Consumer Guide To Long-Term Care
What is Long-Term Care?
Long-term care (LTC) is the health industry name for care and related expenses associated with an extended illness or injury, including rehabilitation and maintenance of a person who is disabled and cannot care for himself and who is expected to need care for an extended period of time. Advances in medical technology have made it possible to recover from many medical conditions that previously resulted in death; however, the patient may still experience a lengthy period of disability and the resulting necessary care related to chronic conditions.
Because this is a relatively new phenomenon, our traditional sources of financial help for these expenses do not address periods of custodial long-term care. Ninety-five percent of long-term care in the United States is custodial in nature. Private health insurance and disability income coverage do not reimburse these costs, nor does traditional government program assistance such as Medicare. Both private and public programs were established to help fund short-term medical expenses, and a gap currently exists in most people's financial planning.
What is LTC Insurance?
Long-term care insurance is a type of insurance that individuals can buy to help them finance any potential future long-term care needs they may have. Sometimes employers offer employees long-term care insurance coverage as an employee benefit as well. Depending on the policy purchased, LTC Insurance could help a person pay for extended care in a nursing home or assisted living facility, or it could also help pay for the cost of extended home-based care.
LTC insurance policies are designed to fill the gap that has been created between current available resources and the considerable cost of long-term care. LTC coverage offers asset and income protection when the need for LTC becomes necessary. Premiums for LTC insurance policies are based on your age at enrollment: the younger one's age at the time of application, the lower one's premiums will be throughout the life of the policy.
How Much Does LTC Insurance Cost?
Long-term care insurance is much less costly than paying for long-term care needs out-of-pocket.
Primary factors that are considered in the cost of a policy include:
Age at policy issue: Age is locked in when the policy is issued.
The younger one's age, the less expensive the policy.
Plan design: The greater level of coverage and the richer the plan design, the higher the cost.
The guaranteed-purchase option allows the policyholder to purchase more daily benefit amounts at specified future dates, usually annually. Inflation-specific riders increase the daily benefit each year for an extra premium. Most insurers increase the daily benefit by five percent each year, and the policyholder chooses to use the simple or compound method for the benefit increase.
Health: Discounts of as much as 20% can be offered to those in excellent health. Those with many health problems may pay an extra premium.
LTC insurance is medically underwritten, and coverage can be declined.
Lifestyle: Smokers and those whose weight is not within the norm of insurance company standards will pay more for coverage.
Marital/Couple status: Couples applying at the same time may be offered significant discounts.
Group Sponsorship: Members of an employer- or association-sponsored plan may qualify for special discounts on the premium.
Elimination and Benefit Periods: The number of days one must self-insure before the LTC insurance pays for LTC assistance is termed an "elimination period". The premium decreases in price the longer one waits for the assistance to begin. Also, some policies have "benefit periods", or the length of time the benefits will be paid if LTC assistance is required. LTC insurance policies can pay as long as a lifetime,
while others cover assistance for 2 years, 3 years, 4 years, and 6 years.
Insurance Company: Premium pricing can be different at different insurance companies due to actuaries interpreting the information differently. Also, after the policy issue, rates can increase by class, not by individual policy. Therefore, it is important to work with insurance companies who have a track record
of fair and responsible behavior toward their policyholders in order to guard against unexpected future rate increases.
Should I buy LTC Insurance?
Purchasing LTC insurance is a decision with financial consequences, whether or not it is purchased. If you choose not to purchase LTC insurance and require LTC in the future, your personal savings may be used to finance such care. However, if you purchase LTC insurance, monthly payments will be made in order to prevent spending personal savings for LTC.
Several reasons for purchasing LTC insurance exist, including the following primary reasons:
Control and Access to Quality
Comprehensive LTC insurance helps ensure that options will exist after a disability occurs;
you will choose where an how to receive care rather than being restricted to low-cost or affordable options.
Owning LTC insurance allows you to choose your type of care, as well as who delivers the care, instead of the
government choosing for you.
LTC insurance can provide options to remain in one's home instead of obtaining care in a nursing home or similar setting. Receiving care at one's home will not force the disabled person's children to become caregivers out of necessity. Instead, children
can play whatever role they wish and parents will not feel guilty about interrupting their children's lives.
LTC insurance can save money and ensure that personal savings and other assets will be used for the purpose originally intended rather than paying for long-term care health expenses. LTC insurance provides peace of mind; it provides financial security during a stressful time, and is not subject to the woes of the stock market. The financial freedom and security LTC insurance provides is one of the primary reasons people purchase this type of insurance.
