Long-Term Care (LTC)

What is long-term care?

Long-term care refers to a broad range of supportive medical, personal and social services for people who are unable to provide for their own needs for an extended period of time. This need for care from others may be caused by accident, illness, dementia, stroke, depression or frailty. Personal needs may include help to move about, dress, bathe, eat, use a toilet, medicate oneself etc. Help may include; household cleaning, preparing meals, shopping, paying bills, visiting the doctor, answering the phone and taking medications properly. In other cases long-term care may consist of providing supervision, companionship or support for loved ones.

Long-term care is an important issue because of the increasing numbers of older Americans, the worsening morbidity associated with that increase and the inability of modern families to provide care for aging relatives.

Long-term care insurance is offered on an individual tax-qualified, non-qualified or group bases.

Long-Term Care like disability insurance is one of the most complicated forms of personal insurance that you can purchase. No two LTC policies are the same and like disability insurance, you must be aware of the language of each contract and fully understand the benefits that are covered and those that are not. It is too difficult to explain everything about LTC in is this section but we will give you a baseline understanding and work with you personally to help you address this issue.

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What are triggers to a LTC policy?

Generally, a trigger is two or more activities of Daily Living for which a person needs assistance. However, it is important to know exactly what each policy states as its triggers.

When a person requires someone else to help him/her with physical or emotional needs over an extended period of time, this generally triggers a policy. This help may be required for many of the activities or needs that healthy, active people take for granted and may include such things as:

  • Walking
  • Bathing
  • Dressing
  • Using the bathroom
  • Helping with incontinence
  • Managing Pain
  • Preventing unsafe behavior
  • Preventing wandering
  • Providing comfort
  • Answering the phone
  • Meeting doctors’ appointments
  • Providing meals
  • Maintaining the household
  • Shopping and running errands
  • Providing transportation
  • Administering medications
  • Managing money

The need for long-term care help might be due to a terminal condition, disability, illness, injury or the infirmity of old age.

Estimates by experts are that at least 60% of all individuals will need extended help in one or more of the areas above during their lifetime. The need for long-term care may only last for a few weeks or months or it may go on for years. It all depends on the underlying reasons for needing care. In order for a LTC to go into effect there must be a trigger.

What are examples of how LTC provides assistance?

The following are examples of temporary long term care for only weeks or months

  • Rehabilitation from a hospital stay
  • Recovery from illness
  • Recovery from injury
  • Recovery from surgery
  • Terminal medical condition

Ongoing long term care (need for care for many months or years)

  • Chronic medical conditions
  • Chronic severe pain
  • Permanent disabilities
  • Dementia
  • Ongoing need for help with activities of daily living
  • Need for supervision

Long-term care services may be provided in any of the following settings:

  • In the home of the recipient
  • In the home of a family member or friend of the recipient
  • At an adult day services location
  • In an assisted living facility or board-and-care home
  • In a hospice facility
  • In a nursing home

Who should purchase a long-term care policy?

In theory, someone with significant assets can afford to pay for long-term care without relying on a long-term care insurance policy. Nonetheless, long-term care insurance might still be advisable as a means of preserving that person’s estate for heirs. Some refer to long-term care policies as inheritance insurance.

In deciding whether or not to recommend long-term care insurance, some utilize a rule of thumb.

If the client has assets of $250,000 or more, he or she should buy a long-term care policy to protect those assets. If someone has less than $250,000 in assets, that individual might be a better candidate for eventual Medicaid assistance

A person should not buy a long-term care policy if it would adversely affect his or her lifestyle. Do not buy something that you can not afford.

Obviously, rules of thumb are inadequate in many instances. Each individual’s financial situation should be analyzed closely to determine if a long-term care policy is suitable. In fact, state insurance regulations generally require that the application for a long-term care policy address the suitability issue.

Suitability means

  • consistency with the client’s short- and long-term financial goals;
  • overall financial situation including other resources available, meet the costs of long-term care (e.g., other insurance policies);
  • personal circumstances relating to age, family and health.

Where circumstances point to the need for long-term care, but the individual does not feel the coverage is affordable, it might make financial sense for the children of the insured to help pay for a parent’s long-term care insurance because:

  • they may eventually be compelled to provide long-term care for the parent out of their own pockets;
  • it is in their interests to use long-term care insurance to help preserve the parent’s estate, of which they will be beneficiaries.

Ultimately, long-term care insurance should be purchased by someone who wants the peace of mind that a policy can bring. You should ascertain whether there is a real need, and recommend an amount of long-term care insurance that is sufficient to meet that need.

