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Actuarial Science
Actuarial Science 2053
Steven Kopp

The Problem of Old Age – Long Term Care The essential elements of long term care include: 1. The need for medical, personal, or social services 2. The need is the result of an accident, illness, or frailty 3. Services provided by other persons, either paid or unpaid, at home or in a nursing home The services are to assist the individual in performing the 5 to 6 essential activities of daily living (ADL’s): In Canada, long term care is not fully financed by the government • Each province provides varying levels of subsidized care at home or in public nursing homes • The rest of LTC expenses must be met from individual or family resources Solution to the problem of LTC: Long-term care insurance Overview LTC insurance promises to pay expenses incurred if the insured is unable to engage safely in selected ADL’s • this requires that someone provide the care, either in the home or in an institution LTC Insurance – Characteristics (I) Coverage 1. Eligibility To be eligible for LTC insurance, a person must be deemed a “good risk” This done through the underwriting process, which would include: • questions on the application • doctor’s statement • interview with proposed insured • paramedical examinimation 2. Type of Coverage 1 Type: Nursing Home Care – 3 levels (a) Skilled nursing care • 24 hour care; ordered by a physician; provided by an RN (b) Intermediate nursing care • similar to skilled, but care is not needed around the clock (c) Custodial care • basic level of non-medical care in the form of assistance with ADL’s; still needs to have been ordered by a physician and supervised by a nurse a nursing home will cover expenses if an individual goes directly from their homes into • benefits are typically paid if insured is unable to perform at least 2 of the ADL’s • in some cases, the insured can perform all ADL’s, but cannot be safely left alone • some LTC policies include a “cognitive impairment” clause which permits benefits for these type of people 2 Type of Care: Community Care LTC policies usually provide benefits for insureds who require assistance, but who are able to remain in their homes or communities • benefits are typically a percentage (e.g. 50%) of the full nursing home benefits Types of Care In Most LTC Policies Include: (i) Home Health Care • care is typically on a part time basis; may include payments to family members (ii) Adult Day Care • available in a LTC facility or a community program (iii) Respite Care • provides temporary relief for family members providing care in insured’s home (iv) Hospice Care • care/emotional support for someone with a terminal disease, either at home or in a facility (v) Therapeutic Devices • equipment to help a person remain at home are sometimes paid under LTC policies (II) Benefits The LTC policy will state what benefits will be payable and for how long, should an insured event occur • No LTC policy covers all expenses • Insured event = covered person needing assistance with at least 2 of the ADL’s 1. Elimination Period This is defined to be the period of time after the insured event occurs before benefits become payable • ranges from 0 to 365 days • the longer the elimination period, the lower the premium • 72% of LTC policies have a 90-day EP 2. Daily Benefits Polices will offer different maximum daily benefits and different length of benefits Typical Daily benefit: $40, $50, $60, …, $330 Benefit period: ranges from 2 to 5years OR lifetime • Insured chooses benefit amount and benefit period • The higher the benefit amount, the higher the premium; the longer the benefit period, the higher the premium • Average daily benefit = $120/day • 30% of LTC policies have a lifetime benefit A common type of policy uses a “maximum lifetime” approach: Example • Max. daily benefit is $100/day • Benefit period is 4 years So, maximum lifetime payout = 100 x 365 x 4 years = $146,000 This $146,000 can be used for covered services in whatever way desired, subject to the daily maximum (III) Contract Provisions Most LTC policies are marketed to the 40 and over crowd • most insurers will not offer LTC insurance to people past a certain age • avg issue age = 59 to 62 • 74% of LTC insurance sales are to people are 55 to 64 the older you are when u purchase LTC insurance, the more expansive it is. 1. Premiums • Size of the premium depends on the insured’s: age, gender, current level of health, health history (along with level of daily max. benefit, benefit period, elimination period) 1. female pays a higher annual premium because they are more likely to enter
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