Long-Term Care Insurance

Table of Contents

Module 1 - Long Term Care Facts

1. Introduction 2. Statistics 3. Growing Need For Long Term Care 4. Increased Interest of Long Term Care 5. What Is Long Term Care? 6. Traditional Long Term Care Defined 7. Partnership Task Force Report 8. Monthly HCBS Benefits 9. Long Term Partnership Policy Defined

10. Differences between Traditional and Partnership LTC 11. Purpose of Long Term Care Partnership Policy 12. Partnership Concept 13. Consumer Benefits 14. Asset Protection 15. Special Features of Partnership Policies 16. Insurance Producer Educational Requirements 17. Appropriateness of Recommended Purchase

Module 2 - Long Term Care Range of Services

1. Covered Services 2. Skilled Care 3. Intermediate Care 4. Custodial Care 5. Hospital Based Nursing Facilities 6. Skilled Nursing Facilities 7. Intermediate Care Facilities 8. Multi-Level Facilities 9. Home Care

10. Adult Day Care 11. Respite 12. Transportation Issues

Module 3 - Sources For Providing Long Term Care

1. Payment Problems 2. Medicare and Nursing Homes 3. Medicaid and Long Term Care 4. Private Pay 5. Long Term Care Insurance 6. Reverse Mortgages

Module 4 - Medicaid

1. Medicaid Fact Sheet 2. Medicaid’s Funding Problems 3. Medicaid vs. Medicare 4. Estate Recovery 5. Liens 6. Basic Services Offered By Medicaid 7. Optional Services States Can Provide 8. Medicaid Payments to Providers 9. Persons Receiving Medicaid Benefits

10. Major Groups Covered 11. Medicaid As A Supplement 12. Amount of Medicaid Services 13. Medicaid Qualification 14. Medicaid Issues On Choosing a Nursing Home 15. Protecting Assets 16. Medicaid Expanded Services 17. Illinois Medicaid Specific Issues 18. Medicaid Conclusions 19. Specifics On Major Groups 20. Supplementary States 21. States Providing Additional Medicaid Coverage 22. Medically Needy Program 23. More On Medicare and Medicaid 24. A Word of Caution

Module 5 - Regulations on Spend Down & Asset Transfer

1. Asset Rules 2. Community Spouse Resource Allowance 3. Transfer of Assets Rules 4. Spousal Impoverishment 5. Medicaid Spend-Down

Module 6 - Life-Care Facilities

1. Introduction 2. Life Care Community (LCC) 3. Continuing Care Retirement Communities 4. CCRC Fees 5. Evaluating a CRCC 6. Contract Review Checklist 7. Minimum Standards For Home Health Care

Module 7 - Insurance Policies

1. Types of Long Term Care Policies 2. Types of Benefits Paid 3. How Benefits Are Paid 4. Length of Benefit Periods 5. Daily Nursing Home Benefit 6. Daily Home Care Benefit 7. Long Term Care Policies 8. Policy Defined 9. Policy Definitions

10. Acute Condition 11. Adult Day Care 12. Home Health Care Services 13. Medicare 14. Mental or Nervous Disorder 15. Personal Care 16. Extension of Benefits 17. Continuation or Conversion 18. Discontinuance and Replacement 19. Premiums Charged 20. Additional Long Term Care Insurance Policy Rules 21. Unintentional Lapse 22. Required Disclosure Provisions 23. Preexisting Conditions 24. Policy Practices and Provisions 25. Renewability 26. Limitations and Exclusions

Module 8 - Long Term Care Policy Provisions

1. Elimination Periods 2. Underwriting and Health Questions 3. Waiver of Premium 4. Benefit Triggers 5. Typical Exclusions 6. Nonforfeiture Benefits 7. Factors Affecting Cost of Long Term Care

Module 9 - Social Security Benefits

1. Who is covered? 2. What are the Benefits? 3. Funding Future Benefits 4. Additional Tax Issues 5. Fully Insured 6. Early Retirement Issues 7. Normal Retirement Age 8. Late Retirement 9. Family Benefits

10. Disability Benefits

11. Survivor Benefits 12. Medicare Benefits 13. When Medicare Benefits Become Available 14. Commonly Asked Questions

Module 10 - Agent Responsibilities

1. Marketing Practices 2. Misrepresentation and Defamation 3. Disclosure Requirements 4. Replacement Issues 5. Other Agent Responsibilities

Long Term Care

Insurance

1 Long-Term Care Facts 1.1 Introduction Almost half of persons aged 65 or older will eventually need long-term care. Such care could include in-home help with the activities of daily living, such as dressing or bathing, or it could include skilled medical attention given in a nursing home. In most states the average cost of one year of long-term care is $13,000 for in-home services and $36,500 for a nursing home, with inflation adding another 6% a year.

Most elderly Americans are worried about outliving their income because of inflation and the more realistic concern of losing all their assets while trying to pay for long-term health care. Currently, one in eight Americans is over 65 years old. Grandparents outnumber teenagers, and the population is growing older by the day. For any number of reasons, the aged are getting older while the number of Americans over 65 is growing rapidly, and the over 75 group will be growing even faster. By the turn of the twentieth century, half of the population over 65 will be over 75, and one in three senior citizens will be over 80 years old. The good news of course, is our chances of living until 85 have doubled and in some cases our chances of reaching 85 have tripled. Long-term care is an issue of growing importance to practitioners and policy makers. Projections of the growth of the elderly population are startling. In 1990, Americans older than 65 years numbered 31 million; this figure is expected to reach 52 million by the year 2020 and 68 million by 2040. By 2050 more than 20% of the population will be 65 or older. A variety of changes in the demographic profile of the future elderly population will affect their need for formal, long-term care services in nursing homes (or significant levels of in-home services provided by professionals). Obviously, the life span of the elderly and the proportion who have health limitations will be important because the need for long-term care, in general, increases with age and disabling health conditions. If more elderly persons live alone in the future, the demand for formal in-home and nursing home services will increase because fewer elderly persons will be living with family caregivers who would normally provide significant levels of informal long-term care services.

1. Additional Statistics

� Number of elderly will increase by 100 - 125 percent by the year 2030. � Number or persons requiring nursing home care will triple during the same time period. � Annual expenditures for nursing home care will increase from about $44 billion in 1990 to $98 billion by

2010 and to $187 billion by 2030. � According to a recent study published in The New England Journal of Medicine, of people who turned 65 in

1990, 43 percent will enter a nursing home at some time before they die. � The United States Department of Health reports that half of those persons entering nursing homes will stay

less than three months while the average stay of the other half will be 2 1/2 years. � The Department of Health also reported that 75% of all nursing home residents over the age of 85 are

women. � The Census Bureau concluded that between 1980 and 1990, the nursing home population consisted of

approximately 1.5 million women and .3 million men. � The Census Bureau also concluded that one nursing home resident out of every seven was married; the

rest were widowed, divorced, or never married.

1.3 Growing Need for Long-Term Care According to the Western Journal of Medicine, there are 9 1/2 million Americans who need long-term care; of these, 3.9 million are disabled persons younger than 65 and 5.6 million are 65 years or older. Americans older than 85 years are the group most likely to need long-term care because about half are disabled or need help with one or more activities of daily living (ADL).[1] Men older than 65 have a 30% chance of entering a nursing home at some time in their lives, whereas for women, who more often outlive their spouses, the chance is 52%. The American Association of Retired Persons (AARP) says, “it is important to think about the possibility that, at some time, you or a loved one might require some help with ordinary everyday activities, or need care over an extended period.” According to Dr. Otis Bowen, former secretary of the United States Department of Health and Human Services, “What most people aren’t covered for, either by Medicare or most private Medicare supplementary policies, is long-term care in nursing homes. The following reflect some of the facts about nursing home stays: 1. Short nursing home stays are not necessarily a financial calamity if skilled recuperative care is required, as Medicare may pick up much of the bill, while a middle-class or affluent household can probably weather the impact of a couple of months or more. 2. The average stay duration of a nursing home stay was 2.5 years in 1990 (and the average cost nearly $30,000 a year). As indicated, the average nursing home stay costs during 1995 in Illinois, was estimated to be $36,500 annually. 3. Fourteen percent of men, and almost one-third of women, are expected to spend a year or more in a nursing home; four (4) percent of men, and about one-seventh of women, are expected to spend five years or more there. 4. A five-year stay is likely to put a big dent in an individual’s or couple’s savings, not to mention the inheritance their children rely on to help the grandkids’ college bills. 5. It’s even possible that both spouses in a married couple will need nursing home care. The future market for long-term care insurance (LTC) will be greater than most insurance industry observers realize. The increasing demand for nursing home services will force the price of nursing home care up, making it impossible to cover the expenses with only Medicaid coverage and thus creating a heightened demand for long-term care insurance. Many people should consider their own family and personal health history in helping them make the decision as to

whether long-term care insurance may be warranted. Persons concerned with this issue should consider the following:

� Is there a family history documenting a particular serious medical problem such as heart disease?

� Have close family members died in early years from similar types of illnesses?

� Are you in good physical shape or are you prone to suffer from a heart attack due to your poor current health?

Remember, the worse your family health history and/or your current physical condition is, and if your personal lifestyle could lead to serious medical problems, then you would probably be a good candidate for long-term care insurance. 1.4 Increased Interest of Long-Term Care All of the following facilities, levels of care, community action, family involvement etc. have increased the interest in long-term care because of its sensitivity and the needs of older people in general. 1. Hospital Based Nursing Facilities These services are also known as extended care facilities and are actual departments located within hospitals. They provide the highest level of medical and nursing care, including 24-hour monitoring and intensive rehabilitative therapies. They are intended to follow acute hospital care due to serious illness, injury or surgery. One of the major differences between the hospital and nursing home facilities is that the hospital facilities are not meant to be a permanent residence but rather for a short term until the patient can be sent home or be maintained elsewhere. It should be obvious that hospital care will be very expensive as compared to other types of long-term services available. 2. Skilled Nursing Facilities Non-hospital based skilled nursing facilities provide a relatively high level of nursing and other medical care, as well as personal care and assistance. These patients are typically in need of close monitoring due to illness or impairments. Licensed nursing is available around the clock with at least one supervising registered nurse on duty at all times. Additionally, most other prescribed medical services can also be provided, including rehabilitative services. Depending on the seriousness of the illness a stay in a skilled nursing facility can be for a short-term or even extended to a long-term stay. 3. Intermediate Care Facilities These facilities provide less nursing and other medical services than the skilled nursing facilities. These facilities are geared for long-term residents with chronic illnesses or impairments but whose conditions are not as acute as those who would stay in skilled nursing facilities. Staffs are geared toward personal care and assistance with rehabilitative services optionally available. Typically, these types of facilities will not cost as much as the skilled nursing facility and therefore the number of intermediate care facilities available will be limited. 4. Multi-Level Facilities Multi-level facilities provide combinations of both skilled and intermediate services. However, because of the flexibility and diversification of services, the more serious patients may not receive the same degree of care that a

dedicated skilled facility may provide. Additionally, the high cost of skilled medical care may be passed onto those who are not in need of those services. 5. Home Care Home care coverage includes a few pay home-care benefits only for skilled-nursing care performed by registered nurses, licensed practical nurses, and occupational, speech, or physical therapists. Others cover the services of home-health aides employed by licensed agencies. A policy that covers home-health aides is obviously better than one that pays only for skilled personnel. Better still are policies that pay for homemaker services, such as cooking, cleaning, and running errands. A few policies offer what are called recuperative, home again, or post confinement benefits, usually as a substitute for real home-care coverage. These are of limited value, since they typically pay only for a short period following a nursing home or hospital stay. 6. Adult Day Care Adult care is a form of community care which is quite similar to child day care. These programs can be useful for working couples willing to care for an elderly parent who needs some form of supervision. Adult day care can also respond to a need for planned therapy or learning activities and better nutrition, as an example. Adult care emphasizes both achievement and a continued effort to retain and enhance independence. For the elderly who are immobile, adult care enables them to live at home to retain community contacts. 7. Foster Care This concept simply allows an elderly person to be adopted by a caring person or persons. This would also be considered a form of community care. 8. Respite Respite is a short-term substitute care for impaired family members. It is not a single, specific program but rather a service provided in a variety of optional settings. It gives caretakers of patients the opportunity to respond to their own needs or take care of personal matters. 1.5 What is Long-Term Care? Long-term care is the kind of help you need if you are unable to care for yourself because of a prolonged illness or disability. It can range from help with daily activities of living, such as bathing, shopping or dressing, to skilled nursing care in a nursing home. Long-term care can be provided by friends and family, local home care agencies, adult day care programs, nursing homes, and residential and retirement facilities. 1.6 Traditional Long-Term Care Policy Defined Defined as any accident and health insurance policy or rider advertised, marketed offered or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than acute care unit of a hospital. 1.7 Excerpts From The Illinois Partnership Task Force To Governor Jim Edgar Submitted On September, 1993 re: Long Term Care Partnership Insurance Program The Illinois Department of Aging and the Department of Insurance submitted these recommendations regarding the implementation of a new concept in long term care called the partnership program. At the time of this revision the following states have also implemented similar programs for citizens of their states.

