Sample group design

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By Jon Shreve | 01 November 2006

A number of variations on benefit design of a long-term care (LTC) contract exist, each with its own unique set characteristic targeting a particular need for coverage.  Let us focus on a single sample design and discuss key features that are worth considering.  Consider the following LTC policy contract:

There are several ways in which the plan maximum benefit can be arranged. In the sample plan above, the maximum benefit is expressed in terms of total amount of dollars available to the policyholder; $200,000 in this case for LTC services (other option would be in terms of days/years of care) that is referred to as ‘pot of money’ design.  This form of policy allows the participant to save the “salvage” amount (the difference between a larger daily benefit and the smaller actual cost of the daily service) for later use.  Currently, the pot of money approach is the most popular one.  The maximum benefit can be integrated (as is the case in this plan) meaning that both nursing home and home health care services are counted against the maximum, or there can be separate maximums for nursing home and home health services.

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If maximum benefit periods are separate for nursing home and home health services, they need not be the same length/amount.  The plan above allows 75% of home health benefits to be counted against the maximum benefit amount since these services seem more likely to be abused by people seeking services prior to meeting the benefit trigger criteria.  It is assumed that people do not seek nursing home care unless such care is necessary.  Assisted living facility (ALF) services are covered in our plan of interest, but that is another optional item in the benefit design.  This type of care adds even more flexibility for participants and is a relatively attractive option for someone who is otherwise trying to avoid a nursing home.

The maximum cost per day allowed by the plan can have an important impact on the usefulness of the plan.  In the pot of money design, daily maximum amounts represent a ceiling on the benefit and hence provides an implicit protection against using up the benefits too quickly.  For example, in the plan above, the daily maximum of $4,000 would guarantee you at least 50 ($200,000/$4,000) months of continuous coverage in a nursing home (longer, if less than $4,000 per month are spent), and at least 66.7 months of home health coverage with $3,000 monthly maximum ($200,000/$3,000).

Elimination period of 90 days in the current plan is a very typical option.  This feature acts as a deductible and reduces the cost of the policy. Elimination periods between 20

With relation to inflation protection, this is a crucial element in any insurance contract expected to be held for a long period of time.  Compound indexing option (such as 5%) is the best way to ensure the benefits keep up with the future inflation.  Some design inflation as a guaranteed purchase option, but in our experience, the options are rarely taken and therefore the benefit is not as valuable.

The features listed above are common to all current LTC insurance contracts.  What makes True Group policies different are such key elements as employer/employee contributions split, waiting and vesting periods.  Contribution level would be determined by the employer and is essential for the program to achieve adequate participation levels.  Waiting and vesting periods further reduce costs for employer by limiting coverage to the most loyal and valuable employees.

Why is true group long-term care so important?

  • Many Americans will have no way to pay for long-term care services when they are needed.
  • Insurance for long-term care will not become widespread if only available on an individual basis, which means that the change will need to come first from employers.
  • Group coverage needs to include employer contributions to make it affordable to employees and vesting to make it affordable to employers.