Long-Term Care Insurance

views updated Jun 27 2018

LONG-TERM CARE INSURANCE

The feasibility of private long-term care insurance is central to the public policy debate over financing long-term care. The failure of the private market, even with public subsidies, to insure a substantial portion of the population has a bearing on the public sector's role in financing long-term care. The larger the share of the population with adequate private insurance, the less likely that public resources will be needed to provide long-term care to those in need. But very little about any private market is purely private. Public resources are often used to support or improve the private market, regulate the market, and ultimately help consumers. This is true for private long-term care insurance as well. The market for private long-term care insurance has been expanding at a rapid rate, but not as fast as the population is aging, and hence a growing proportion of the population is getting older without pooling their financial risks of needing long-term care.

Why long-term care is an insurable event

Saving for an event whose occurrence and costs are predictable is very efficient. Preparing for an event involving known financial consequences, however, is not the same as preparing for an unpredictable event with unknown costs. Either too much or too little is likely to be saved. Those who set aside the most that they might need are quite likely to save too much and therefore deprive their families of other goods and services needed over their lifetimes. More than likely, most people would underestimate the costs, thereby depriving themselves of other opportunities, and still not have sufficient resources when care is needed.

Since the future need for long-term care is not known, and since, if needed, its cost is not predictable, self-funding for this contingency is inefficient. Sharing the financial risk through insuranceeither public or privateis more efficient. This is the basic function of insurance where large groups of people pool the financial risks of the group. No one person in the group bears the full cost of care and everyone in the group shares in financing the care for those who end up needing it. Despite the existence of long-term care insurance in local markets since the 1960s, relatively few people have purchased long-term care insurance to pool the financial risk of needing long-term care. Since Medicare does not cover most long-term care needs, this leaves most people purchasing their own long-term care and then turning to the state Medicaid program for assistance if impoverished.

What is long-term care insurance?

Long-term care insurance is conceptually more like whole life insurance than health insurance. Health insurance is for a fixed term (usually the month in which the insurance is purchased) and it covers necessary medical care during that time as well as any ongoing expenses related to that episode in which care is needed. Long-term care insurance, on the other hand, provides for a fixed payment toward long-term care services once long-term care is needed. There are specific triggers, which are often tied to measures of activities of daily living or ADLS. But the amount of the benefit is most often tied to the site of care and not the level of functional disability. Moreover, the amount of benefit is predetermined by the consumer, for example, $100/day for a nursing home stay and $50/day for care at home. Most policies offer consumers the option to allow the benefit amount to increase with inflation, but often the inflation index is either a fixed percentage (for example, 5 percent) or tied to general inflation and not necessarily the increase in the cost of long-term care.

The price of the policy depends on the options chosen and the age at which the policy is initially purchased. This age at which the policy was first purchased determines the price of the policy for as long as the policy is held. Assuming a 5 percent compounded inflation benefit and a nonforfiture benefit, a policy purchased at age forty, for example, might cost $770 a year; while the same policy initially purchased at age sixty-five would cost $2,305 a year (Chart III-13 in Congressional Research Services Long-Term Care Chartbook, 2000). If bought at age forty, the premium will be one-third of what it will cost if the individual waits until age sixty-five to begin buying the policy with the same benefits. This significant price difference arises because the forty year old has a significantly lower risk of needing long-term care in the short-run and because of the longer period in which premium payments on the part of the forty year old will grow.

For example, let's assume a forty-year-old and a sixty-five-year-old buy the same long-term care policy. Further assume that they maintain the policy and that they both need nursing home care at age eighty-five. This will be twenty years for the sixty-five year old and forty-five years for the forty year old. Over the course of the forty-five years the forty year old will have paid $26,950 in long-term care insurance premiums. Over the course of the twenty years, the sixty-five year old will have paid $46,100 in long-term care insurance premiums, for the same benefit.

