as the name suggest, reimburses the care provider or the insured up to the actual expenses. For example, if your plan has a $300 per day benefit, and you receive services from a licensed professional costing $200 per day, you will be reimbursed $200 for actual expenses. The $100 difference will remain in the plan, thus extending the length of the benefit period.
Reimbursement can be on a daily or monthly basis; always select the monthly reimbursement. Whatever services are required over a period of a month will be reimbursed up to your monthly benefit amount. Some days the services needed may be more than your daily benefit amount, or some days it may be less. By selecting the monthly reimbursement plan, you have fewer out-of-pocket expenses to pay.
Some plans are available to you that offer a combination of a reimbursement method and the indemnity method. These plans follow the basic design of a reimbursement plan, but allow you to make a monthly choice to receive a reduced cash benefit. For example, if you have a plan that pays a monthly reimbursement of $6000, you can select to receive a percentage of that amount in cash, i.e. 35% or 40%. In the case of a plan that allows you to choose 40%, you would receive $2400 in cash to be used as you choose rather than the reimbursement of up to $6000 for the actual expenses. The next month you can return to the full reimbursement of actual expenses. During the months you receive a percentage the remaining funds will stay in your plan and lengthen your benefit period. Having that extra cash may allow you to pay friends and family for services that otherwise would not be covered.
Any plan you consider should pay for benefits at all levels of care and in any setting, such as, home care, adult day care, assisted-living and nursing home. The plan should also include coverage for both skilled and non-skilled care. Approximately 80% of long-term care is received outside of a nursing home, either at home or in an assisted living facility. Most plans offer a choice of 100%, 75%, and 50% of the nursing home benefit for home and/or community care which includes assisted living and adult day care. Unless the premium is the main consideration in purchasing a plan, I recommend that you choose the same benefit amount for services at home as you choose for a nursing facility. Most long-term care is received at home, so the home care benefit is extremely important to a well designed plan. If you want to remain at home even when you need round-the-clock care, make sure you clearly communicate this with your insurance agent. Your plan can be designed with a daily benefit that is at least 30% more than a plan that assumes five to eight hours of services at home.
Many group plans offered through employers only offer 50% of the nursing home benefit to be available for home care. If you are thinking about purchasing a plan through your employer, inquire about the home care benefit and then purchase the policy on the basis of receiving an adequate home care benefit.
The importance of inflation protection can not be overstated. Carefully consider the impact of inflation in the cost of services when purchasing a long-term care insurance plan. What would protect you today will have little value to you 20 years from now with the rising cost of healthcare services. I expect to see retirement and lifestyle options available to future retirees that aren’t available today, partly because the ‘baby boomer’ generation will demand better services and better facilities. Naturally, the best options will most likely be the most expensive.
Your plan should provide resources that allow you to take advantage of all the options available if and when you need long-term care. When I talk to my clients I always stress that they are buying a future benefit. I encourage them to focus on that rather than on the current benefit printed on the proposal. By doing a projection of the benefit that will be available to them in 20 or 30 years down the road, it becomes easier for them to visualize how their long term care insurance plan fits into their overall financial plan.