� Connecticut � New York � California � Indiana

The Partnership policy recommended in the report is a Partnership between the citizens of Illinois, the State of Illinois and the insurance industry, and “represents a workable solution to the problems of financial impoverishment which persons in need of long-term care can encounter. The Partnership allows citizens to plan for the future without the fear of losing all they have worked for. The Partnership rewards initiative and planning, offers state assistance for those persons who take responsibility for planning for their own needs in later years, and is designed to be budget neutral”. In addition to care in a nursing facility, the Partnership offers consumers the option of home and community-based services. This feature recognizes that most persons in need of long-term care prefer to remain in their own homes, in their own communities. The Task Force Committee report indicated that this recommendation could be made “because over the years, Illinois has built a strong system of home and community-based services to complement the services offered in residential facilities”. 1.8 Monthly Rather Than Daily HCBS Benefits The Task Force also made the following recommendation regarding Home Care Benefit Services: “To permit consumers the flexibility needed for in-home services, the Task Force recommended that the minimum for home care services be no less than one-half the monthly maximum for nursing home care. For example, if the consumer purchased a policy with the $100/day option, the maximum monthly payment for home and community-based services would be $1550 (31 days * $50/day). At the $75/day option, the maximum monthly payment for home and community-based services would be $1162 (31 days * $37.50/day). 1.9 Long-Term Partnership Policy Defined Means any long-term care insurance policy approved as a partnership policy by the Director and issued for delivery to any resident of this State which is designed to provide, within the terms and conditions of the policy, contract or certificate, benefits on an expense-incurred or prepaid basis for necessary care as a result of limited functional capacity in a setting other than an acute care hospital. The Long-Term Care Partnership Insurance Program sets standards for these policies which include a number of important consumer protections, foster a more flexible use of benefits, and coordinate these benefits with existing services in the state. 1.10 Differences Between Partnership Policies and Traditional Long-Term Care Insurance Policies Partnership Policies offer:

� Asset protection during the life of the policyholder

� Inflation protection must be offered to the insured

� Greater range of home care services, such as bathing, grooming meal preparation, laundry, etc.

� Individual case management in which a state-approved case manager can help you select a service provider and arrange services.

� Uniform eligibility requirements established by the state.

� Stricter state requirements for agent training.

1.11 Purpose of a Long-Term Care Partnership Policy The Illinois Long-Term Care Partnership Insurance Program is a partnership between an individual, the State of Illinois and a licensed insurance company. A Partnership Policy pays for long-term care services (including both in-home and nursing home care) through a combination of private insurance and Medicaid, while protecting your financial nest egg during your lifetime. A dollar of assets can be protected for each dollar of Partnership insurance you buy and use for eligible long-term care services. For example: If you bought a Partnership Policy with a maximum benefit of $150,000 and held the policy for four years you could protect unlimited assets from Medicaid spend down. When your insurance runs out, you can apply for Medicaid to pay for any remaining long-term care services without spending your protected assets. After your death, the state can make a claim for reimbursement of Medicaid services from your estate. The partnership is a program to help those who cannot afford private insurance but do not qualify for Medicaid. As it existed in the State of New York, the partnership program was designed to assist New Yorkers who are too ‘wealthy” to qualify for Medicaid, but too “poor” to purchase a private long-term care policy. The program allows consumers to purchase private insurance with minimum dollar nursing home benefits and daily home care benefits. 1.12 The Partnership Concept

As in some of the other states such as California, New York, Connecticut and Indiana, the Long-Term Partnership Policy program provides long-term insurance that averts spending down for Medicaid eligibility once benefits are exhausted. Policyholders will be exempt from many of Medicaid’s asset divestment requirements after the benefits expire. Because private insurance will be available to pay for more long-term care, the initiative is expected to ease Medicaid bills.

1.13 The Primary Benefit to Consumers for Long-Term Care Partnership Policy Program Differing from Traditional Long-Term Care Policy Programs. The benefit the program provides that is of most interest to consumers is the asset protection feature. This feature

allows a person who purchases a long-term care partnership policy to shelter assets from being spent for nursing care prior to Medicaid coverage commencing. This approach allows an insured to plan ahead and purchase insurance to protect his/her assets. It is important to note that you must live in Illinois in order to receive Medicaid benefits. The same would apply to partnership policies in other states. The recipients of any benefits must be residents of that state. The asset protection offered by a Partnership Policy ends when the insured dies. At that time, if Medicaid resources were used for long-term care, the estate may be required to repay some or all of the Medicaid payments. During the insured’s lifetime, however, protected assets may be used. 1.14 Reporting on Asset Protection A. Every insurer shall send an asset protection report at least quarterly to each long-term care partnership policyholder or certificate holder who has received any benefits since the last asset protection report. Each asset protection report shall include the following information: 1. The amount of asset protection for which the long-term care partnership policyholder or certificate holder had qualified prior to the quarter covered by the current report. 2. The total benefits paid by the insurer for services rendered during the current quarter. 3. A statement of the amount of benefits paid by the insurer for services rendered during the current quarter which qualify for asset protection. 4. A summary total of the amount paid to date under the long-term care partnership policy or certificate which qualifies for asset protection. B. Asset protection reports shall be subject to audit by the Director. 1.15 Special Features of Partnership Policies Agent Training All insurance agents must complete six hours of state-approved training on traditional long-term care insurance in general and another six hours of training on long-term care Partnership Policies before they are allowed to sell Partnership Policies. Amount of Coverage Measured in either dollars or time, amount of coverage refers to the lifetime the policy will pay. For example, a policy may pay for three years of nursing home care, at a rate not to exceed $100 a day. The policy may agree to pay an amount, such as $50,000, over an unspecified period of time, at a rate of $100 a day. The Partnership Policies require the purchase of a minimum amount equal to the cost of nursing care for one year at the rate of $75 a day. Thus, the minimum coverage you can purchase is $27,375, payable at a rate up to $75 a day for nursing home care. Each policy is also required to cover home and community-based care (to be discussed later) in an amount at least one-half of the nursing home benefit. You have the option of purchasing higher coverage. Your decision should be based on the amount of the assets you wish to protect and your ability to pay the premium. Claims Arbitration In Partnership Policies, you have the right to appeal decisions made by the insurance company regarding:

� Denial of coverage (you are told the company will not sell you a policy)

� Denial of benefits (you are told that you are not impaired enough to receive benefits)

� Plan of care (you disagree with either the type or amount of services which are approved for your to

receive)

Eligibility for Benefits Long-term care insurance benefits begin when your level of need meets the policy criteria (to be discussed later). Companies selling traditional long-term care insurance policies can make this determination themselves or contract with agencies or individuals to perform this function for them. Partnership Policies require this determination be made by independent case management agencies designated, trained and monitored by the State of Illinois. 1.16 Insurance Producer Educational Requirements For Both Programs Program regulations require that any insurance producer who wishes to market traditional long-term care policies that qualify under section 2012 must complete a program of study for six (6) hours. Those insurance producers marketing long-term care partnership policies under section 2018 must take both six (6) hour courses. The insurance producer must understand the long-term care insurance policy concept itself as well as the Illinois Long-Term Care Programs. After July 1, 1995, only completion of an approved educational course may an insurance producer sell such policies within Illinois. Consumers must benefit from agents who are knowledgeable and able to educate the client on the program and its advantages. 1.17 Appropriateness of Recommended Purchase (50 ILAC 2018.190) In recommending the purchase or replacement of any long-term care partnership policy or certificate, an insurance producer shall make efforts to determine the appropriateness of a recommended purchase or replacement, and the self-assessment guide available from Department on Aging or Department of Insurance shall be provided.

[1]. ADL includes daily activities such as eating, bathing, toileting, dressing etc.

2 LONG-TERM CARE RANGE OF SERVICES 2.1 Covered Services

Covered services are the services you can purchase with insurance benefits. Some traditional long-term care policies ONLY cover services in a nursing home (termed intermediate care facility and skilled care facility) while others cover home and community-based services. In some instances, the home and community-based services, which often can help a person avoid going to a nursing home, are limited, so be sure to read the policy carefully. All Partnership Policies are required to offer both nursing home care and home and community-based care. Policy benefits can be used to purchase Medicaid-eligible long-term care services which include the following: (1) Long-term care services available under the Medicaid home and community-based services provided by a licensed home health agency, and speech, occupational, and physical therapy and medical transportation; (2) Long-term care services covered under the Medicaid home and community-based services waivers for the aged, the disabled, and HIV/AIDS victims, including homemaker, chore-housekeeping, personal care attendant, adult day care, assistive equipment, home renovation, home-delivered meals, and emergency response systems offered by Medicaid approved providers as part of an individual assessment and plan of care developed by a case management agency approved by the Department of Aging and/or the Department of Rehabilitation Services; and (3) Other alternative services which are deemed by the state Medicaid agency as essential to prevent institutionalization and offered by appropriately licensed or approved providers. To qualify for an asset disregard, home and community-based services and/or alternate services must be specified in a written individualized plan of care developed by a state designated case management agency. The plan of care must specify the type and frequency of all services required to maintain the individual in the community, the service providers, and the cost of services.

Definitions and explanations of types of care are as follows: 2.2 Skilled Care Skilled nursing care is care that can only be performed by, or under the supervision of licensed nursing personnel. Skilled nursing facilities must provide twenty-four (24) hour nursing service and must require that the medical care of every resident/patient be provided under supervision of a physician. 2.3 Intermediate Care Intermediate care is that type of care that is not as demanding as skilled care but requires more attention than custodial care. Because the patient’s condition is not as demanding as a skilled care patient the twenty-four (24) hour nursing program is not required.

Because of their mental or physical conditions, patients in intermediate care facilities require care and services above room and board that can be provided through institutional facilities. 2.4 Custodial Care An individual in need of custodial care typically would be in some need of help in personal needs such as dressing, bathing etc. Certainly, this type of care is no where close to the demanding needs required in a skilled care situation. 2.5 Hospital Based Nursing Facilities These services are also known as extended care facilities and are actually departments located within hospitals. They provide the highest levels of medical and nursing care, including 24 hour monitoring and intensive rehabilitative therapies. They are intended to follow acute hospital care due to serious illness, injury or surgery. One of the major differences between the hospital and nursing home facilities is that the hospital facilities are not meant to be a permanent residence but rather for a short term until the patient can be sent home or maintained elsewhere. It should be obvious that hospital based care will be very expensive as compared to other types of long-term services available. 2.6 Skilled Nursing Facilities Non-hospital based skilled nursing facilities provide a relatively high level of nursing and other medical care, as well as a personal care and assistance. These type patients are typically in need of close monitoring due to illnesses or impairments. Licensed nursing is available around the clock with at least one supervising registered nurse on duty at all times. Additionally, most other prescribed medical services can also be provided, including rehabilitative services. Depending on the seriousness of the illness, a stay in a skilled nursing facility can be for a short-term or even extended to a long-term stay. 2.7 Intermediate Care Facilities These facilities provide less nursing and other medical care than the skilled nursing facilities. These facilities are geared for long-term residents with chronic illnesses or impairments but whose conditions are as acute as those who would stay in the skilled nursing facilities. Staffs are geared toward personal care and assistance with rehabilitative services optionally available. Typically, these types of facilities will not cost as much as the skilled facility and therefore the number of intermediate care facilities available will be limited. 2.8 Multi-Level Facilities These facilities provide combinations of both skilled and intermediate services. However, because of the flexibility and diversification of services, the more serious patients may not receive the same degree of care that a dedicated skilled facility may provide. Additionally, the high cost of skilled medical care may be passed on to those who are not in need of those services. 2.9 Home Care Home care includes a multitude of medical and personal services that can be provided at home. The word “home” is usually used to the context of meaning the private home of the person or even the home of a relative or friend. Typical Home Care services can include the following;

� Homemaker - A home-care agency staff member who provides meal planning and preparation (including assistance with special diets), routine housework, shopping, and assistance with personal care. This is considered to be non-medical support provided by trained and professionally supervised homemakers to

maintain, strengthen and safeguard the functioning of individuals in their own homes.

Specific components of homemaker service include the following:

� Teaching and/or performing of meal planning and preparation � Routine housekeeping skills/tasks � Shopping skills/tasks � Home maintenance and repairs � Assisting with self-administered medication which shall be limited to reminding the client to take the

medicine, reading instructions for utilization, uncapping medication containers and providing the proper liquid and utensil with which to take medications.

� Assisting with following a written special diet plan and reinforcement of diet maintenance � Observing client’s functioning and reporting to the appropriate supervisory personnel � Performing and/or assisting with personal care tasks (e.g., shaving, shampooing, combing, bathing,

cleaning teeth or dentures and preparation of appropriate supplies, transferring client, and assisting client with range of motion.

� Escorting the client to medical facilities, errands, shopping and individual business

� Health Care - These are medically-related services prescribed by a physician including nursing services,

physical, respiratory, or speech therapy, and performance or personal care and medication administration.

� Personal Care - assistance with personal needs such as hygiene, dressing, bathing etc. This can be performed by a Personal Assistant who would be directed by you or your representative to assist with household tasks and personal care as listed above. The person hired must meet specific requirements of the insurance companies.

� Nutritional needs - meal planning, cooking and delivery

� Special needs - transportation, telephone and companions.