Although the forty year old will have paid less, the value of the premiums to the insurance company will be worth more. Take for example the first year's premium. The forty year old paid $770 and the sixty-five year old paid $2,305. When the forty year old is eight-five, that initial premium will have grown in tax-free investments held by the insurance companyassuming an 8 percent rate of returnto be worth $27,845, while the first year premium paid by the sixty-five year old will only be worth $11,356 to the insurance company.

Employer-provided or employer-organized group purchases

In a voluntary private insurance market, employer-provided or even employer-sponsored benefits offer a very natural and efficient way to pool risk, achieve marketing and administrative savings, and effectively negotiate better terms and plan designs. Employers devote tremendous resources choosing and negotiating plan arrangements. Generally, larger employers have been able to obtain more comprehensive benefits for a lower "premium" than smaller employers, and virtually all employment-based groupings offer more coverage for the same "premium" as do individual policies. Such efforts are, of course, voluntary, although encouraged by the labor market and tax policy.

Long-term care insurance has not been sold as a "term" product but as a "whole life" type product, meaning that its price is contingent on the age at which the policy was initially purchased and not the current age of the policyholder. For this reason, long-term care insurance is substantially less expensive when purchased at a younger age. Unfortunately, to maintain this premium, one must retain the policy until it is needed, perhaps thirty years after the initial purchase. Maintaining the value of any employee benefit when moving from one employer to another is a substantial hurdle, but is particularly problematic with a product like long-term care insurance.

For most insurance products, such as health care, disability, and even life insurance, the insurance protection is often limited to a relatively short period of time such as the month in which the premium is paid. The vested rights of pension benefits might be transferable, but the value remains at what it was the day the employee left the firm. Only the cash-value of defined contribution plans are relatively easy to move, but here too there are complications when much of that value is in company-held equity, particularly when the company is privately held.

Individual market

Voluntary, even tax-subsidized, individual markets for insurance require substantially more marketing and information gathering by both the consumer and the insurer. For insurers these costs are either added to the premium or taken from the benefit. As a result, some individuals might not be eligible and the premium may be prohibitive. Further, adverse selection and moral hazard are much more substantial issues for the insurer in the individual market and hence they design both the application process and the product with these concerns in mind. Other limitations of private long-term care insurance include denial, misunderstanding of coverage, underwriting as well as the competing demands for savings that families face (i.e., housing, education, and retirement). People who need long-term care and people with medical conditions that could eventually require some assistance have usually been denied coverage.

In a survey of buyers and people initially interested in long-term care insurance who ultimately decided not to buy it, it is clear that the reasons for buying and for not buying are quite complex. Among buyers, the most important reason was to protect assets, but less than one-third identified this as an important reason. About 19 percent indicated a desire to avoid dependence on others, but nearly one-quarter had other reasons. On the other hand, of those who had investigated purchasing a long-term care insurance policy but chose not to, more than one-half (54 percent) indicated that the cost was a very important reason and another 30 percent indicated that the cost was an important reason in their decision not to buy (Health Insurance Association of America, October 2000). Other reasons cited by the non-buyers were suspicions about insurance companies, a lack of understanding about the risk of needing long-term care, confusion about what the government does and does not now cover, and general lack of knowledge about the policies.

It has been difficult, at best, to sell long-term care insurance to older people. It is even more difficult to sell it to younger people. This is particularly unfortunate, since this is when premiums are the least expensive. Moreover, while the probabilities of needing long-term care increase with age, nearly half of the long-term care population is under the age of sixty-five.

Growth of the long-term care insurance market

Since the mid-1990s, the number of long-term care insurance policies sold has nearly doubled. The vast majority of policies sold (80 percent) are sold in the individual market rather than in the employer-group market. This reflects the relatively easier sell of long-term care insurance to older people than to younger, workingage people.