LTC insurance premiums can be tax-deductible. The deduction is more likely to be realized by a business owner than an individual, but there are some guidelines for LTC insurance deductions based on age if an individual itemizes medical expenses. Consult an accountant for more specific information.
When choosing a LTC insurance policy, several factors should be considered, including:
When judging insurance companies, financial strength should be considered by examining the company's financial ratings and asset size. Also consider the company's years in business and whether or not the company has a history and commitment to long-term care insurance. Only financially solid companies with excellent reputations for client service and significant assets to pay benefits in the future should be considered when choosing between companies.
Amount of Coverage
LTC insurance policies can cover all or part of the daily rate of long-term care assistance. The average daily rate charged for such assistance should be used when considering the amount of coverage to purchase; for example, coverage should start around the national average, and then be adjusted for regional costs.
Types of Policies
Three distinct models of LTC insurance exist - the reimbursement model, the indemnity model, and the disability model - and each type should be discussed with an insurance advisor.
Additionally, tax-qualified and non-tax qualified LTC insurance policies exist.
Eighty-five percent of policies sold are tax-qualified, which means that certain standards prescribed
by federal law are met and the premiums are partially or fully tax deductible.
Access to benefits in both types are very similar; however, important differences include flexibility factors,
available discounts for alternative plan of care arrangements, premium provision waivers, access to privately-hired
aides under Home Health Care benefits, and Care Coordination benefits.
A variety of choices are available for the purchase of LTC insurance. Daily Benefit Amount
Elimination Period (waiting period before benefits begin)
Policy Types include:
Reimbursement of Actual Expenses up to the benefit amount
Indemnity (Policyholder receives the entire daily benefit, even if only a portion is spent on LTC assistance)
Disability or Cash Benefit (daily, weekly, or monthly benefits are paid, regardless of the expenses incurred)
Tax-qualified or non-tax qualified
Policyholders can choose:
Combination policies include:
Life and LTC combined into one policy (individual market only)
Annuity and LTC (individual market only)
Disability and LTC (group market only)
Inflation protection (simple or compound method)
Future purchase option
Return of premium, less claims paid
Assistance coverage options:
Assisted living facilities
Home health care
Adult day care
Payroll deduction on group policies
Limited payments for a specified period of time (For example, the policy is fully paid after ten years of payments.)
Where can I purchase LTC Insurance?
LTC insurance coverage can be purchased through licensed health insurance salespeople known as agents or brokers. Independent agents and brokers sell insurance plans from many companies, and they can help you find the coverage that best suits your individual needs.
Agents and brokers also provide service on the policies they have sold, and can help you process claims or with anything else you need regarding your policy. The insurance companies for which agents and brokers sell coverage pay them a commission for their work, so you will not be charged a direct fee if you want to use the services of an agent or broker. You can find agents and brokers who sell long-term care coverage via the Internet, or you may prefer to consult with one in person. To find an NAHU member near you who can help you purchase long-term care insurance coverage, use our agent locator
What are LTC Partnership Insurance Policies?
LTC partnership insurance policies are a special type of coverage that combines private LTC insurance coverage with the backstop of coverage by the federal Medicaid program. Medicaid does offer qualified individuals limited LTC benefits, but to qualify an individual has to be financially eligible for Medicaid, which would mean "spending down" his or her assets on LTC expenses first. LTC Partnership policies offer consumers an alternative to "spending down" their entire life savings and using Medicaid to pay for their long-term care needs, by forming a partnership between Medicaid and private long-term care insurers. Partnership policyholders may become Medicaid eligible once existing policy benefits have been exhausted, without having to spend down his or her assets. A policyholder is able to keep personal assets equal to the benefits paid by the policy. Medicaid will be the last payer of care instead of the first, thus saving the program billions of dollars over time. The purpose of these partnership programs is to provide access to affordable private long-term care insurance for individuals of moderate income who may not have been able to afford private coverage otherwise. Federal legislation enabling most states to create Partnership programs was passed in 2005. So some states do not have partnership programs in place yet, but many are in the process of creating them. For more information about LTC partnerships, please see our partnership page
To discover more about LTC partnerships, and the specific types of coverage offered in your state, please click here
Table of Deductibility - An expanded explanations for deductibility for C Corporations.
A Shopper's Guide to Long-Term Care Insurance - National Association of Insurance Commissioners
Guide for Caregivers MetLife Mature Institute has published a guide for caregivers who are helping loved ones get health care