When to buy long-term care insurance?

One of the most important considerations in the purchase of long-term care insurance is timing, which affects both cost and eligibility.

The premiums for most long-term care policies are based upon the applicant’s age at the time the policy is purchased. While rates vary from company to company, a fair generalization would be that a person who waits until the age of 75 would pay 2½ times the annual premium that a 65-year-old would pay, and five to six times the annual premium of a 55-year-old. Some policies allow you to pay up the entire benefit within 10 years or by age 65. The younger you are when you begin this the less expensive the cost will be.

What are the different types of care?

There are 3 basic levels of Nursing Care. It is important to distinguish among the different levels of nursing care.

  • skilled nursing care
  • intermediate nursing care
  • custodial care

Skilled care

Skilled care is the provision of services and supplies that can be given only by or under the supervision of skilled or licensed medical personnel. Skilled care is medically necessary when provided to improve the quality of health care of patients or to maintain or slow the deterioration of a patient’s condition.

Intermediate Care

Intermediate care generally applies to stable medical conditions. It requires less than 24-hour nursing supervision, but is performed on a daily basis. This type of care must also be performed by, or under the supervision of, skilled medical personnel.

Intermediate care may also refer to intermittent medical care, such as giving injections to the patient

Custodial care

Custodial care is the provision of services and supplies that can be given safely and reasonably by individuals who are neither skilled nor licensed medical personnel. The medical necessity and desired results of skilled care must be clearly documented by a written treatment plan approved by a physician. A patient may have skilled and custodial needs at the same time. In these circumstances, only those services and supplies provided in connection with the skilled care are to be considered as such.

What is the difference between Formal Care vs Informal?

Formal caregivers are volunteers or paid care providers associated with a service system. Service systems might include for-profit or nonprofit nursing homes, intermediate care facilities, assisted living, home care agencies, community services, hospice, church or charity service groups, adult day care, senior centers, association services, state aging services and so on.

Informal caregivers are family, friends, neighbors or church members who provide unpaid care out of love, respect, obligation or friendship to a disabled person. These people far outnumber formal caregivers and without them, this country would have a difficult time providing funding for the care giving needs of a growing number of disabled recipients.

What to look for in a quality long-term care insurance policy

Financial Strength

A long-term care policy is for the “long-term.” It is important to keep this in mind before purchasing a policy from a carrier with inferior financial strength. Many policyholders do not receive benefits from a Long Term Care policy for 10 to 20 years after issue.

Adequate Daily Benefit

Long Term Care services can be expensive. They may easily exceed $130 per day in most parts of the country and in excess of $200/day in metropolitan areas. It is important to be aware of the costs in your area when selecting a daily benefit.

Over time, the cost of services increase. Long Term Care services are no different. For example, a nursing home that charges $130/day today will charge $260/day in 14 years assuming a 5% growth rate. Inflation options need to be selected at time of issue, and do not under-estimate the power of compound interest.

Comprehensive Coverage

At the time the policy is issued, we do not have a crystal ball to determine where we will end up receiving Long Term Care services (nursing home , home care, adult day care.) It is comforting to know that your policy will provide benefits in a variety of settings.

Stable Premiums

Long Term Care carriers have the right to raise premiums. The policies are “guaranteed renewable” which prevents a carrier from singling out individuals for rate increases, but they may raise premiums for a “class” of policyholders. Be careful of carriers that are priced substantially below the competition. Again, ask your representative if the proposed carrier has ever increased in-force premiums.

Pre-existing Condition

No long-term care insurance policy or certificate 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 of an insured person.
  • No long-term care insurance policy may 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.

This means you would not be covered for preexisting conditions unless the loss or confinement resulting from such condition begins after 6 months following the effective date of the policy.

Other important factors

  • How reliable is the insurer?
  • How long has the insurer been in the LTC business?
  • What does the insurer consider in reviewing an application?
  • What types of care are covered?
  • What will the insurer pay?
  • When will the insurer pay?
  • Can the insurer cancel coverage or raise the premium?
  • What additional benefits/optional features should be considered?
  • Basic underwriting considerations
  • Levels of care
  • Benefit amounts
  • Benefit periods
  • Benefit triggers
  • Inflation factor
  • Elimination periods
  • Renewability
  • Additional benefits/Optional features

Other care facilities

No matter how compelling the reasons are to place someone in a nursing home, the decision is a very difficult one to make. Institutional care is often a last resort and may only be necessary if the individual needs constant attention. Alternatives to nursing homes do exist.