In 1984, sixteen insurance companies had sold 125,000 long-term care insurance policies in select states (Friedland). By 30 June 1998, 119 insurance companies were selling long-term care insurance policies nationally and over 5.8 million policies had been sold (Health Insurance Association of America, March 2000). Employers have been relatively slow to either provide or help organize the provision of long-term care insurance to their employees. Prior to June 1987, no employers offered long-term care insurance to their employees, and as of 30 June 1998, there were over 2,100 employers offering long-term care insurance to their employees, retirees, and often to the parents and in-laws of their employees.

Policies sold and policies in force are not, however, the same. People stop paying their premiums and hence the policy ceases to provide coverage. Not much is known about lapse rates, but clearly some people are opting for a new policy and, given the older ages at which these polices are purchased, some people have died. One analyst has estimated that the number of policies in force is about half the policies sold (Cohen). Even if everyone held all of the policies ever sold to those age sixty-five and older, then one could imply that about 18 percent of the elderly have some form of long-term care insurance protection. Of course the reality is far fewer have such insurance. Moreover, about 45 percent of the long-term care population is under the age of sixty-five (CRS and The Urban Institute). Therefore, if one narrows the population at risk to everyone age forty-five and older, then long-term care insurance has covered less than 7 percent of the most relevant market.

It is quite likely that the employer-sponsored market will change dramatically in the first decade of the twenty-first century. The largest employer, the federal government, is in the process of organizing the availability of long-term care insurance to their employees and their retirees, as well as dependents of employees, and even the parents of employees. There are an estimated 6.5 million federal employees and retirees. Adding spouses and parents suggests a potential market of 13 million people, not only learning more about long-term care insurance but also having the opportunity to purchase long-term care insurance on a group basis.

Private insurance and long-term care

So far, private long-term care insurance has had virtually no impact on the organization or delivery of long-term care. This is because most of the financing for long-term care is either through Medicaid, Medicare, or directly from those needing long-term care. In 1998, Medicaid, the largest public payer of long-term care services, accounted for 45 percent of all long-term care expenditures. Medicare financed 16 percent overall. Families directly financed 27 percent and private insurance, from all types of private insurance, financed less than 7 percent of long-term care. Most private insurance payments, however, are not yet from long-term care insurance. Analogous to Medicare, the financing of long-term care is from the acute health insurance plans (and Medicare HMOs) using long-term care services, often as an alternative to inpatient hospital care.

Public sector support and influences on the private market

Insurance is licensed and regulated by each state. The federal government has had regulatory authority when the insurance is provided through most employer-provided benefit plans. Tax-favored employee benefits are regulated by the federal government, but this regulation has been primarily focused on ensuring that employee benefits are not provided in a way that favors one class of employees over another.

Until 1996 the federal tax code did not recognize long-term care as a tax-exempt employee benefit. This has resulted in a great deal of ambiguity concerning the tax treatment of premiums paid, the tax treatment of benefits received by policyholders, and the treatment of the reserves accumulating to pay future long-term care benefits (especially prior to 1989). Much of the ambiguity stemmed from the fact that the preferential tax treatment of health insurance was derived from a 1954 definition of medical care, which was so explicit to leave lawyers wondering if assistance to function on a daily basis or to remain independent despite chronic conditions would be included. That is, so much of the definition was related to the diagnosis and treatment of a disease to render serious questions about nonmedical services even when they were necessary because of a medical condition.

If it had been clear that long-term care is covered by the medical definition, then long-term care insurance could be treated like health insurance. Health benefits in a health insurance plan are not treated as either federal or state taxable income, and if the premiums are paid by an employer the premiums are not treated as taxable income either. Long-term care insurance relies on prefunding, much like whole life insurance, but clearly long-term care insurance pays benefits prior to death. In the case of whole life insurance, the insurers intend to invest the premiums in a reserve fund that is used to pay benefits. The earnings on those reserves are not taxed at the federal level and often not at the state level and hence premiums are lower than they otherwise would be.