� Emergency Home Response System - Communication devices which signal a network of emergency responders. The system must provide 24-hour a day emergency communication link to assistance outside the home for individuals so severely disabled that they are incapable of using conventional or modified communication devices such as the telephone, and who have no other persons available in the home should an emergency arise. An Electronic Home Response Center is part of a network of emergency responders.

� Remodeling - Modification of your home to enable you to be less dependent on direct assistance from others. Examples include, installation of ramps, grab bars, or widening doorways for wheelchair access.

� Assistive Equipment - Equipment with a useful life of at least one year, designed to increase independent functioning (e.g. wheelchair).

� Other Approved Services - Partnership Policies also provide alternate services deemed essential to prevent institutional care and offered by licensed or approved providers. These “other” services must be approved in advance by the Department of Public Aid and the insurance company.

2.10 Adult Day Care

Direct care and supervision of individuals in a community-based setting. Services include transportation to and from the adult care center, assistance with activities of daily living, meals and snacks, health and medication monitoring, and an activity program. These programs can be useful for working couples willing to care for an elderly parent who needs some form of supervision. Adult day care can also respond to a need for planned therapy or learning activities and better nutrition. Adult care emphasizes both achievement and a continued effort to retain and enhance independence. For the elderly, adult day care enables them to live at home and to retain community contacts.

2.11 Respite This is a short-term substitute care for impaired family members. It is not a single, specific program but rather a service provided in a variety of optional settings. It gives caretakers of patients the opportunity to respond to their own needs or take care of personal matters. This is a very flexible program. This care can be delivered at home or in an institutional setting. Bottom line, Respite can meet various objectives for the caregiver, the care recipient, and the community at large. 2.12 Transportation Issues The fate of elderly persons may very well depend upon the ability to get to shopping and medical appointments. Transportation to medical appointments is provided by adult day care centers and homemakers, and the homemaker service offers shopping assistance. Medical transportation is also available in many areas of the state.

3Sources For Providing Long-Term Care

3.1 Payment Problems According to the American Medical Association, the elderly paid out more money to cover nursing home expenses than any other aspect of their health care. Even so, a majority can’t meet the staggering costs on their own, and Medicare coverage is limited. Faced with an average outlay of $36,500 a year in most states, and double or triple that in some urban areas, many of the elderly in nursing homes are faced with watching a lifetime of savings evaporate within a few years. 3.2 Medicare and Nursing Homes

It needs to be noted that there was never any provision in the Medicare Catastrophic Coverage Act to pay for the cost of long-term health care. In fact, benefit booklets explain that Medicare hospital insurance (Part A) helps pay for medically necessary care in a Medicare-approved hospital, skilled nursing facility, and hospice. Skilled nursing facility care is not the same as custodial nursing home care. Skilled nursing care is acute care, while custodial is long-term care. Most nursing homes in the United States are not skilled nursing facilities, and many skilled nursing facilities are not certified by Medicare. So in conclusion, Medicare will provide for less than 2% of long-term care health payments. Medicare will, however, provide payment for health care for individuals over the age of 65 and certain individuals under the age of 65 with significant disabilities. Medicare is basically a health insurance program. The benefits available under Medicare are similar to those under most health insurance plans in the way they cover long-term care. There is a common misconception that supplemental health care insurance policies (known as Medigap insurance policies) will cover long-term care. Supplemental policies cover no further than the primary insurance, in this case Medicare. The supplemental policies merely cover the deductibles and the co-payments of covered Medicare expenses. 3.3 Medicaid and Long-Term Care The average cost of nursing home care in the United States, in 1997, ranged from $30,000 on up per year. That breaks down to approximately $2,500 per month or $82 per day. It is easy to see how an extended period of long-term care can devastate a modest estate. Medicaid is the only public assistance program which will pay for long-term care. However, to qualify for Medicaid, one must be deemed indigent according to qualifying criteria set by state and federal regulations. Increasing the financing crisis of long-term care, low Medicaid reimbursement rates weigh like an anchor on nursing homes around the country. They drag down the industry’s ability to pay acceptable salaries, hire

competent people, and provide quality care. Many institutions don’t like to take Medicaid patients. If a patient doesn’t have to rely on Medicaid when he/she first enters the nursing home, there may be a better choice of homes. The Medicaid program is need based, providing benefits only to those who demonstrate a financial need, which is determined by federal guidelines modified to a certain extent by the state. Medicaid provides approximately 45% of the funding for long-term care. However, qualifying can often be a major problem. As an example: Let’s suppose that Linda, a seventy-two year old single woman, lives on her fixed monthly pension of $890. Linda’s health deteriorates, and it appears she must enter a nursing home. Linda’s only other assets are savings of $21,000. Linda lives in an income cap state, and the maximum allowable income to qualify for Medicaid is $850 a month. Since Linda’s income exceeds this amount, and since she can do nothing to change it, she cannot qualify, even after she spends her life’s savings down to zero. Medicaid covers a variety of medical services, including services needed by people with long-term or chronic impairments. Adding more to the problem is the fact that the number of Medicaid-certified providers of long-term care services around the country is limited. So even if the individual qualifies for the program, it may be difficult to find a provider to use. 3.4 Private Pay Most long-term care is paid privately (Approximately 49%). This means that most patients pay for long-term care out of their own pockets, whether the care is skilled, intermediate or custodial. Since a large percentage of nursing home residents are receiving intermediate or custodial care in nursing homes, they would not be eligible for Medicare skilled nursing care benefits. The massive amount of care provided by family members and other unpaid caregivers adds another dimension to the social costs of long-term care. More than 70% of those receiving long-term care must rely exclusively on unpaid caregivers.

3.5 Long-Term Care Insurance

Long-term care insurance is one of the methods available to cover long-term care. There is a great deal of debate concerning long-term care insurance. The insurance industry claims that long-term care insurance is the method

of the future to pay for long-term care. Critics claim that long-term care policies are deceptive, inadequate and too costly. Over the past five to ten years there has been a dramatic change in the quality and nature of long-term care insurance policies. Most states have adopted laws and regulations concerning long-term care insurance which forced the quality of insurance products to improve. This is especially true since the introduction of the National Association of Insurance Commissioners Model Act and Regulation on Long-Term Care Insurance. Long-term care insurance has become the fastest growing type of health insurance sold in recent years. Spurred by the pending “elder boom” and its promise of an enormous market, more than 100 private insurers have joined the field since 1987. Despite all the hoopla, just 1% - 2% of the United States’ $60 billion nursing home care costs in 1991 were covered by private insurance. Most long-term care insurance policies pay indemnity benefits directly to individual policy holders. These payments enable insured patients to purchase nursing home care privately instead of relying on Medicaid. If everyone who can afford it were to purchase long-term care insurance, financing problems for nursing homes would decline, Medicaid costs would plummet, and both public and private patients would experience easier access to quality care. Insurance companies promote long-term care insurance as a protection for assets that are built up over a lifetime. Another reason for insurance is to protect your assets for your spouse or a dependent member of your family. Or you may simply feel more comfortable having a policy that helps you avoid impoverishment or reliance on government programs or family members in the later years. There are those individuals that decide to buy a policy as a means of getting into a more desirable nursing home. Remember, there are many institutions that don’t like to take Medicaid patients. Of course, one of the major problems with purchasing a long-term care insurance policy is whether an individual, such as a retiree, can afford the cost. For most retirees, the answer is no. The average annual per capita income for someone 65 or over is about $17,000. If a 65 year-old with average income could pay about $2,000 each year for a good long-term care policy with inflation protection 12 percent of his/her annual income would be exhausted. Add other expenses and you can see that it may be quite difficult for the elderly to handle these kind of premiums.

3.6 Reverse Mortgages Another form of possible income is through a reverse mortgage in which you can withdraw the equity in your home in the form of a loan and use the money for living expenses. Typically, the loan proceeds are paid out monthly, but other arrangements can be made. The loan balance increases each month as payments are received. Additionally, interest is added to the growing balance.

4MEDICAID

4.1 Medicaid Fact Sheet

� Medicaid is a means-tested, public assistance program, i.e. welfare. It is not an entitlement program like Social Security or Medicare.

� Medicaid is intended to assure access to health care for the poor, not to protect inheritances for heirs.

� Medicaid often reimburses nursing homes less than the actual cost of providing the care. Nursing homes are compelled to shift costs to private payors to make up the difference.

� Medicaid’s ability to pay for care is severely strained by skyrocketing, taxpayer-financed expenditures both at the federal and local levels.

� Medicaid programs have the authority under federal law to place liens on homes and recover benefits paid from the estates of deceased recipients and their spouses.

� Medicaid programs often do change eligibility rules to save money. Previously qualified people may become ineligible on short notice.

� Medicaid applications are legal documents and require full financial disclosure. False or incomplete statements may lead to prosecution for fraud.

4.2 Medicaid’s Funding Problems There are many reasons for Medicaid’s funding problems such as general health care inflation and increased coverage of the elderly whose Medicare payments become insufficient. One of Medicaid’s biggest problems is its administrative inefficiency. For example, to provide Medicaid payments for services rendered, states require extensive and often confusing paperwork. Medicaid is considered a “slow-pay”, “low-pay” program that often dissuades health care providers from participating, thereby decreasing access to timely care which ultimately causes an increase in the use of expensive emergency department services. Years of economic, political, and social accommodation have resulted in a Medicaid program that produces expensive and inefficient health care. 4.3 Medicaid vs. Medicare

Because the terms are so similar, most people confuse the two. The Medicare program covers medical needs as opposed to custodial care. Medicare is not a financially need-based program, and, therefore, the Medicare program pays for all necessary medical treatment regardless of the recipient’s financial status. Although Medicare does not usually pay for nursing home costs, the federal Medicare Catastrophic Coverage Act (MECCA), enacted in 1988, adds to the confusion, since it allows Medicare to pay for a limited amount of nursing home costs that previously were, for the most part, paid by Medicaid only for patients who qualified for welfare benefits, since such long-term care costs were not deemed to be medically necessary. The Medicaid program is implemented by each state individually. The federal government is involved because it reimburses the state for a substantial portion of Medicaid benefits paid to its citizens, provided the state’s Medicaid program meets the prescribed federal guidelines. Hence, the states tend to follow the dictates of the federal government, and their Medicaid laws are substantially similar. 4.4 Estate Recovery Where it is cost effective, the State Department of Social Services may seek recovery for medical assistance from the estate of a deceased person if:

� the person was 65 or older, or � was institutionalized

4.5 Liens Liens against the real property of a recipient may be filed when the Department of Social Services determines that the recipient cannot reasonably be expected to return home. The purpose of the lien is to recover any payments made by the State of Illinois on behalf of the Medicaid recipient. Automatic statutory liens are also imposed against judgments, awards and settlements in lawsuits when the state has provided medical assistance to a recipient for which a third party is responsible. 4.6 Basic Services Offered By Medicaid Federal law and regulations specify a list of basic services that must be included in any state Medicaid program. Those services include:

� Inpatient hospital services

� Outpatient hospital services, including ambulance services offered and included in the state’s Medicaid plan.

� Physician services furnished in the physician’s office, patient’s home, hospital, skilled nursing facility, or elsewhere. Also, medical and surgical services furnished by a dentist where state law permits either physicians or dentists to perform such services.

� Laboratory and x-ray services

� Skilled nursing facility services for individuals 21 and over. Coverage does not include services in an institution for mental diseases or tuberculosis, but does include early and periodic screening, diagnosis, and treatment of individuals under age 21 for physical and mental defect.

� Home health care for persons eligible for skilled nursing facility services.

� Family planning services and supplies.

� Rural health clinic services, including ambulance services offered and included in the state’s Medicaid plan.

� Federally qualified health center services.

� Services of certified pediatric or family nurse practitioners.

� Early and periodic screening diagnostic and treatment services for children under 21.

4.7 Optional Services States Can Provide States may elect to provide a number of other services for which federal matching funds are available. Some of the most frequently covered optional services are: clinic services, medical transportation services, intermediate care facility services for the mentally retarded, optometrist services and eyeglasses, physical therapy, occupational therapy, speech therapy, hospice care, respiratory care services, home and community based care for functionally disabled elderly persons.

1. Medicaid Payments to Providers

The states pay providers directly for the health care services delivered to Medicaid recipients. States may not impose an enrollment fee or premium on the categorically needy. States may, however, impose such a charge (related to the individual’s income) on the medical needs. States may impose cost sharing in the form of nominal deductibles and co-payments on both the categorically needy and the medically needy, but such cost sharing may not be imposed on services to children, pregnant women, residents in skilled nursing homes or intermediate care facilities, emergency services and health maintenance organization services. 4.9 How Many Persons Receive Medicaid Benefits? Approximately 38 million persons received health care benefits in 1995 from the various state Medicaid programs. In fiscal year 1990, state Medicaid programs spent over $15 billion providing nursing home care to about 1.3 million elderly persons who qualified for benefits. Over 60% of all persons in nursing homes receive financial assistance from Medicaid.

