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Long-term care (LTC) is the care provided for people who, because of injury, disease, or age, are unable to carry out the basic tasks required for living, such as eating, bathing, or going to the toilet. Although most people requiring long-term care are elderly, the need for such care can occur at any age because of injury or disease. The U.S. Government Accountability Office estimates that 40% of the 13 million people receiving long-term care services are less than 65. However, the chances of needing long-term care increases sharply after age 65. A study conducted by the U.S. Department of Health and Human Services indicates that people aged 65 face a 40% lifetime risk of entering a nursing home and 10% of those will be there 5 years or longer. Because women generally live longer than men, they have a 50% greater chance of requiring long-term care than men.
Most long-term care is provided by nursing homes and assisted-living facilities. Care can also be provided at the person’s home by visiting nurses, home health aides, visiting programs, chore services, and home-delivered meals. There are also adult daycare centers, and respite services that give temporary relief for the caregivers who are relatives or friends. Most of the long-term care services that are provided in an area can be found by contacting the local Area or Office for Aging, or the local office can be found by calling Eldercare at (800) 677-1116 or by visiting their website at http://www.eldercare.gov/.
Most long-term care is very expensive, especially if the care is provided by a nursing home or assisted-living facility. The cost for nursing homes can be $50,000 to $100,000 annually, and the average cost of assisted-living facilities is $2,000 per month, but can easily be more if the patient requires special services. Even services provided at home can cost $1,000 per month or more. If eligible, Medicare covers only the 1st 100 days, and doesn’t cover custodial care at all. Some life insurance policies have an accelerated or living benefit provision that allows the insured to be paid some of the benefit of the policy while still alive for long-term care.
Long-term care insurance pays either a monthly or daily benefit for medical or custodial care received in a nursing home, assisted-living facility, or at home. Most policies pay benefits as reimbursements—the policy pays for actual expenses incurred, up to the policy limits, and the benefits are tax-free. Some policies pay a daily benefit that is a specified amount regardless of actual expenses. An insured can receive, in 2007, $260 tax-free from a per-diem policy, or more, if actual expenses are greater than that, and all of it can be received tax-free if the insured is terminally ill. The tax-free daily limit increases every year.
Because of the expense, long-term care insurance is expensive. The cost of premiums varies widely, depending on the insurance company, the benefits, length of waiting period, options selected, and your age when purchasing the policy. As with all other insurance, it is prudent to shop around, and because the cost of premiums depends on your age when you purchase the policy, it generally is not a good idea to switch policies unless there is a compelling reason to do so, because it will almost certainly cost more if you are significantly older. However, premiums for a policy already in force do not increase as you age, unless the insurer raises the price for the entire underwriting class in which you are placed.
In 2002, a policy offering a $150 per day long-term care benefit for 4 years, with a 90-day deductible, had the following national cost averages per year:
| Age at Purchase | Premium | Premium with Inflation Protection |
|---|---|---|
| 50 | $564 | $1,134 |
| 65 | $1,337 | $2,346 |
| 79 | $5,330 | $7,572 |
There may also be tax savings for paying premiums, because they are counted as a medical expense deduction; however, there are age restrictions to the benefit. Both premiums for long-term care insurance and out-of-pocket costs for long-term care are classified as medical expense deductions.
Most policies are guaranteed renewable, so they cannot be canceled except for nonpayment of the premium, or if the insured provided materially false information in the insurance application.
There are 3 basic long-term care policy types:
All policies provide a care coordinator who can help the insured select the most appropriate treatment.
Long-term care policies can be classified according to how they pay benefits: indemnity policies and expense incurred policies. Indemnity policies pay a specific amount regardless of expenses, whereas expense incurred policies reimburses expenses up to a specified maximum.
The aggregate benefit rate is either expressed as an amount per day (examples: $100, $200, etc.) for a specific number of years or for a lifetime, or a daily and lifetime maximum can be chosen.
Like disability-income insurance, long-term care insurance has elimination periods (aka waiting periods, deductible periods) that typically range from 0 to 180 days. Longer elimination periods substantially reduce premiums, but increases out-of-pocket costs.
Virtually anyone in basically good health between the ages of 18 and 84 can buy long-term care insurance. Some companies do not sell to people over the age of 84, but this age limit applies only at the time of purchase, not to its renewal or when benefits are received. In most cases, the insurance company cannot cancel the policy except for the nonpayment of premiums. However, they can raise prices if they do so for the entire underwriting class.
There is usually an exclusion for pre-existing medical conditions for which the insured has been diagnosed or treated within the past 6 months. Note that this 6 month period will begin anew if you switch policies.
Tax-qualified policies have 2 benefit triggers, which are specific requirements that must be met before benefits are paid.
One benefit trigger is the inability to perform a certain number of activities of daily living (ADLs), which are specified in the policy, and usually include being able to eat, bathe, dress, use a toilet, or transfer, such as from a bed to a chair, without assistance, and to maintain continence.
The other benefit trigger results from cognitive impairment, either from dementia or from Alzheimer’s disease, that causes the insured to require supervision to maintain health, and to prevent injuries either to themselves or to others.
Some policies that are not tax qualified may have a medical necessity trigger that will pay benefits if a doctor certifies that the insured requires long-term care, even if the insured does not satisfy the previous triggers.
Considering how fast medical costs and care has risen in the past, it makes sense to purchase inflation protection. This option is provided either as an option to increase protection over time without providing evidence of insurability, or the benefit increases automatically by a certain percentage annually.
The waiver of premium benefit allows the insured to stop paying premiums after a specified amount of time under long-term care. Most policies, for instance, requires the insured to be in a nursing home for at least 90 days before premiums are waived. There may be other restrictions, as well, so read the policy carefully.
Another option—the nonforfeiture benefit (aka return of premium benefit)—will return some of the premium paid if the policy is canceled or if death occurs before requiring any long-term care. However, this benefit increases the cost of the premium by 20% to 100%—in fact, it is this extra cost that is being returned to you. Therefore, this benefit makes no sense, since it would be wiser to pay reduced premiums for a policy without this benefit and simply invest the rest.
The Health Insurance Portability and Accountability Act of 1996 (HIPPA) imposes consumer protection standards on long-term care insurance providers. Consumers must receive a Shopper’s Guide for long-term care insurance and an Outline of Coverage, which describes the policy’s benefits and limitations early in the sales process. High-pressure sales tactics and twisting, which is a misleading or incomplete comparison of policies, are prohibited. Companies must also report annually the number of claim declines, policy terminations, and replacement sales.
This law also prevents companies from canceling a policy, even for aging, or for deteriorating mental or physical health, except for the nonpayment of premiums. For those with cognitive impairment, the policy can be reinstated up to 5 months after the policy lapsed.
Long-term care insurance policies cannot exclude coverage by type of treatment, medical condition, or accident, with the exception of mental or nervous disorders, but not Alzheimer’s disease, and can also exclude coverage for alcoholism and drug addiction. A policy cannot exclude coverage for pre-existing conditions for more than 6 months after the policy inception.
An individual that had group coverage from employment can continue the coverage after leaving the job by paying the premiums. If the place of employment discontinues group long-term care insurance, then employees can buy individual policies without providing any evidence of insurability.
The National Association of Insurance Commissioners has developed standards that protect consumers. You should look for a policy that includes:
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