The Health Insurance Portability and Accountability Act (HIPPA) of 1996 made long-term care insurance explicit in the federal tax code (Tapay and Feder). In so doing, the federal government defined long-term care insurance in ways in which states had not. This actually created two kinds of long-term care insurance. That which is only state approved and that which is both state approved and qualified for preferential tax treatment by the federal standard. While each state has its own standards to define long-term care, no state had established standards like those in HIPPA. For example, to be federally qualified, the long-term care insurance policy must pay benefits if the policyholder has limits in two or more activities of daily living. Most states that have such a standard use a criterion of limitations in three or more activities of daily living.

While HIPPA added clarity for the tax treatment of long-term care insurance policies that meet federal standards, it may have inadvertently left even more uncertainty for state-licensed policies that do not meet the federal standards. Furthermore, tax preferences not only lower the cost of the policy, they imply an implicit signal from the government that suggests an endorsement of long-term care insurance. This is seen as critical for selling insurance by insurance industry experts who have acknowledged just how difficult it has been to sell long-term care insurance policies, especially to people under the age of sixty-five.

Potential for the future

Relatively few people have purchased long-term care insurance polices. While the market potential is enormous, public policies may be necessary to further encourage this market. A long-term care financing system that depends on some proportion of the population purchasing insurance may want to focus on public policies that also inform and protect consumers from making inappropriate purchases. This may include public information, tax incentives, or even direct subsidies for the purchase of private insurance.

The real potential for long-term care insurance lies in educating people about the risk of long-term care and their options to pool this risk. In order for the private market to be effective at pooling this risk, large portions of people in their forties and fifties need to purchase policies and continue to make annual premium payments until they are in their eighties. Given what we know about individual purchases of other insurance, including health insurance, this is not likely to happen unless substantial numbers of employers are able to encourage most of their workers to obtain insurance through their workplace. Only then will private long-term care insurance begin to have a significant impact on the financing and delivery of long-term care. However, even if more people started buying long-term care insurance today, it will take another twenty years before these purchases begin to affect the financing and delivery of long-term care.

As our population ages, long-term care expenditures are expected to increase dramatically. Estimates by the Congressional Budget Office suggest that for just the elderly, long-term care expenditures are expected to increase from $123 billion in 2000 to $346 billion in 2040 (in 2000 dollars) (Hagen). The Congressional Budget Office estimates that regardless of how much private long-term care insurance expands between now and 2020, Medicaid spending will still increase substantially. Assuming an increase in private long-term care insurance spending, Medicaid spending would have to increase from $43 billion today to $75 billion in 2020 (in 2000 dollars) to maintain current levels of service to low and middle-income elderly people. If there is no appreciable expansion in private insurance spending, Medicaid long-term care expenditures for the elderly is estimated to increase to $88 billion by 2020 (Hagen).

For individuals, however, private long-term care insurance is the only option for pooling the financial risks of long-term care. Unfortunately, this is a limited and biased option. The benefit that is purchased is usually cash to be used to pay for care and not access to care itself, and the value of this benefit is greater when the policy is initially purchased and less when it is likely to be needed. That is, despite the "inflation" protections that can be purchased, the benefit value is not likely to increase with the risk-adjusted cost. This is because the "inflation" factor is independent of the real costs of care and the inflation benefit is financed in the premium. Moreover, not everyone purchases the inflation benefit for his or her policy. Nevertheless, these policies do pool some of the risks and this is more effective than saving for the contingency of long-term care, which most people are not doing anyway.

Robert B. Friedland

See also Financial Planning for Long-Term Care; Long-Term Care; Risk Management and Insurance.

BIBLIOGRAPHY

Congressional Research Services Long-Term Care Chartbook. 2000.

Cohen, M. Life-Plans, Inc. Congressional Research Service presentation. 9 May 2000.

CRS and The Urban Institute. Long-Term Care Chart Book: Persons Served, Payers, and Spending, 2000.

Friedland, R. B. Facing the Costs of Long-Term Care. Washington, D.C.: Employee Benefit Research Institute, 1990.

Hagen, S. Projections of Expenditures for Long-Term Care. Washington, D.C.: Congressional Budget Office, March 1999.