1. Major Groups Covered

States generally have broad discretion in determining which groups their Medicaid programs will cover and their financial criteria for Medicaid eligibility. States are required, however, to provide Medicaid coverage for most recipients who receive federally assisted income-maintenance programs, as well as for related groups not receiving cash payments. Some states cover only those persons who are age 65, disabled or blind and who meet a means test which is more restrictive than the Supplemental Security Income test which is generally acceptable by most of the states. Illinois is not a SSI state but rather one of the fourteen (14) Section 209(b) more restrictive states. 4.11 Medicaid As A Supplement Medicaid serves as a supplement to health insurance coverage provided by Medicare. Medicaid pays for extended nursing home care for elderly people who cannot afford to pay for it themselves. For those who qualify, Medicaid pays Medicare premiums, as well as Medicaid coinsurance and deductibles. It may even pay the full cost of some services not covered by Medicare. Nursing home care is the largest catastrophic health care expense for the elderly Many elderly persons enter nursing homes and deplete their life savings until they are impoverished. Once impoverished, they qualify for Medicaid coverage. 4.12 Amounts and Duration of Medicaid Services Within broad federal guidelines, states determine the duration and amount of services offered under their Medicaid programs.

1. Medicaid Qualification

To be eligible to receive Medicaid benefits, a person must meet three eligibility tests. These tests are as follows; 1. Eligibility based on category (age or disability) The individual must be in need of nursing home care and must fall into one of the categories eligible for benefits. Also, the individual must be either age sixty-five or older, blind, or physically or mentally disabled. 2. Eligibility based on income With this test, the individual may not have monthly income in excess of the allowable amount set by the state. If this person has income from any source, whether taxable or not, in excess of the allowable limit, he/she would not qualify for Medicaid. 3. Eligibility based on assets The third test that must be met limits the total amount of assets a person may have before he/she can qualify for Medicaid benefits. There are two basic categories of assets: countable assets, the total value of which will determine a person’s eligibility for Medicaid. Exempt assets which, regardless of value, will not affect a person’s eligibility. The student should note that there are a number of exceptions, exemptions and other tests that could apply to the Medicaid rules. However, time does not permit us to cover them at this time. 4.14 Medicaid Issues On Choosing A Nursing Home First, an individual must determine early on whether or not the facility will accept Medicaid eligible patients. Second, if it is anticipated that the resident will have to convert from a private pay to a Medicaid resident, advance arrangements should be made for the resident. Third, the nursing home may not require a minimum period of stay as a private pay resident before converting to Medicaid.

Fourth, after the Medicaid application has been filed, family members are not required to pay the nursing home bill until Medicaid is approved. Fifth, voluntary contributions to be paid to the facility by anybody on behalf of the resident is illegal. 4.15 Protecting Assets In determining eligibility for Medicaid, a state carefully reviews all the assets available to the applicant and the applicant’s spouse. Certain assets such as limited amounts set aside for burial, family car, and personal property are not counted in determining eligibility for Medicaid. It should be noted that placing an asset in a spouse’s name usually doesn’t protect it from Medicaid, and most states consider money held in joint bank accounts as an available asset to pay for nursing home care. Some of the tools that can be used to protect assets are as follows;

� Gifting � Irrevocable trusts � Transfers of assets � Medicaid Qualifying Trust � Purchase of a Long-Term Care Insurance Policy � Purchase of a Long-Term Care Partnership Policy

Note: The insurance producer should be aware that these laws and rules are quite complex and should always avoid giving advice that can be construed as practicing law without a license. It is always best to tell your clients to consult with a licensed attorney. 4.16 Medicaid Expanded Services As previously discussed, Medicaid offers a wide series of services to qualified persons. Additionally, Medicaid covers a variety of other medical services, including services needed by people with long-term or chronic impairments. States usually cover care provided in a nursing facility, or at home. In some states Medicaid also pays for care in adult day-care centers as well as for non-medical custodial care that helps with activities such as bathing, dressing, preparing meals, eating and more. This kind of care can be given in the home, but the home-care agency that provides the home attendant must be licensed or certified by Medicaid in order for Medicaid to pay the bills. From a practical perspective, the number of Medicaid-certified providers of long-term care services around the country is limited, so even if the individual qualifies for the program, it may be difficult to find a provider that can be used.

1. Illinois Medicaid Specific Issues

Illinois Medicaid benefits and services have been extended to people who are determined to be “medically needy”. These persons may not have been able to qualify under general Medicaid rules. These are individuals who fit the designated public assistance categories except for the level of their income and assets, and who have incurred large medical expenses. In fiscal year 1990, total medical expenditures by the Illinois Department of Public Aid were more than $2.3 billion, nearly double the amount in 1980. (Recent data not available as of this printing) For some time, health care providers in Illinois have complained about the state’s Medicaid reimbursement levels. In 1991 a U.S District Court ruled that Illinois’s system for determining Medicaid reimbursement rates for nursing homes was arbitrary and violated federal law. Midway through 1992, the state had a backlog of more than $500 million in unpaid Medicaid bills

4.18 Medicaid Conclusions Of the two funded health care programs, only Medicaid provides any real funding for long term care health needs. As discussed, Medicaid programs can vary from state to state. Therefore, the insurance professional, when marketing long-term care insurance in more than one state, must become familiar with the Medicaid programs in each of those states It is recommended that any Medicaid plan should be reviewed at least every two years to see if it is the best plan in light of current state law. Make sure you are aware of the planning options available and seek the necessary advice in carrying out the “best plan for you”. This will be well worth the time and expense and it can be thought of as a part of the cost of “health care insurance”. 4.19 Details of Major Groups Covered States generally have broad discretion in determining which groups their Medicaid programs will cover and their financial criteria for Medicaid eligibility. States are required, however, to provide Medicaid coverage for most recipients who receive federally assisted income-maintenance assistance payments, as well as for related groups not receiving cash payments. To be eligible for Medicaid, the individual must be a citizen of the United States or a permanent resident alien, and must be a resident of the state providing the Medicaid benefits. Most individuals’ eligibility for Medicaid is based on qualifying under the cash assistance programs of Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI). All AFDC and most SSI recipients, commonly referred to as the categorically eligible, are covered under state Medicaid programs. States cover some individuals not eligible for AFDC or SSI (e.g., higher income persons in institutions, low-income pregnant women and children, and aged, blind and disabled persons below the poverty line). States may also cover medically needy individuals. Such persons would meet the categorical eligibility criteria, but have too much income or resources. By incurring medical expenses, these persons may spend down to the medically needy standard. The major groups that states are required to cover include:

� Recipients of Aid to Families with Dependent Children (AFDC), a federal-state cash assistance program for which the states set eligibility standards. This includes certain children qualifying for Federal Payment for Foster Care and Adoption Assistance and a limited extension of benefits for those who lose AFDC due to earnings from work.

� The aged, blind, or disabled and eligible for the federal Supplemental Security Income (SSI) program, or in certain states, qualified under special state Medicaid criteria.

� Pregnant women and children under age 6 whose family income does not exceed 133 percent of the federal poverty line.

� Medicare-eligible persons whose income in 1995 does not exceed 100 percent of the federal poverty line (95 percent of the federal poverty line in some states) and whose resources do not exceed twice the SSI resource-eligibility level. In 1994, the federal poverty level is $7,356 per year for individuals and $9,840 for couples. Generally, benefits are limited to payment of Medicare premiums, coinsurance and deductibles.

� Children born after September 30, 1983, who have attained age six but are under age 19, in families with income not exceeding 100 percent of the federal poverty line or exceeding the income and resources allowed by AFDC.

� Disabled working persons who are entitled to enroll in Hospital Insurance (Part A) under Medicare, whose income does not exceed 200 percent of the federal poverty line, and whose resources do not exceed twice the SSI resource-eligibility level. Medicaid benefits are limited to payment of the monthly Hospital

Insurance (Part A) premiums.

4.20 What are Supplementary Income States (SSI)?

States have two options with regard to coverage of SSI recipients. In most states, (SSI States), the Medicaid program includes all SSI and Aid to Families with Dependent Children (AFDC) recipients. Fourteen states, however, cover only those persons who are age 65, disabled or blind and who meet a means test which is more restrictive than the SSI means test. For example, a Section 209(b) state may define disability more narrowly than the federal definition for SSI entitlement. These states are known as Section 209(b) states. Including Illinois the other states are; Connecticut, Hawaii, Indiana, Minnesota, Missouri, Nebraska, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, Utah and Virginia. 4.21 States Providing Additional Medicaid Coverage States have the option of providing Medicaid coverage for “categorically needy” groups. These optional groups share characteristics of the mandatory groups, but the eligibility criteria are somewhat more liberally defined. The broadest optional groups that states may cover under Medicaid include:

� Infants up to age 1 and pregnant women not covered under the mandatory rules whose family income is at or below 185 percent of the federal poverty line (the percentage is set by each state).

� Children age 6 or age 6 through age 7, as determined by the state, in families with income at a level set by the state at or below 100 percent of the federal poverty line.

� Other children under age 8, plus aged, blind or disabled adults who have incomes above those requiring mandatory coverage, but below the federal poverty line.

� Children under age 18, 19, 20 or 21, as selected by the state, who are covered by state adoption assistance agreements but whose adoptions are feasible only if Medicaid covers their special medical needs.

� Children under age 21 who meet income and resources requirements for AFDC, but who otherwise are not eligible for AFDC.

� Institutionalized persons with income and resources below specified limits.

� Persons receiving care under home and community-based waivers.

� Medically-needy persons (described below).

4.22 Medically Needy Program The Medically Needy (MN) Program allows states the option of providing Medicaid eligibility to certain individuals and families who meet Medicaid eligibility requirements except that they have incomes and/or countable resources above what is allowed under the mandatory or optional need levels. Generally, they have large medical bills that they cannot afford to pay. Within this MN option, qualified persons may “spend down” to Medicaid eligibility by incurring medical care expenses that reduce their excess finances to a level below that allowed by their state’s plan. If a state elects to have a medically needy program, it is required to provide coverage to certain children under age 18 and pregnant women. It may also choose to provide coverage to other medically needy persons. Thirty-nine states provide Medicaid to at least some groups under a medically needy program Illinois is one of the states having medically needy (MN) programs. Medicaid does not provide health care services for all poor persons. To be eligible for Medicaid, a person must belong to one of the designated groups listed on the prior page, as well as meet income and assets/resources tests. Even under the broadest provisions of federal law (except for a few emergency services for certain persons), the Medicaid program does not provide health care services, even for very poor persons, unless they are under age 21, pregnant, aged, blind, disabled, or in certain AFDC-type families. Some states also have additional “state-only” programs to provide medical assistance for specified poor persons who do not qualify for the Medicaid program. These programs also vary greatly among states. Matching federal funds are not permitted for these states-only programs. 4.23 More On Medicare vs. Medicaid While Medicare is the single largest payor of health care costs for the elderly, it often provides little in the way of benefits for long-term health care needs. As a government program, Medicaid includes the providing of long-term nursing home care for those who qualify. Medicaid, therefore, can be considered both a companion and competitor of private long-term health care policies. Unlike, Medicare, Medicaid is jointly funded and administered by the states and the federal government. Because each state administers the Medicaid program and is free to tailor its Medicaid rules within federal guidelines, the Medicaid program varies considerably from state to state. Medicare, with its limited coverage, is not a solution for long-term care. It can afford some adjunct assistance in paying for initial admissions, and should not be overlooked as a source in the event that a current private pay resident enters a hospital and later re-enters the nursing facility, with needs that may fall within the health care guidelines. Curiously, current federal laws seem to encourage skilled nursing facilities to refuse to submit Medicare claims. Consequently, the patient, his or her family, and their professional advisors should not be shy about pursuing at the very least the initial stages of an appeal. 4.24 A Word of Caution The Medicaid system is basically a form of welfare. The rules can and do change frequently. Consequently, advising persons about Medicaid carries with it a certain amount of risk. “Grandfathering” of an existing situation under which one may qualify for Medicaid when the rules change is uncertain. When consulting with a client on

Medicaid, the professional is urged to disclose to the client the risks, and to continually keep abreast of changes in the law. Because the Medicaid program varies and constantly changes, the information contained within this Module is intended to be illustrative in nature. Extreme caution should be exercised; the advisor is warned not to rely on these materials as a sole source of authority. HOWEVER, because of so many complaints from attorneys, Janet Reno, Attorney General, has advised her attorneys around the country not to prosecute any case that violates this new statute. It would appear that Congress, some time in the future, will rescind part of the HIPAA Act.

5 REGULATIONS ON SPEND DOWN & ASSET TRANSFER 5.1 Asset Rules

Assets are divided into two categories for Medicaid purposes: exempt assets and non-exempt assets. Exempt assets do not affect eligibility for Medicaid, while non-exempt assets do. The following assets are some of the most important exempt assets:

� The home is not considered an asset available to be used for a recipient’s care if;

(a) the recipient’s spouse lives in the home (b) if a disabled adult or minor child lives there (c) if the recipient intends to return home

� Proof of the intent to return home varies from state to state. While the usual practice in many states, is to require a doctor’s statement that the intent to return home may be possible, Illinois does not follow this practice.

� If a person leaves his home with the intent to permanently reside in a nursing home, and no other qualifying individual (e.g. spouse) lives there, then the home becomes non-exempt property.

� Personal items not exceeding $2,000 in value.

� Life insurance or a burial fund not to exceed $1,500 in face value, or a combination of the two, not to exceed $1,500 combined.

� Gravemarks or burial space of unlimited value, including burial spaces for the recipient’s spouse and other immediate family members.

� Wedding and engagement rings, unlimited in value.

