Long term care insurance

Long-term care insurance, an insurance product sold in the United States, helps provide for the cost of long-term care beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform the basic activities of daily living such as dressing, bathing, eating, toileting, getting in and out of a bed or chair, and walking.

Long-term care isn't necessarily long term. A person may need care for only a few months to recover from surgery or illness.

As an individual ages, there is an increased risk of needing long-term care. In the United States, Medicare will not cover the expenses of long-term care, but Medicaid will for those who can not afford to pay.

Age is not a determining factor in needing long-term care. About 40% of those receiving long-term care are between 18 and 64. The late actor Christopher Reeve who in 1995 at age 42 became paralyzed following an equestrian accident and required 9 years of long-term care. Once a health condition occurs long-term care insurance may not be available. Early onset (before age 65) Alzheimer's and Parkinson's disease are rare but do occur. Michael J. Fox was 30 when diagnosed with Parkinson's.

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Benefits

In the United States, Medicaid generally does not cover long-term care provided in a home setting; in most cases, Medicaid does not pay for assisted living. However, Medicaid does provide medically necessary services for people with low income or limited resources who "need nursing home care but can stay at home with special community care services."^[1] People who need long-term care traditionally prefer care in the home or in a private room in an assisted living facility.

If home care coverage is purchased, long-term care insurance can pay for home care, often from the first day it is needed. It will pay for a live-in caregiver, companion, housekeeper, therapist or private duty nurse up to 7 days a week, 24 hours a day. Assisted living is paid for by long-term care insurance as is adult daycare, respite care, hospice care and more.

Long-term care insurance can also help pay expenses for caring for an individual who suffers from Alzheimer's disease or other forms of dementia.

Other benefits of long-term care insurance:

• Many older individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family.
• Premiums paid on a long-term care insurance product may be eligible for an income tax deduction. The amount of the deduction depends on the age of the covered person.^[2] Benefits paid from a long-term care contract are generally excluded from income.
• Business deductions of premiums are determined by the type of business. Generally corporations paying premiums for an employee are 100% deductible if not included in employee's taxable income.^[3]

Types of policies

Private long-term care (LTC) insurance is growing in popularity in the United States. Although premiums have remained relatively stable in recent years, coverage costs can be expensive, especially when consumers wait until retirement age to purchase LTC coverage. ^[4]

Two types of long term care policies offered include:

• Non-tax qualified (NTQ) was formerly called traditional long term care insurance. This type has been sold for over 30 years. It often includes a "trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.

• Tax qualified (TQ) policies do not have a medical necessity trigger and require that a person be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, continence) without substantial assistance (hands on or standby) and that a doctor provides a plan of care; or that for at least 90 days, the person needs substantial assistance due to a severe cognitive impairment and a doctor provides a plan of care. Benefits are non-taxable.

Fewer non-tax qualified policies are available for sale.^{[citation needed]} One reason is because consumers want to be eligible for the tax deductions available when buying a tax-qualified policy. The tax issues can be more complex than the issue of deductions alone, and it is advisable to seek good counsel on all the pros and cons of a tax-qualified policy versus a non-tax-qualified policy, since the benefit triggers on a good non-tax-qualified policy are better.^{[citation needed]} By law, tax-qualified policies carry restrictions on when the policy holder can receive benefits.

One survey found that sixty-five percent of purchasers did not know whether or not the policy they bought was tax qualified.^[5]

Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy is, if an individual policy, guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.

Most benefits are paid on a reimbursement basis and a few companies offer per-diem benefits at a higher rate. Most policies cover care only in the continental United States. Policies that cover care in select foreign countries do so at a rated benefit.

Group long term care policies may or may not be guaranteed renewable or tax qualified. Many group plans include language allowing the insurance company to replace the policy with a similar policy, but allowing the insurance company to change the premiums at that time. Some group plans can be canceled by the insurance company. These types are not recommended. To compensate for the higher insurance risk group plans may have higher deductibles and lower benefits than individual plans.^{[citation needed]} The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. ^[6]

Retirement systems such as CalPERS may offer long-term care insurance similar to a group plan. These organizations are not regulated by the state insurance departments. They can increase rates and make changes to policies without state scrutiny and approval.

Long-term care insurance rates are determined by four factors: the person's age, the daily (or monthly) benefit, how long the benefits are for, and the health rating (preferred, standard, sub-standard). Most companies will give spousal and multi-life discounts on individual policies. Premiums increase significantly with age. The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.^[7]

Most companies offer multiple premium modes: annual, semi-annual, quarterly, and monthly with automatic money transfer. Companies add a percentage for more frequent payment than annual. Options such as non-forfeiture, restoration of benefits and return of premium are expensive and not recommended.

In California and select other states, the Partnership for Long Term Care program provides "lifetime asset protection" long-term care insurance policies.^[8] The Deficit Reduction Act of 2005 makes the program available to all states that want to participate.^[9]

Eligibility and deductibles

Many policies have a waiting period (deductible period), or elimination days that may differ from 20 to 120 actual calendar days. Many policies require intended claimants to provide proof of 20 to 120 service days of paid care before any benefits will be paid. In some cases the option may be available to select zero elimination days when covered services are provided in the home in accordance with a Plan of Care. Some may even require that the policy for long-term care be paid up to one year before becoming eligible to collect benefits. The reason to choose a higher deductible period is for a lower cost premium.

References

1. ^ http://www.cms.hhs.gov/MedicaidEligibility/02_AreYouEligible_.asp
2. ^ IRC Sec. 213(d)(10)(A)
3. ^ IRC Sec. 162(I0(1)(B)
4. ^ "Who buys long‑term care insurance? A 15‑year study of buyers and non‑buyers, 1990‑2005", America’s Health Insurance Plans, April 2007
5. ^ "Who buys long‑term care insurance? A 15‑year study of buyers and non‑buyers, 1990‑2005", America’s Health Insurance Plans, April 2007, page 9
6. ^ FAQs About COBRA continuation health coverage from DOL
7. ^ "Who buys long‑term care insurance? A 15‑year study of buyers and non‑buyers, 1990‑2005", America’s Health Insurance Plans, April 2007, page 9
8. ^ California Partnership for Long Term Care
9. ^ Deficit Reduction Act from CMS