Health Insurance Association of America. Long-Term Care Insurance in 19971998. March 2000.

Health Insurance Association of America. Who Buys Long-term Insurance in 2000. October 2000.

Tapay, N., and Feder, J. "Federal Standards for Private Long-Term Care Insurance: Implementing Protections Through the Federal Tax Code." Institute for Health Care Research and Policy, IWP 99105. March 1999, Georgetown University.

Long-Term Care Insurance

views updated Jun 08 2018

Long-Term Care Insurance

Definition
Purpose
Demographics
Advantages to purchasing LTC insurance
Description
Risks
Organizations that can help consumers

Definition

Long-term care (LTC) insurance provides for a person’s care in cases of chronic illness or disability. Policies for LTC provide insurance coverage for times when an individual cannot independently manage the essential activities of daily living (ADLs). These are universally known as feeding, dressing, bathing, toileting, and walking, as well as moving oneself from a bed to a chair (transferring). However, disabilities are not confined to these physical situations; they can be mental as well. The key element is that they limit the individual’s ability to perform any of these functions.

Purpose

The purpose of LTC insurance is to provide coverage for a succession of care giving services for the elderly, the chronically ill, the disabled, or the seriously injured. This care may be provided in a skilled nursing facility (SNF); a nursing home; a mental hospital; in a person’s home with a registered nurse (RN); a licensed practical nurse (LPN) or nurse’s aide; or even in an assisted living facility (ALF). It is important to note the societal changes responsible for the increased need for professional services to care for our loved ones. Although today’s families are smaller and a number of women are working outside the home, the majority of LTC continues to be provided by unpaid, informal caregivers—family members and friends.

In 2003, more than 24 million households in the United States included a caregiver who was 50 years of age or older. Approximately three in four unpaid caregivers were women—and one-third of them are more than 65 years old. Many caregivers, especially women, balance multiple roles by providing care for both their parents and their children. Caring for a loved one fulltime can overwhelm even the most devoted family member. As a result, more caregivers than ever are turning to outside resources to help with the care of a family member.

Demographics

In 2030, it is anticipated that people aged 65 and over will comprise 20% of the population. The United States Census Bureau is projecting that the population aged 65 and over will be 39.7 million in 2010, 53.7 million in 2020, and 70.3 million in 2030. As of 2003, at least 6.4 million people aged 65 and over require LTC; one in two people over the age of 85 require this kind of care now, and at least half of the population who are over the age of 85 will need help with ADLs.

Although the elderly rely on LTC most frequently, younger persons who have chronic illnesses, severe disabilities, or have experienced a serious injury may also benefit from having LTC insurance.

Advantages to purchasing LTC insurance

The financial risks of illness and injury are rarely considered when one is healthy and able, but that is also when the greatest choice of products with the best flexibility in cost is available for those considering LTC insurance. Having a LTC insurance policy

KEY TERMS

Chronic illness— A condition that lasts a year or longer, limits activity, and may require ongoing care.

Estate planning— Preparation of a plan of administration and disposition of one’s property before or after death, including will, trusts, gifts, and power of attorney.

Indemnity— Protection, as by insurance, against damage or loss.

Long-term care (LTC)— The type of care one may need if one can no longer perform activities of daily living (ADLs) alone, such as eating, bathing or getting dressed. It also includes the kind of care one would need with a severe cognitive impairment, such as Alzheimer’s disease. Care can be received in a variety of settings, including the home, assisted living facilities, adult day care centers, or hospice facilities.

Medicaid— Public assistance funded through the state to individuals unable to pay for health care. Medicaid can be accessed only when all prior assets and funds are depleted.

Medicare— A government program, administered by the Social Security Administration, which provides financial assistance to individuals over the age of 65 for hospital and medical expenses. Medicare does not cover long-term care expenses.