� Personal items required because of a person’s medical or physical condition.

� An auto not to exceed $4,500 in value, unless specially modified for a handicap, terrain, necessary for

transportation for medical treatment for a specific medical problem, or necessary for employment.

� Certain other items are exempt because of their protection under federal law. These items include;

� Food stamp coupons � US Department of Agriculture donated foods � Supplemental food assistance programs � Benefits received under the Nutrition Program for the Elderly � Payments received under the Uniform Relocation Assistance and Real Property Acquisition Policies

Act of 1970 � Tax exempt portions of payments made under the Alaska Native Claims Settlement Act � Receipts distributed to certain Indian tribunal members � Certain student loan funds � Supplement security income payments received by recipients who do not reside in certain group care

facilities � Certain state provided assistance to senior citizens for property tax relief or other needs � Payments made to veterans from the Agent Orange Settlement Fund � Certain payments made by the US Government to citizens of Japanese ancestry who were interned

during World War II

� Assets which are unavailable to the person.

� Finally, an asset disregard of $2,000 in cash or other assets.

5.2 A Community Spouse Resource Allowance The community spouse resource allowance is made up of cash and other assets that the resident may transfer to the community spouse without affecting eligibility.

� The resource allowance may be tailored by each state within certain federal guidelines. The amount will change yearly based on the increase inflation and the cost of living.

� The community spouse can protect half of the couple’s countable assets at the time of admission to the nursing home. For 1998 the maximum a state may use as a resource allowance was $80,760.

� Within a specified period after approval by the state agency, the institutionalized spouse may transfer his/her assets to the community spouse in order to achieve the community spouse resource allowance.

5.3 Transfer of Assets Rules In Illinois, persons are no longer subject to a period of ineligibility for Medicaid due to a non-allowable transfer. Rather, persons are subject to a penalty period for Department payment of long-term care services. If otherwise eligible, they remain entitled to other Medicaid covered services. The basic rule reads as follows: A transfer of assets for less than fair market value will make the person(s) subject to a penalty period The transfer penalty runs from the date of the transfer; the maximum disqualification, period is unlimited, however, the maximum period that a state can look-back to see if a transfer has occurred is generally thirty-six months. The penalty period is calculated in months, with a fractional month usually rounded down to the next whole

month. The amount on which the transfer penalty is based may be a state supplied average monthly cost, or it may be the actual cost of the nursing home where the applicant resides. Illinois, as an example, uses the actual cost of nursing home care in computing the transfer penalty period. Example: Mrs. Alafractious resides in the Helpful Nursing Center. The cost of care is $3,000 per month. (Her state’s transfer rule is based on the actual cost of care). On January 1, 1996 Mr. Alafractious gives a gift of $15,000 to his son, Jr. Assuming that in all other respects, Mrs. Alafractious would qualify for assistance under the Medicaid program, this transfer will disqualify her until June 1, 1996. ($15,000 divided by $3,000/month cost = 5 months disqualification). As the above example illustrates, the disqualification period is not always 36 months! Many persons become confused, and assume that all transfers affect eligibility for the entire 36 months. Moreover, the timing of an application is critical under new federal legislation. While the look-back period is thirty-six months, the disqualification period is unlimited! Thus, an application filed 35 months after a transfer may have very different results than one filed 37 months later. Prior to August 11, 1993, the maximum penalty was 30 months of ineligibility for Medicaid for the disposal of resources for less than fair market value. Certain transfers can be made within 36 months of the application without loss of Medicaid eligibility. The family home may be transferred to:

1. the community spouse (noninstitutionalized spouse) 2. a child who is under age 21, blind, or permanently and totally disabled 3. an adult son or daughter residing in the home and providing care that delayed the person’s need for care in

a medical institution or nursing facility for at least two years 4. a trust created solely for the benefit of disabled children of the applicant 5. certain trusts created for a disabled child or grandchild under the age 65 6. a brother or sister who has an ownership interest in the house and who has been living in the home for at

least one year immediately before the person’s admission for care

Also, eligibility is unaffected if the transferor can prove that the intent of the transfer was to dispose of the resources either at fair market value or for other valuable consideration, or the exclusive purpose of the transfer was not to qualify for Medicaid. States can also grant eligibility where denial would amount to undue hardship. And finally, the Omnibus Budget Reconciliation Act of 1993 deems to the Medicaid applicant all transfers made by other owners of jointly owned property. This penalty applies when the action taken by the co-owner reduces or eliminates the Medicaid applicant’s ownership or control of the asset. 5.4 Spousal Impoverishment

Medicaid permits the resident of nursing home care or a recipient of home and community-based long term care services to transfer a portion of income and assets to a spouse living in the community. Depending on circumstances, effective January 1, 1998, the long term care spouse may give up to $2,019 of income per month

to the community spouse. Depending on how much property the long term care spouse already has (not counting assets like the house and the car), the long term spouse may give the community spouse assets valued up to $80,760. This amount will generally increase annually. The Illinois Department of Aid will advise as to the actual amount that may given to the spouse. The protection of income continues only as long as one spouse remains in the community. In the event the community spouse needs long term care, his/her income and assets must be applied to the cost of his/her care. Medicaid will pay the remainder of the costs. The asset protection offered by a Partnership Policy is IN ADDITION to any assets protected by the spousal impoverishment provisions. For example, if you have $130,000 in assets, you can transfer up to $80,760 to your spouse. You may wish to protect the remainder by purchasing a Partnership Policy with benefits of $49,240 5.5 Medicaid Spend-Down Frequently, a person has too many assets or too much income to qualify for assistance, yet has insufficient resources to pay for his or her care. This person may be eligible to participate in the Medicaid program on a “spend-down” basis. The spend-down is met by submitting to the state agency that administers the Medicaid program copies of all medical bills or receipts that equal the amount of the person’s spend-down amount. Thereafter, the Medicaid program will pay for his/her cost of care in excess of the amount. Consequently, the spend-down program acts much like a deductible does under regular insurance plans. For institutionalized persons, amounts of income that exceed the spousal income allowance, if any, are to be used first. Beyond that, non-exempt assets are to be utilized until the person spends down to the Medicaid limits on non-exempt assets.

6 LIFE-CARE FACILITIES 6.1 Introduction Senior citizens needing daily living assistance are always looking for alternatives from having to enter a nursing home. Two of these alternatives include the Life Care Communities (LCC) and the Continuing Care Retirement Communities (CCRC). Many communities require individuals to carry a Medicare-supplement policy in addition to Parts A and B of Medicare. This requirement, often written into the contract, ensures that the Retirement Communities do not have to pay for acute illnesses. Some Communities also require that individuals carry long-term care insurance. Since these facilities aren’t generally funded in advance, the policies help pay for resident’s care. Some facilities that require long-term care policies want residents to buy the policies they have preselected. Others may require the purchase of a long-term care policy but don’t specify the specific policy that they would prefer. 6.2 Life Care Community (LCC)

A Life Care Community is a living accommodation where one can expect to live an active, independent life for many years. Later, should additional care be necessary, it is available on the same premises at two different levels. The first level, independent living, is something like living in a nice resort hotel. There are recreational facilities such as exercise rooms, swimming pools, crafts rooms etc. Balanced meals and transportation to local malls are even provided. Most people enter a LCC somewhere between the ages of 74 and 78. It is estimated that the average healthy resident can enjoy ten years or more of active, independent living before other care services are needed. The second level is generally known as assisted living. It is sometimes referred to as custodial care. Residents at this stage of their life may need someone to serve meals, bathe, dress and even take care of medication needs. In many communities, a separate facility within easy walking distance is provided for those who need this kind of assistance. The third level is considered to be skilled nursing and requires 24-hour care with a registered nurse present. At this level, the resident is under the care of his/her own doctor.

6.3 Continuing-Care Retirement Communities

Today, CCRCs are the fastest growing segment of the housing market for older Americans. In return for substantial entrance fees, these communities promise a place to live for the rest of your life, some, if not all, of your meals, and most important, nursing care, should the need for it arise. Skilled nursing is provided round-the-clock on special floors or even in a separate building, if necessary. Not all residents will need nursing care, but for those who do, their care is funded with the fees paid by all the residents. In this sense, CCRCs work like any insurance policy. Premiums paid by all policyholders are pooled to pay benefits to those who suffer some misfortune. Types of Communities Type A or “all-inclusive” These facilities guarantee residents fully paid nursing care. You are in effect buying a long-term care insurance policy. Services can include care for acute illnesses, eye and podiatry clinics, help with ADLs, apartment cleaning, tray service, utilities, transportation, dining rooms, cable television, banks, saunas, meals and swimming pools. Type B or “Modified” These communities do not guarantee unlimited nursing care. Instead, they provide nursing care for only a specified number of days each year or during the resident’s lifetime. When the days are used up, a per diem charge will apply. Other services and amenities are similar to those found in Type A facilities, and must include at least one meal a day. Type C or “Fee for Service” These communities guarantee access to their nursing wings but usually charge the full per diem rate. Type C communities do not usually include meals or personal care services in their basis monthly fees.

1. CCRC Fees

Entrance fees are high, and most people entering a facility use the equity in their homes to pay for them. In Type A CCRCs, entrance fees average from about $75,000 for one-bedroom apartments to about $96,000 for two bedrooms. Type B communities fees average about $51,000 for one bedroom to $76,000 for two bedrooms. Type C communities usually have lower fees and offer fewer services. 6.5 Evaluating a CRCC It is important to obtain a copy of the contract which spells out the residents rights and conditions under which they receive nursing care. Next, obtain complete audited financial statements. These may be the community’s disclosure statement that is available for inspection at the facility. If a community does not have audited statements, or if it refuses to give you financial information, it is advised that you look for another community.

Look at the community’s debt. A CCRC with heavy debt, few assets, and little income to cover expenses may be headed for trouble. For nonprofit CCRCs look at the cash flow fund balance. Most nonprofit facilities try to achieve a fund balance close to zero. A negative balance is not necessarily bad, but if the community is running substantially negative balances year after year, inquire as to why. Ask for a history of fee increases. Most communities raise fees annually, in line with the cost of living. Also find out the occupancy rate. For most facilities, the break-even occupancy rate is around 90 percent. And finally, learn who the sponsors and managers are and their experience with CCRCs.

1. Contract Review Checklist

When shopping for a continuing-care community, it’s critical to review the contract. Once you obtain a copy of the contract, have an attorney review it, paying special attention to the following provisions: Refunds, transfer decisions, availability of nursing beds, fees if transferred to a nursing center, fees if spouse is transferred to a nursing center, fee increases, rights upon remarriage, grounds for contract termination and requirements for health insurance. 6.7 Minimum Standards for Home Health and Community Care Benefits in Long-Term Care Insurance Policies (50 ILAC Subsection 2012.70) A) A long-term care insurance policy or certificate may not, if it provides benefits for home health care services, limit or exclude benefits; 1) By requiring that the insured/claimant would need skilled care in a skilled nursing facility if home health care services were not provided; 2) By requiring that the insured/claimant first or simultaneously receive nursing and/or therapeutic services in a home or community setting before home health care services are covered; 3) By limiting eligible services to services provided by registered nurses or licensed practical nurses; 4) By requiring that a nurse or therapist provide services covered by the policy that can be provided by a home health aide, or other licensed or certified home care worker acting within the scope of his or her licensure or certification; 5) By requiring that the insured/claimant have an acute condition before home health care services are covered; 6) By excluding coverage for personal care services provided by a home health aide; 7) By requiring that the provision of home health care services be at a level of certification or licensure greater than that required by the eligible service; 8) By limiting benefits to services provided by Medicare-certified agencies or providers; 9) By excluding coverage for adult day care services.

1. A long-term care insurance policy or certificate, if it provides for home health or community care services, shall provide total home health or community care coverage that is a dollar amount equivalent to at least one-half of one year’s coverage available for nursing home benefits under the policy or certificate, at the time covered home health or community care services are being received. This requirement shall not apply to policies or certificates issued to residents of continuing care retirement communities.

7 INSURANCE POLICES

7.1 Types of Long-Term Care Policies

Nationally, there are a number of insurance companies offering long-term insurance policies. Just like any other type of insurance contract, the individual state must approve all the provisions, terms and contents of the contract prior to being sold in that state. The minimum coverage requirements of long-term policy coverage available is pretty much standardized and would be available on a national basis. Individual states, of course, may require the coverage to be enhanced. (1) Nursing Home Only

� Usually makes benefits available for skilled, intermediate and custodial care rendered during a confinement in a nursing home.

(2) Home and Community Care Only

� Services of a licensed nurse, physical respiratory, speech or occupational therapist provided through a Licensed Home Health Agency.

� Personal care services of a Home Health Aid provided through a licensed home health agency.

� Services of an Adult Day Care Center

� Therapeutic Devices which are usually defined as those to assist a person to independently perform the basic activities of daily living without human assistance. These include;

� grab bars � hand rails � ramps � walkers � canes � crutches � wheelchairs � others as deemed necessary by the care manager

(3) Combination of Nursing Home and Home and Community Care

� This is a combination of both (1) and (2) above

� Some states include home and community care benefits and maximum benefits must be available for either nursing home care or home and community care.

� Cannot be canceled by the insurer unless the insured fails to pay the required premiums.