The list of alternative forms of long-term care is long, and getting longer, as new forms are developed almost daily.

Some of the more popular alternatives to nursing home care are:

  • Adult Day Care Centers
  • Foster Care
  • Residential Care in a Board and Care Home
  • Assisted Living Facilities
  • Hospice Care
  • Retirement Communities

How is home health care covered?

Given a choice, most people would prefer to receive care at home rather than in a nursing home.

Home health care is defined as medical and non-medical services provided to ill, disabled or infirm persons in their residences. It covers skilled nursing care as well as other services, such as physical therapy or assistance with the activities of daily living. Family members, or other informal caregivers often provide non-medical services for a loved one.

To qualify, the following criteria must be met:

  • The patient must be unable to leave his or her house without assistance.
  • A physician must provide care and certify that home health care is necessary.
  • The home health care agency providing the care must be certified.
  • Home health care is the preferred way to receive long-term care benefits.

What are qualified long-term care policies?

A Qualified LTC policy is one that allows you to take tax deductions for the premiums that you pay for the insurance. There are certain guidelines which must apply to the policy.

Let’s look first at the income tax treatment of premiums paid for a qualified long-term care policy. HIPAA placed the premiums paid for qualified long-term care (Q-LTC) policies within the definition of medical care for those who itemize deductions on their federal tax returns. Therefore, premiums paid for Q-LTC policies are deductible, subject to two limitations:

  • The first limitation applies to all itemized medical care deductions, i.e., they are deductible only to the extent that, when added to all other eligible unreimbursed medical expenses, they exceed 7.5% of adjusted gross income (AGI).
  • The second is a dollar amount limitation which applies specifically to the deduction of long-term care insurance premiums and which increases with the age of the insured.

Qualified Long-Term Care Policy Benefit Payments

Benefit payments received under a qualified long-term care insurance policy are generally tax free to the extent they pay or reimburse for long-term care expenses. However, there is a per diem limit that is adjusted annually ($230 per day/$83,950 per year in 2004) on the amount of qualified long-term care benefits that are tax free. If per diem payments exceed $230, the excess over $230 is tax free only to the extent of unreimbursed qualifying long-term care costs.

Now that we have looked at the tax advantages of qualified long-term care insurance policies, let’s consider what a long-term policy must look like to qualify for favorable income tax treatment.

The law defines a qualified long-term care policy as one which:

  • provides coverage to a chronically ill individual only for certain qualified long-term care services (i.e., necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative and maintenance or personal care services);
  • does not duplicate reimbursement for services covered by Medicare, and if benefits are paid on an expense-incurred basis, may coordinate benefits with Medicare;
  • is guaranteed renewable;
  • has no cash surrender value;
  • uses premium refunds and dividends to reduce premiums or increase benefits;
  • meets certain requirements of the NAIC long-term insurance model regulation (discussed later in this lesson);
  • offers a non-forfeiture provision that allows for reduced paid-up insurance, extended term insurance, a shortened benefit period and/or similar arrangement; and
  • discloses in the policy and the outline of coverage that it is intended to be a qualified long-term care insurance policy.

What does Medicare cover?

Medicare routinely pays for custodial care in every skilled care setting for which it provides payment up to a specific limit. Medicare will not pay for custodial care in the absence of a skilled care plan.

Medicare covered nursing home stay

A patient receiving skilled care in a nursing home from Medicare not only receives care from skilled providers such as nurses, therapists or doctors but also receives care from custodial providers such as aides or CNA’s. This care usually consists of help with bathing, dressing, ambulating , toileting, incontinence, feeding and medicating. Medicare does not exclude the custodial services but pays the entire bill because custodial care is a necessary part of the skilled care plan in a nursing home. It is important to understand that Medicare benefits are limited and do not provide coverage indefinitely

Medicare covered home care

Custodial care is always a part of a skilled care plan for home care. The patient receives skilled care from a nurse or therapist and custodial care from an aide for help with bathing, dressing, ambulating, toileting, incontinence, medicating and possibly feeding. Medicare pays for both types of services.

Medicare hospice care

The hospice team consists of a doctor, a nurse, a social worker, a therapist when needed, a counselor and an aide to provide custodial care. Help with activities of daily living is provided at home or in a Medicare approved hospice facility. Custodial care is always a part of a hospice plan of care and Medicare routinely pays for these services.

There is so much more to understand and compare before purchasing a Long-Term Care policy, we will review in detail like benefits and rates of several companies so that you are comfortable with the decision you make in purchasing a LTC plan.

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