What Decisions Do I Need to Make?

If you decide to purchase a policy, it is important to ask the following questions to help decide which options will be the most appropriate choices for your situation.
1. What Plan Benefits and Features Should I Select?
2. What Daily or Monthly Benefit Amount Should I Select?
3. What Total Amount of Coverage Should I Choose?
4. How Long Should the Elimination Period Be?
5. How Can I Protect Myself Against the Rising cost of Care?
Plan Benefits and Features. Policies are available that offer a variety of covered services and other plan features. The cost for your coverage will depend upon the features you select. A comprehensive policy will cover a range of services at home, in community settings, residential care facilities, and nursing homes. This may include care advisory services, home health care, adult day care, hospice care, and respite care services. Some plans have benefits for coverage of informal care provided by family, friends, or independent caregivers. The ability to receive benefits for home care may allow the car recipient to live independently in their home instead of living in a residential care facility or nursing home. Carriers may also have available plans with a more limited range of services, such as a plan that reimburses covered services in residential care facilities and/or nursing homes, but not care at home1. This type of plan is typically less expensive than one covering a full range of services.
Daily Benefit Amount (DBA) or Monthly Benefit Amount (MBA). It is important to know what the rules are in any policy that you might consider using. Policies may offer benefits in the form of a “Daily Benefit Amount” or “Monthly Benefit Amount.” The DBA may be either the maximum or the actual amount the insurance policy will pay or reimburse per day for covered services. The MBA may be either the maximum or the actual amount the insurance policy will pay or reimburse for covered services in a given month.
While the total benefits one can receive in a given month may be the same whether you have a DBA or MBA, having a monthly benefit provides more flexibility as there are no daily limits, only monthly limits. The plan can pay or reimburse any amount on a given day until the maximum monthly benefit is reach. It is especially helpful when one is receiving care at home.
Scenario: You are receiving home care services 4 days per week at a cost of $120 per day. You receive 17 days of care during the 30-day month.
With a Daily Benefit Amount (DBA) of $100 per day for Each Day
Plan Reimburses: $100 per day
You Pay: $20 per day

Plan Reimburses: $1,700 for the month ($100 times 17)
You Pay: $340 for the month ($20 times 17)

With a Monthly Benefit Amount (MBA) of $3,000 ($100 times 30 Days)
Plan Reimburses: $120 daily
You Pay: $0 per day

Plan Reimburses: $2,040 for the month
You Pay: $0 for the month

Total Amount of Coverage. Policies can offer a variety of options as to the total amount of coverage available for benefits over the course of your lifetime. The total amount of coverage may be expressed as a dollar amount such as $100,000 or $300,000. It may be presented as a period of time such as 3 or 5 years. The time selected is used as a means to calculate the total amount of coverage. For instance, if your DBA was $150 and you selected 3 years, the total amount of coverage you would have for your lifetime would $164,250 (Your $150 DBA times 365 days times 3 years). In most circumstances, reimbursement up to your DBA or MBA is available for as long as you qualify for benefits and receive covered services until you have received benefits equal to the total amount of coverage available to you.
If you select a total amount of coverage and you wish to increase it, you may be able to do so at a later time. It is important to remember two things. First, the cost for coverage is based on the age at which you initially purchased it. Therefore, if you purchased a policy with a total amount of coverage of $200,00 at age 55, that portion of coverage would always be based on the cost at age 55. If you wished to add $100,000 of coverage at age 65, the cost for the additional coverage would be based on age 65, the age at which you added it. Secondly, in most instances, if you wished to increase your coverage at a later time, you would need to provide proof of good health.
Some companies offer policies that allow you to increase your coverage at certain intervals of time without proof of good health, although some rules may apply. For example, you may not be able to increase coverage if you have reached a certain age. The cost for any increased coverage would be based on the age at which the additional coverage is purchased as described above. This kind of policy would allow you to start with a smaller amount of coverage and increase it over time.
Elimination Period. To keep the cost of your premiums lower, most policy benefits become available only after a period of time called an “elimination period” or a “waiting period,” which is similar to a deductible. These terms generally man the same thing. This is the period of time during which you must be eligible for benefits (and in certain types of policies you must also be receiving covered services) before your insurance benefits become available. During this time you will generally continue to pay premiums.
If you are purchasing a policy, it is important to understand how the elimination period works so you will know what to expect at the time of benefit. It is typically measured in either calendar days or service days. Under both scenarios you must meet the eligibility criteria to receive benefits before the elimination period begins.
In a calendar day waiting period, once you have been benefit eligible for the number of days specified (for example 30 calendar days or 90 calendar days), you can being receiving claim payments for covered services. You do not need to have received any services during the elimination period for those days to apply.
In a service day elimination period, in most instances, you need to receive a covered service for any day to count toward your elimination period. For instance, your elimination period was 30 days of service and you were receiving home care services three days per week, it would take approximately 10 weeks to satisfy the 30-day elimination period. Some companies may count days differently. For instance, a company may say that if you receive at least one day of service in a given week, the entire 7 days will be applied to your elimination period.
Policies with a short or no elimination period are usually more expensive than policies with an extended elimination period. Some companies require that you meet the prescribed elimination period only once in your lifetime. Others require you to meet the prescribe elimination period each time you need long term care services.
The Rising Cost of Care. There are several options that may help you protect yourself against the increased costs of care in the future. In California, all policies must offer inflation protection options. Below are some common examples:
Automatic Compound Inflation Option: Helps keep pace with the future cost of care. This is an annual increase, for the life of the coverage, is based on your compounded DBA. Choosing Automatic Compound Inflation Option will result in a higher DBA that the Automatic Simple Inflation option.
Automatic Simple Inflation Option: The annual increase, for the life of the coverage, is based on the DBA originally purchased

Daily Benefit Amount Increases at Simple and Compound Rates (5%)
Year Simple Compound Difference
0 $100 $100 $0
10 $150 $163 $13
15 $175 $208 $33
20 $200 $265 $65
25 $225 $339 $114
30 $250 $432 $182

Source: Planning for Long-Term Care, United Seniors Health Council, McGraw-Hill, 2002

Optional Inflation Protection: There are different types of optional inflation features. Common names are Periodic Inflation Protection, Future Purchase Option, or Guaranteed Purchase Option. With these options, the company periodically offers the opportunity to increase coverage by a certain percentage or amount at predetermined intervals without providing evidence of good health. The offers may be given annually or every few years. In some policies, these offers may stop if the increases are declined for a certain number of years. In this instance, you may need to provide proof of good health if you wish to receive future offers.
1This type of plan may not be available in all states.