7.2 Types of Benefits Paid (1) Indemnity

� Pays a fixed amount for each day of received care.

� The insured will be refunded (indemnified) for expenses billed or;

� Amounts can be assigned to the provider of services.

(2) Percent of Charges

� This type of policy will pay a stated percentage of the covered costs up to the maximum stated in the policy.

� If the policy states it will pay 80%, as an example, of all covered expenses, the insured can expect to pay 20% while the insurer will pay 80%.

� e.g. an insured has covered medical costs of approximately $10,000 under a 75% of charges policy. The insurer will pay $7,500 while the insured will have to pay the remaining 25% or $2,500.

(3) Specified Dollar Amount

� Policy will pay a maximum specific amount regardless of how much the actual costs were.

� It should be noted that as the maximum amount payable increases, so will the required premium.

� e.g. The policy pays a maximum specific amount of $100 per day for a room. The actual room charges were $80 per day. The insured will get $80, not the $100. However, if the room charges were $125 the insured will only get the maximum of $100. (Note: some companies may pay the full $100 even though the actual charges were only $80)

7.3 How Benefits Are Paid (1) Benefits can be paid in time.

� Benefits will be paid for a set number of days, months or years.

� Some policies provide benefits for a lifetime.

(2) Benefits can be paid in units of care.

� This most closely means paying benefits based upon the number of units vs. a specific time frame as in (1) above.

(3) Benefits can be paid in dollars.

� This means benefits will be paid up to a maximum dollar amount for any combination of services covered under the policy.

7.4 Length of Benefit Periods

� Plans can be purchased for a specified period of time such as 1, 3, 5 years or for life.

� The longer the benefit period, the more costly the premium.

� The benefit period represents the time period in which benefits will be paid.

� There may some limitations in policies where a limit of consecutive days of coverage will be in place.

7.5 Daily Nursing Home Benefit - “How Much Is Enough”? People who need long-term care have several choices when it comes to paying for care. Use their own money from liquidating their assets, deplete their savings or purchase a long-term care policy. The insurance producer must look at the following;

� Types of coverage’s desired such as skilled, intermediate and custodial care.

� Benefits can vary anywhere from $50 a day to $200 a day for nursing home costs.

� Benefit periods can be chosen for 2, 3, 5 years or even life. The benefit period will have a direct relationship to the costs of the programs.

� Waiting periods will also have to be chosen. Obviously, the shorter the waiting period the more expensive the premium. One would have to determine, based on their own assets, how much of a waiting period can take place before benefits begin.

� How much consideration does the insured want to give towards the problem of inflation. This, of course, will have a direct bearing on the costs of the policy.

� Consider all the above to help answer the question, “How Much Is Enough”?

7.6 Daily Home Care Benefit Services can include any of the following and the costs will be directly related to the services provided;

� Licensed nurse � Therapists � Home health aide � Therapeutic devices � Respite care benefits � Adult care center benefits

7.7 Long Term Care Policies[1]

Means any accident and health insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital. (A) Such term includes group and individual life insurance policies or riders which provide directly or which supplement long-term care insurance.

(1) Also includes a policy or rider which provides for payment of benefits based upon cognitive impairment or the loss of function capacity.

(B) Long-term care insurance may be issued by insurers, fraternal benefit societies, nonprofit health, hospital, and medical service corporations, prepaid health plans, health maintenance organizations or any similar organization to the extent they are otherwise authorized to issue life or health insurance.

(C) Long-term care insurance shall not include any insurance policy which is offered primarily to provide basic Medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.

(D) Long-term care insurance may include benefits for care and treatment in accordance with the tenets and practices of any established church or religious denomination which teaches reliance on spiritual treatment through prayer for healing.

7.8 Policy Defined[2] Means any policy, contract, subscriber agreement, rider or endorsement delivered or issued for delivery in this State by an insurer, fraternal benefit society, non-profit health hospital, or medical service corporation, prepaid health plan, health maintenance organization or any similar organization 7.9 Policy Definitions No insurance policy or certificate may be advertised, solicited, delivered or issued for delivery in this State as a long-term care policy unless the policy or subscriber contract contains definitions or terms that cannot be less favorable for the insured as defined in this Section.

7.10 Acute Condition

Acute condition means a condition that causes the individual to be medically unstable. Such individual requires frequent monitoring by medical professionals, such as physicians and registered nurses, in order to maintain his or her health status.

7.11 Adult Day Care

Adult day care means a program for a number of individuals, of social and health related services provided during the day in a community group setting for the purpose of supporting frail, impaired elderly or other disabled adults who can benefit from care in a group setting outside the home. (1) All providers of services, including but not limited to skilled nursing facility, intermediate care facility, convalescent nursing home, personal care facility, and home care agency shall be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified.

7.11 Home Health Care Services

Home health care services means medical and non-medical services provided to ill, disabled or confined persons in their residences. Examples of such services may include but are not limited to homemaker services, assistance with activities of daily living and respite care services. Home Care Home care includes a multitude of medical and personal services that can be provided at home. The word “home” is usually used in the context of meaning the private home of the person or even the home of a relative or friend. Typical Home Care services can include;

� Health care - nursing, rehabilitative and medical � Personal care - assistance with personal needs such as hygiene, dressing, bathing etc. � Homemaking - housekeeping, shopping etc. � Nutritional needs - meal planning, cooking and delivery. � Special needs - transportation, telephone and companions.

Respite Care This is a short-term substitute care for impaired family members. It is not a single, specific program but rather a service provided in a variety of optional settings. It gives caretakers of patients the opportunity to respond to their own needs or take care of personal matters. This is a very flexible program. This care can be delivered at home or in an institutional setting. Bottom line, Respite can meet various objectives for the caregiver, the care recipient, and the community at large. 7.13 Medicare Medicare means “The Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as then Constituted or Later Amended.[3] 7.14 Mental or Nervous Disorder Mental or nervous disorders shall not be defined to include more than neurosis, psycho-neurosis, psychopathy,

psychosis, or mental or emotional disease or disorder of any kind. 7.15 Personal Care

Personal care means the provision of hands-on services to assist an individual with activities of daily living, such as bathing, eating, dressing, transferring and toileting. “Skilled Nursing Care”, “Intermediate Care”, “Personal Care”, “Home Care”, and other services shall be defined in relation to the level of skill required, the nature of the care and the setting in which care must be delivered. 7.16 Extension of Benefits Termination of long-term care insurance shall be without prejudice to any benefits payable for institutionalization if such institutionalization began while the long-term care insurance was in force and continues without interruption after termination. Such extension of benefits beyond the period long-term care insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits and may be subject to any policy waiting period, and all other applicable provisions of the policy.

7.17 Continuation or Conversion

(1) Group long-term care insurance issued in this state on or after the effective date of this Section shall provide covered individuals with a basis for continuation or conversion of coverage. (2) “A basis for continuation of coverage” means a policy provision which maintains coverage under the existing group policy when such coverage would otherwise terminate and which is subject only to the continued timely payment of premium when due. Group policies which restrict provision of benefits and services to, or contain incentives to use certain providers and/or facilities may provide continuation benefits which are substantially equivalent to the benefits of the existing group policy. The Director, in making a determination as to the substantial equivalency of benefits, shall take into consideration the differences between managed care and non-managed care plans, including, but not limited to, provider system arrangements, service availability, benefit levels and administrative complexity. (3) “A basis for conversion of coverage”, means a policy provision that an individual whose coverage under the group policy would otherwise terminate or has been terminated for any reason, including discontinuance of the group policy in its entirety or with respect to an insured class, and who has been continuously insured under the group policy (and any group policy for which it replaced), for at least six months immediately prior to termination, shall be entitled to the issuance of a converted policy by the insurer under whose group policy the individual is covered, without evidence of insurability. (4) “Converted Policy” means an individual policy of long-term care insurance providing benefits identical to or substantially equivalent to or in excess of those provided under the group policy from which conversion is made. Where the group policy from which conversion is made restricts the provision of benefits and services, or contains incentives to use certain providers and/or facilities, the Director, in making a determination as to the substantial equivalency of benefits, shall take into consideration the differences between managed care and non-managed care plans, including, but not limited to, provider system arrangements, provider system arrangements, service availability, benefit levels and administrative complexity. (5) Written application for the converted policy shall be made and the first premium due, if any, shall be paid as directed by the insurer not later than thirty-one days after termination of coverage under the group policy. The converted policy shall be issued effective on the day following the termination of coverage under the group policy, and shall be guaranteed renewable. (6) Unless the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured’s age at inception of coverage under the

group policy from which conversion is made. Where the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured’s age at inception of coverage under the group policy replaced. (7) Continuation of coverage or issuance of a converted policy shall be mandatory, except where; (A) Termination of group coverage resulted from an individual’s failure to make any required payment of premium or contribution when due (B) The terminating coverage is replaced not later than thirty-one days after termination, by group coverage effective on the day following the termination of coverage: (1) Providing benefits identical to or benefits equivalent in design and actuarially equivalent in value in excess of those provided by the terminating coverage; and (2) The premium for which is calculated in a manner consistent with the requirements of subsection (d)(6) of this Section. (8) A converted policy issued to an individual who at the time of conversion is covered by another long-term care insurance policy which provides benefits on the basis of incurred expenses, may contain a provision which results in a reduction of benefits payable if the benefits provided under the additional coverage, together with the full benefits provided by the converted policy, would result in payment of more than 100 percent of incurred expenses. Such provision shall only be included in the converted policy if the converted policy also provides for a premium decrease or refund which reflects the reduction in benefits payable. (9) The converted policy may provide that the benefits payable under the converted policy, together with the benefits payable under the group policy from which conversion is made, shall not exceed those that would have been payable had the individual’s coverage under the group policy remained in force and effect. (10) Any insured individual whose eligibility for group long-term care coverage is based upon his or her relationship to another person, shall be entitled to continuation of coverage under the group policy upon termination of the qualifying relationship by death or dissolution of marriage. (11) A "Managed-Care Plan" is a health care or assisted living arrangement designed to coordinate patient care or control costs through utilization review, case management or use of specific provider networks. 7.18 Discontinuance and Replacement If a group long-term care policy is replaced by another group long-term care policy issued to the same policyholder, the succeeding insurer shall offer coverage to all persons covered under the previous group policy on its date of termination. Coverage provided or offered to individuals by the insurer and premiums charged to persons under the new group policy: (1) Shall not result in any exclusion for preexisting conditions that would have been covered under the group policy being replaced (2) Shall not vary or otherwise depend on the individual’s health or disability status, claim experience or use of long-term care services. 7.19 Premiums Charged The premiums charged to an insured for long-term care insurance shall not increase due to either: (1) The increasing age of the insured at ages beyond sixty-five (65); or (2) The duration the insured has been covered under the policy.

7.20 Additional Long-term Care Insurance Policy Rules

No long-term insurance policy shall: (1) be canceled, nonrenewed or otherwise terminated on grounds of the age or deterioration of the mental or physical health of the insured individual or certificate holder (2) contain a provision establishing a new waiting period in the event existing coverage is converted to or replaced by a new or other form within the same company, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder (3) provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care. 7.21 Unintentional Lapse Each insurer offering long-term care insurance shall, as a protection against unintentional lapse, comply with the following: A) Notice before lapse or termination (1) No individual long-term care policy or certificate shall be issued until the insurer has received from the applicant a written designation of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium; or a written waiver dated and signed by the applicant electing not to designate additional persons to receive notice. The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured. Designation shall not constitute acceptance of any liability on the third party for services provided to the insured. The form used for the written designation shall provide space designated for listing at least one person. The designation shall include each person’s full name and home address. In the case of an applicant who elects not to designate an additional person, the waiver shall state: "Protection against unintended lapse. I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until thirty (30) days after a premium is due and unpaid. I elect NOT to designate any person to receive such notice." The insurer shall also notify the insured of the right to change this written designation, no less often than once every two (2) years. (2) When the policyholder or certificate holder pays the premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the requirements contained in (1) above need not be met until sixty (60) days after the policyholder or certificate holder is no longer on such a payment plan. The

applicant or enrollment form for such policies or certificates shall indicate the payment plan selected by the applicant. (3) Lapse or termination for nonpayment of premium. No individual long-term care policy or certificate shall lapse or be terminated for nonpayment of premium unless the insurer, at least thirty (30) days before the effective date of the lapse or termination, has given notice to the insured and to those persons designated pursuant to section (1) above, at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice shall be given by first class United States mail, postage prepaid; and notice shall not be given until thirty (30) days after a premium is due and unpaid. Notice shall be deemed to have been given as of five (5) days after the date of mailing. B) Additional Requirements In addition to the requirements of subsection (A) above, A long-term care insurance policy or certificate shall include a provision which provides for reinstatement of coverage, in the event of lapse if the insurer is provided proof of cognitive impairment, the loss of functional capacity, or if the insured would otherwise qualify for benefits under the contract. This option shall be available to the insured if requested within five (5) months after termination and shall allow for the collection of past due premium. The standard of proof of cognitive impairment[4] or loss of functional capacity shall not be more stringent than the benefit eligibility criteria contained in the policy and certificate. 7.22 Required Disclosure Provisions A) Renewability Individual long-term care insurance policies shall contain a renewability provision. Such provision shall be captioned as a Renewal, shall appear on the first page of the policy, and shall clearly state the duration, where limited, of renewability and the duration of the term of coverage for which the policy is issued and of which it may be renewed. This provision shall not apply to policies which do not contain a renewability provision and under which the right to renew is reserved solely to the policyholder. (B)Riders and Endorsements Except for riders or endorsements by which the insurer effectuates a request made in writing by the insured under an individual long-term care insurance policy, all riders or endorsements added to an individual long-term care insurance policy after date of issue or at reinstatement or renewal which reduce or eliminate benefits or coverage in the policy shall require signed acceptance by the individual insured. After the date of policy issue, any rider or endorsement which increases benefits or coverage with a concomitant increase in premium during the policy term must be agreed to in writing signed by the insured, except if the increased benefits or coverage are required by law. Where a separate additional premium is charged for benefits provided in connection with riders or endorsements, such premium charge shall be set forth in the policy, rider or endorsement. (C)Payment of Benefits A long-term care insurance policy or certificate which provides for the payment of benefits based on standards described as “usual and customary”, “reasonable and customary” or words of similar import shall include a definition of such terms in its accompanying outline of coverage. (D) Preexisting Conditions

If a long-term care insurance policy or certificate contains any limitations with respect to preexisting conditions,

such limitations shall appear as a separate paragraph of the policy or certificate and shall be labeled "Preexisting Condition Limitations." Limitations to preexisting conditions shall be in accordance with Section 351A-5 of the Illinois Insurance Code. 7.23 Preexisting Conditions (a) No long-term care insurance policy or certificate other than a policy or certificate thereunder issued to a group as defined in 351A-1 shall use a definition of “preexisting condition” which is more restrictive than the following: Preexisting condition means the existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment, or a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within 6 months preceding the effective date of coverage for an insured person.

(b) Nor may the policy exclude coverage for a loss or confinement which is the result of a preexisting condition unless such loss or confinement begins within 6 months following the effective date of coverage of an insured person.

(c)The Director may extend the limitation periods as to specific age group categories in specific policy forms upon finding that the extension is in the best interest of the public.

7.24 Policy Practices and Provisions 7.25 Renewability A) The terms “guaranteed renewable” and “noncancellable” shall not be used in any group and individual direct response or individual long-term care insurance policy or certificate without explanatory language in accordance with the disclosure requirements of Section 2012.70 of this Part. (1) No such policy or certificate issued to an individual shall contain renewal provisions less favorable to the insured than “guaranteed renewable”. (2) The term “guaranteed renewable” may be used only when the insured has the right to continue the long-term care insurance in force by the timely payment of premiums and when the insurer has no unilateral right to make any change in any provision of the policy or rider while the insurance is in force, and cannot decline to renew, except that rates may be revised by the insurer on a class basis. (4) The term “noncancellable” may be used only when the insured has the right to continue the long-term care insurance in force by the timely payment of premiums during which period the insurer has no right to unilaterally make any change in any provision of the insurance or in the premium rate. 7.26 Limitations and Exclusions (A) No policy may be delivered or issued for delivery in this State as long-term care insurance if such policy limits or excludes coverage by type of illness, treatment, medical condition or accident, except as follows; (1) Preexisting conditions or diseases (2) Mental or nervous disorders; however, this shall not permit exclusion or limitation of benefits on the basis of Alzheimer’s Disease or senile dementia; (3) Alcoholism and drug addiction (4) Illness, treatment or medical condition arising out of:

(a) War or act of war (whether declared or undeclared)

(b) Participation in a felony, riot or insurrection (c) Service in the armed forces or units auxiliary thereto (d) Suicide (sane or insane), attempted suicide or intentionally self-inflicted injury (e) Aviation (this exclusion applies only to non-fare paying passengers)

(5).Treatment provided in a government facility (unless otherwise required by law), services for which benefits are available under Medicare or other governmental program (except Medicaid), any state or federal worker’s compensation, employer’s liability or occupational disease law, or any motor vehicle, no-fault law, services provided by a member of the covered person’s immediate family and services for which no charge is normally made in the absence of insurance. (6). The subsection limitations and exclusions are not intended to prohibit exclusions and limitations for payment of services provided outside the United States.

[1] As defined in Section 351A-1 of the Illinois Insurance Code [2] As defined in Section 351A-1 of the Illinois Insurance Code [3] 42 U.S.C.A. Section 1395 et seq., including the “Medicare Catastrophic Coverage Act of 1988.” [4] Loss of intellectual ability

8 Long Term Care Policy Provisions 8.1 Elimination Periods The elimination period represents the time period in which the insured, while the policy is in effect, will not receive any benefits until it ends. Typically, insurance plans will offer a number of elimination periods such as;

� 30 days

� 45 days

� 60 days

� 90 days

The insurance plan will start to pay benefits to the insured at the end of the period selected. As to costs, the shorter the elimination period the higher the premiums will be. As to what elimination period should be chosen, keep the following in mind; 1. How much in premiums can the insured afford? It could very well be that a person who cannot afford higher premiums will have to choose a longer elimination period. 2. But then again, how much in actual costs can the insured be able to pay before benefits start? 3. It is probably best to treat the elimination period as a "deductible". 8.2 Underwriting and Health Questions The purpose of underwriting in any insurance policy is to help avoid adverse selection. This means that the insurance company doesn't want to just take in high risk persons, but rather the lower the risk the better. Morbidity tables are established which are a result of a study of how often illnesses or diseases take place. Rates are then established and the actuaries of the insurance company will be better able to see where their potential risks are and then the underwriters will rely on this information in making their final determination as to whether they will accept or not accept the risk. It is most important that all questions asked on the application are answered accurately, honestly and completely. Based on the answers to these questions the underwriters will determine whether any further information will be needed such as;

� Attending physicians statement

� Medical Information Bureau report

� Requiring a medical exam

� Ordering investigative reports

The application must be reviewed to insure compliance of all required signatures. Payment of benefits may be denied in the future if it is determined that any of the questions were answered in a dishonest way.

Answering positive to some of the health questions may cause the issue or preexisting conditions to develop. Remember, if the condition is construed to be preexisting there may be limitations as to the amount of benefits for that malady or even a total denial of benefits for a period of time. Policies will usually not pay benefits arising from a preexisting condition for six months after the effective date of the policy. 8.3 Waiver of Premium

Most companies offer a waiver of premium if confined to a nursing home for a specified period of time. This means that once this time requirement is met the insured will not have to pay any additional premiums on the policy until the confinement is over. Some policies will refund premiums to the insured if the insured is confined and the premiums are paid in advance, i.e. full years premium. A typical waiver of premium time requirement is 90 days. 8.4 Benefit Triggers In the benefits section of the policy the insured will find the terms as to what will have to happen before benefits start to flow. This is often referred to as the "benefit trigger" and is further defined in the policy as to what conditions must be met for the policy to pay benefits. The following terms are generally used to describe when benefits will begin and they are also used as an analysis to determine actual needs for the insured; (1) Activities of daily living (ADLs) Typically benefits won't be paid unless a person cannot perform a set number of ADLs without some level of assistance from others. Some examples include;

� Bathing (washing in the tub or shower) � Dressing (putting on and taking off clothes) � Toileting (getting on and off the toilet and maintaining personal hygiene) � Transferring (getting in and out of a bed or chair) � Continence (bowel or bladder control) � Eating (feeding oneself)

(2) Medical Necessity/Injury/Sickness This was once used to define when a person was eligible for benefits. However, most persons in need of long term care are really in need of assistance in basic activities such as described in (1) above. This term was also subject to different insurance companies interpretations. If the policy only used terms such as medically necessary or injury or sickness it is possible that the person would not be eligible for benefits if the person just needed custodial care.

Some people may need long term care services due to a medical condition which may not result in a loss of two ADLs. (3) Cognitive Impairment A cognitive impairment is defined as one that effects a person's mental ability to care for himself/herself safely. If the insured is suffering from a disease such as Alzheimer's disease which ultimately will prevent an individual from being able to live independently and safely without assistance policy benefits will be paid. Cognitive impairment also includes "confusion or disorientation resulting from a deterioration or loss of intellectual capacity that is not related to or a result of mental illness but which can result from Alzheimer's disease or similar form of senility or irreversible dementia." Cognitive impairment is established through use of standardized tests that measure impairment in short or long term memory, orientation as to person, place, or time, and deductive or abstract reasoning. These tests usually consist in a series of questions such as does the person know where they are or the day of the week. The final question is who is going to be the certifier or determiner as to whether the insured qualifies under the benefit triggers. Determiners can be any of the following and the insurance company will define this in the benefits section of the policy;

� Doctor

� Case worker

� Insurance company representative

8.5 Typical Exclusions These are items that the insurance company will not provide benefits for. Typical exclusions are as follows;

� Preexisting conditions

� Charges made by a doctor

� Prescription drugs or medicines ordered by a doctor

� Conditions arising from war, declared or undeclared

� Self inflicted injuries

� Charges as a result of participation in the commission of a felony

� Hospital services

� Services rendered outside the 50 states of the United States

� Services for which no payment is required

� Charges for care furnished by any governmental agency

� Dental, vision or hearing services

� Routine examinations

� Experimental care

� Treatment of alcoholism or drug addiction or substance abuse

� Treatment of any mental or nervous disorder

� Services provided for an occupational injury or sickness

� Services performed by a member of the immediate family

� Charges for care provided by an unlicensed provider

8.6 Nonforfeiture Benefits

These type of benefits are defined as those that will return part of what the insured paid in premiums if the insured chooses to cancel the coverage or; If the coverage lapses because an individual forgot or could not pay the premium. Typically benefits will not be paid in cash but instead will guarantee some portion of benefits if coverage is dropped; or The accumulated monies due to advanced premiums, as an example, can be returned; or Reduced benefits may be available In order to receive a reduced benefit, an individual must have paid premiums for a minimum number of years. (e.g. 10 or 20 years) Some policies will offer a paid-up premiums feature. This allows the insured to pay higher premiums for a limited number of years, just like whole life insurance.

� 10 pay life

� 20 pay life

� Paid up at age 65

In most cases, any extras offered in a policy will cause the premiums to increase. 8.7 Factors Affecting the Cost of Long Term Care Insurance Just like any other insurance policy there are certain factors that will cause the premiums to increase or decrease. Always remember that there is a direct relationship between risks and costs. Some of the factors that affect premiums are as follows;

� Age. The younger the age when the policy is purchased the less expensive the premium. In addition, the premium cost is determined by age at the time the policy is issued (known as the "issue age") and does not increase because of age as the policyholder grows older.

� Elimination Period. The shorter the elimination period the higher the premium.

� Amount of benefits. The higher the benefits the higher the premium.

� Females usually pay higher premiums because they live longer.

� Length of the benefit period. The longer the period the higher the premiums.

� Waiver or premiums benefit will cause a higher premium.

� Inflation protection will cause a higher premium.

� Daily benefits. As benefits increase so will the cost.

� Non-forfeiture items are for the benefit of the insured and can effect costs.

9 SOCIAL SECURITY BENEFITS

9.1 Who is Covered? Almost everyone who is employed is covered by social security and Medicare. The major exceptions include most Federal government employees hired before 1984 and almost 20% of state and local government employees. The reasons why some state and local employees are excluded is because State and local government units with a pension plan decides for itself whether to join social security. It should be noted that after July 1, 1991 all state and local government employees who are not covered by a retirement plan of their employer are covered by social security. All state and local government employees hired after March 1986 will pay the Medicare tax even if they don't pay the social security tax. Railroad workers are covered under the separate, federally administered Railroad Retirement System. 9.2 What are the Benefits? Social Security benefits include retirement, disability and death benefits. 9.3 Funding Future Benefits Future funding is accomplished through social security and Medicare taxes which are withheld from the employee’s wages. Self employed persons pay these taxes through their income tax returns. The maximum taxable amount for both social security and Medicare taxes have increased yearly and is based on the average wages and salaries paid for all employees in the country. 9.4 Additional Tax Issues What is Taxed? All salaries, wages, bonuses and commissions that are received for working. Taxable amounts can also include the value of clothing, meals and lodging. The first six months of sick pay are also taxed. The value of employer provided life insurance exceeding $50,000 is also taxed. What is not Taxed?

Items of little value provided by an employer such as parking spots in the company lot would be an example of a “perk” that would not be taxable. Payments or distributions made from employee benefit plans are also not taxable by social security. Domestic Service If a domestic employee is paid $50 or more in one calendar quarter from one employer to work in that employer’s

home the pay is subject to payroll taxes. Tips Tips of $20 or more in a month are treated as regular wages. Both the employee and the employer must pay taxes on this compensation. Family Entertainment If in a self-employment situation a spouse, parent or child is over the age of 18, the employment is covered and taxes must be paid. Self-Employment Generally speaking, self-employed persons will be covered by social security and Medicare. Payroll taxes are determined by using IRS Form Schedule SE when an income tax return is filed. If an individual is involved with more than one self employment situation, the profits and losses of all businesses are added together to calculate the net income as well as taxes due. Multiple Employers If an individual works for more than one employer, each one must withhold taxes on earnings up to the maximum taxable amount. If the total earnings from all employers are more than the required maximum taxable amount, then too much taxes were paid and an adjustment will be made when the income tax return is filed. Self-Employed vs. Employee Status Taxes are paid on employee earnings at the employee tax rate. If the taxes paid reach the maximum then no further deductions will be made from the self-employed income. If not enough taxes are paid then self-employed taxes will have to be paid. Taxation of Social Security Benefits If a person works while receiving social security benefits, they will still have to pay social security taxes on the earnings. The social security benefits may be reduced if the earned income exceeds the Earnings Limitation. The base amount for social security benefits taxation is as follows:

� Beginning in 1994, an additional tier of taxation is accomplished by establishing an “adjusted base amount” of;

(1) $44,000 for married taxpayers filing jointly (2) $34,000 for unmarried taxpayers

� When certain limits are reached in tier 2 earnings it is possible that as much as 85% of social security earnings could be taxable instead of the 50% which most social security recipients are used to.

Retirement Benefits Reference tables are available which show the approximate amount at age 65 benefits available monthly. Monthly payments are based on the Primary Insurance Amount (PIA). Starting with the year the person turns 62, benefits are increased to reflect changes in the cost of living. Benefits paid at age 65 represent a percentage of pay

9.5 Fully Insured To be fully insured and individual must have the required quarters of coverage under social security. Most workers need 40 quarters to qualify for retirement benefits. Since 1978, workers earn quarterly credits which is based on their annual earnings with a maximum of four quarterly credits in any calendar year. 9.6 Early Retirement Issues It is certainly possible to retire as early as age 62 if the person is fully insured. However, smaller monthly benefits will be received for lifetime. This is due because of lower average earnings, and receipt of more monthly checks 9.7 Normal Retirement Age Normal retirement age will slowly rise from 65 for persons born between 1938 to age 67 for persons born after 1959. 9.8 Late Retirement If waiting until after normal retirement age to claim social security benefits, the benefits will be increased by something called the Percentage Factor. The delayed retirement credit is increased by 1/2% every other year until reaching 8% per year in 2009 or later. 9.9 Family Benefits When the primary worker returns and is eligible for social security benefits, family members may also become entitled to monthly benefits. Their benefits are based as a percentage of the workers primary insurance amount (PIA). The worker must apply for benefits prior to family members becoming entitled to their benefits. Spousal Benefits At the normal retirement age the spouse is entitled to a benefit equal to 50% of the workers PIA. At age 62, the spouse can receive permanently reduced benefits. A spouse who is caring for a eligible child is entitled to 50% of the workers PIA. Eligible Children include natural children, adopted children, stepchildren, dependent grandchildren, children under the age of 18 years, under 19 years of age if the child is still in high school, disabled children of any age if disabled prior to the age of 22. Each eligible child is entitled to 50% of the workers benefits. 9.10 Disability Benefits If working under social security and the worker becomes disabled, the worker could receive a monthly benefit equal to the PIA at the time that disability occurs. Social security defines disability as being so severely impaired, mentally or physically, that one cannot perform any substantial gainful work. In order to qualify for disability benefits a doctor must certify that the disability will last at least 12 months or that the individual will eventually die from it. There is a five month elimination period. In other words, benefits will not begin until the sixth month. There is a five month elimination period. In other words, benefits will not begin until the sixth month. In order to qualify for disability benefits the minimum number of quarterly credits must have been earned. If the worker becomes disabled, family members can receive benefits under the same rules that apply if the worker retired. Rehabilitation benefits may be available. It needs to be noted that if one is receiving workers compensation benefits also, then disability benefits may be reduced. 9.11 Survivor Benefits The amount of the survivor benefits paid is based on the worker’s PIA at the date of the workers death. Reference

tables are available which shows the approximate monthly benefit amounts payable to family members if the worker dies. A lump sum death benefit of $255 is payable to a surviving spouse who was living with the worker at the time of the workers death. For a survivor to receive monthly survivor benefits or the lump sum death payment, the worker must either be currently insured in which some benefits available or fully insured where all benefits are available.

9.12 Medicare Benefits Medicare offers two “sets” of benefits. They are categorized as Part A and Part B. Part A includes hospitalization, certain inpatient care, home care services, skilled nursing facility care which is only available after a hospital stay of at least three days and beginning within 30 days of leaving the hospital, home health services which must be prescribed by a doctor in order to have Medicare pay for these services, hospice care limited to 210 days unless certified as terminally ill, care in psychiatric hospitals which pays up to 190 days of inpatient care in a lifetime. Part B benefits includes doctor’s fees, most outpatient hospital services, certain related services and requires a $100 deductible with a 80% coinsurance feature. Some of the covered items include physician services, physical therapy, non-routine vision services, diagnostic x-rays, lab tests, drugs that cannot be self administered, blood for transfusions (after the first 3 pints), surgical dressings and splints, necessary ambulance services, home health services, artificial parts replacements and braces. Medicare does not cover services not reasonably or medically necessary, items or services which there is no legal obligation to pay, services performed by a relative or household member, services outside the United States, routine physical exams, eye exams, glasses, hearing aids and dental care, routine foot care, custodial care, cosmetic surgery, most prescription drugs and medicines taken at home, most immunizations and private nurses. Part C (Medicare + Choice) is another option provided by the Balanced Budget Act of 1997. Medicare beneficiaries who have both Part A and Part B can choose to get their benefits through a variety of risk-based plans known as Part C of Medicare. The Primary Medicare + Choice plans are:

� Coordinated Care Plans, which includes HMOs, PPOs and other certified public or private coordinated care plans and entities that meet the approved required standards as set forth in the law.

� The private, unrestricted fee for service plans, which allows beneficiaries to select certain private providers. � The Medical Savings Account (MSA) plan allows beneficiaries (only a limited number for the first five

years) to enroll in a plan with high-deductible (maximum for 1999 = $6,000). The Federal government pays a prescribed portion of the capitation amount into an insurance fund for each enrollee. The difference between the Medicare capitation rate and the plan premium is deposited into the MSA account. < /FONT >

Except for MSA plans, all Medicare + Choice plans are required to provide the current Medicare benefit package, excluding hospice services, and any additional health services required under the adjusted community rate process. 9.13 When Medicare Benefits Become Available Medicare benefits become available at the beginning of the month in which the individual reaches age 65. This is true even if the individual is still working. Medicare benefits are also available after the individual has been receiving Social Security disability benefits for two years or if the individual has end-stage renal disease requiring renal dialysis or a kidney transplant. 9.14 Commonly Asked Questions

1. What benefits are paid? Disability and retirement benefits for the covered worker (and perhaps for the covered worker’s dependents) and survivor benefits for the deceased worker’s dependents. 2. How do I get covered? Your coverage is determined generally by the periods of time during which you paid social Security taxes. These periods of time are “quarters of coverage”. 3. What constitutes a “quarter of coverage”? In 1997 one quarter of coverage is given for each $670 of earnings (wages, self-employed income, farm wages) in a year, up to a maximum of 4. 4. How do “quarters of coverage” determine my insured status? Your quarters of coverage determine whether you are “currently insured” or “fully insured,” which in turn determines what benefits you or your family will receive. 5. What is needed to be fully insured or currently insured? You may be fully insured by either of two tests: (1) If you have at least 40 quarters of coverage since 1936, or

� If you have at least 1 quarter of coverage for each year elapsing after 1950 (or after the year in which you became 21, if later) and before the year of your disability, death or 62nd birthday.

To be currently insured you must have at least 6 quarters of coverage during the 13 calendar quarters ending with the quarter in which you die, or become entitled to retirement or disability benefits. 6. What benefits are available to my dependents? If you are currently insured, three types of benefits are payable: (1) A lump sum death payment of $255 if you are survived by a spouse eligible for benefits or a child (children) entitled to benefits based on your earnings record (2) Monthly payments to your surviving spouse during the time your children are under 16 years of age (3) Monthly payments to your children during the time they are under 18 years of age. If you are fully insured, your dependents are entitled to these additional benefits:

(1) Monthly benefits to your surviving spouse at 65 years of age (or 60, if reduced benefits are elected; or 50, if disabled) (2) Monthly payments to your dependent father or mother at age 62. 7. At what age do retirement benefits start? Age 65, but you may start drawing reduced benefits at age 62 if you wish. The normal retirement age when unreduced benefits are available - now 65 - will be increased to age 67 in very gradual steps starting in the year 2000. 8. Can I lose Social Security benefits by working? Yes, if you are under age 70 but over age 64 in 1998 and earnings exceed $14,500; or, if you are under age 65 for the whole year and earnings exceed $9,120. The amount of loss depends on the amount of earnings in excess of these earnings limits. 9. If I am receiving retirement benefits, will my spouse also receive benefits? Your spouse will receive a monthly benefit at age 62 or older. The spouse of a retired worker is also entitled to a monthly benefit if the spouse has a child under 16 in care. Children under 18. 10. What determines the amount of Social Security benefits I will receive? The amount of benefit is based upon your “Primary Insurance Amount” (PIA), which in turn is based upon your “Average Indexed Monthly Earnings” (AIME). Benefit tables are used to determine your current or future Social Security benefits. 11. When does a beneficiary receive an automatic cost of living benefit increase? Cost of living benefit increases are effective in December of each year and are reflected in Social Security checks mailed out the following month. Benefits increased 2.9% in January 1997. 12. Are there minimum and maximum benefits? Workers and survivors first eligible for benefits in 1982 and after are not eligible for the minimum benefit. The maximum benefits that can be paid are illustrated in benefit tables. 13. What is the delayed retirement credit? You can increase your retirement benefit by delaying retirement past the full-benefit retirement age (currently age 65) up to age 70. The delayed retirement credit is gradually increasing from 3% to 8% a year between 1990 and 2008. If you reach age 65 in 1997 and continue on the job, you will receive an increase in retirement benefits equal to 5% for each year you work between age 65 and 70. 14. What age must I be and what other requirements must I meet to be eligible for disability benefits? You may be any age under 65. If you become disabled after age 30, you must be fully insured and must have worked in covered employment or self-employment for 5 years out of the last 10. If disabled before age 31, you must have quarters of coverage in at least 1/2 the quarters between age 21 and disability (but not less than 6). Disability must be such that it can be expected to result in death or last at least 12 months. Your disability benefit equals your “Primary Insurance Amount” at the time you are disabled. Family members receive benefits under the same rules that would apply if you retired. The maximum family benefit for disability benefits is generally lower than for retirement and survivor benefits. 15. Are Social Security benefits paid automatically when you qualify for them? No. Benefits must be applied for before they are paid. After filling out the required forms you will receive a Request for Earnings and Benefit Estimate Statement. After filling this form you will then receive an official statement of earnings that have been recorded in your Social Security account and an estimate of current death

and disability benefits and future retirement benefits.

10 AGENT RESPONSIBILITIES

10.1 Marketing Practices The insurance producer must make sure to avoid any of the following which shall be construed as being an unfair practice, unfair methods of competition, or unfair and deceptive acts.

� Falsifying records for purposes of defrauding any company or person

� Misrepresenting insurance company assets

� Misrepresenting the terms of an insurance policy

� Rebating-giving something of value in order to induce someone to buy the insurance policy

� Defamation of any insurance company

� Using unverified numbers in advertising financial standings

10.2 Misrepresentation and Defamation

Agents also have the responsibility to insure that they do not involve themselves with any of the following violations;

� Telling anyone that dividends are guaranteed

� Misleading anybody regarding estimating the amount of a potential dividend

� To make any misleading statement or representation in order to induce someone to buy an insurance policy

� Making any false or injurious statement about any insurance company

� It is unlawful to try to induce a person to let their insurance policy lapse or be forfeited in order to purchase a new insurance policy

� Cannot imply, in any way, that your insurance policy is endorsed or guaranteed by any state or other governmental body.

10.3 Disclosure Requirements All advertising, statements, representations and sales presentations must be free from any form of information that can be construed as being misleading or untruthful in any way. Some examples include;

� All conversations regarding insurance must be identified by the agent as being "insurance" and cannot disguise the product.

� Sales promotions cannot be misleading in any way.

� The agent must fully disclose the name of the insurance company represented at all times.

� Agents must insure that when making presentations, in any type media, that the materials being used are truthful and all reacquired information is being disclosed.

10.4 Replacement Issues Agents are fully responsible to inform their clients about possible negative effects of replacing their current policy with the newly proposed one.

� Replacement includes any policy that has lapsed, been forfeited, surrendered or terminated.

� It is the agents responsibility to protect the interests of their clients by informing them about the inherent problems in replacing their current policy.

� The agent is responsible in providing the client with a disclosure about replacement policies and to get them to sign if a replacement policy will be an issue.

� The agent must sign a statement as to whether the agent knows if the transaction involves a replacement issue.

� If there is a replacement the agent must provide the insured with a "Notice Regarding Replacement of Life Insurance of Annuity"

10.5 Other Agent Responsibilities

� Providing the client with a "Buyers Guide"

� Providing the client with a policy summary sheet

� Reviewing the application for all necessary signatures

� Reviewing the Fair Credit Reporting Act and Forms with the client

� Making sure all required signatures are provided on the application, fair credit act forms and any other form required by the insurance company

� Agent must turn all monies over to the insurance company within the required time period (usually 15 days)

� Agent owes a fiduciary duty to the insured

� Agent is an agent of the insurance company and must act appropriately within the scope of the agency relationship.