Skilled nursing facility (SNF)— A facility equipped to handle individuals with 24-hour nursing needs, postoperative recuperation, or complex medical care demands, as well as chronically-ill individuals who can no longer live independently. These facilities must be licensed by the state in which they operate to meet standards of safety, staffing, and care procedures.

enables access to quality care and choice of care provider when the need is greatest. Purchasing a policy when a person does not need it gives them the opportunity to investigate the company’s financial stability (whether it is solid and how it is rated), operating performance, insurance industry rating, and its claims ratio. Rates should be guaranteed renewable; and coverage should not be canceled because of age or a change in a person’s health; nor should premiums be increased on a class-wide basis.

There are several government organizations that can be of assistance in the purchase, evaluation, and monitoring of LTC insurance. One is the state health insurance assistance program—SHIP—that can review the policy before the actual purchase. Another excellent organization is the Health Insurance Association of America (HIAA), which protects consumers from the financial risks of injury and illness by providing affordable and flexible services that represent a choice. In the United States, HIAA focuses on managed care, and, specifically, advocates on issues such as disability income and LTC insurance.

The mission of the Health Insurance Association of America is to preserve financial security, freedom of choice, and dignity in LTC insurance. Because of its mission, HIAA seeks to:

  • provide access to quality care and let a person choose where care is obtained
  • eliminate out-of-pocket costs and avoid reliance on government programs for the poor
  • ensure quality of life for a patient’s caregivers

Description

Advantages

Having a LTC insurance policy cuts out-of-pocket costs and keeps the patient from having to rely on government assistance programs. Studies from the United States Department of Health and Human Services estimate that people with LTC insurance save between $60,000 and $75,000 in nursing home costs, more than $100,000 for assisted living, and actually ensure a higher quality of life for their caregiver. By having LTC at home, spouses and other family members are able to continue working or run errands while their loved one is being care for.

People of all ages usually prefer to receive LTC in their own homes, or in homelike assisted-living facilities. More than three-quarters of older Americans in need of LTC live in their communities. Most receive no paid services. The majority of LTC is provided by unpaid, informal caregivers, such as family members and friends.

Government assistance

Long-term care options can be uncoordinated and expensive for individuals, their families, and public programs. According to AARP (formerly known as American Association of Retired Persons) millions of Americans have no access to LTC services. They are caught in the trap of having too much money to qualify for government assistance, but not enough money to afford the types of services they need.

Recent changes in the United States federal tax law allow for a portion of a long-term insurance premium to be tax-deductible. The amount of the deduction increases with the insured person’s age.

Medicare may cover a month or two of home health care after a stay in the hospital, but benefits are then usually capped. This government program, administered by the Social Security Administration, is well known for providing financial assistance to seniors 65 years of age and older and to the disabled—for medical and hospital expenses—but it does not cover LTC expenses. Medicare Supplement Insurance does not cover LTC either.

The federal/state Medicaid program is available, but the criteria to qualify for assistance is strict. Those who meet the guidelines for Medicaid must demonstrate financial need to receive assistance; most individuals must deplete most or all of their savings and assets before becoming eligible for any benefits. In 2006, approximately two-thirds of nursing home residents were dependent on Medicaid to finance at least some of their care. For the majority of residents, LTC insurance is cost-prohibitive. To make matters worse, preexisting conditions often prevent them from obtaining coverage for which they might qualify.

Personal policies

Long-term care insurance policies are often complex. People who purchase them may not read the fine print and are later forced to cancel their policies because they do not fit their needs. Increasing rates factored into some long-term policies, known as climbing premiums, may also become prohibitively expensive. However, long-term care insurance can benefit consumers, provided that such items as afford-ability, coverage gaps, and timing of purchase are carefully considered.

It is advisable to check the financial stability and the claims ratio of an insurance company. Long-term insurance is a serious financial investment and should be considered a part of estate planning. A qualified, independent professional should be consulted to review the policy before purchase. The state health insurance assistance program (SHIP) is also available to answer questions.

The type of care that an individual seeks or requires is an important consideration before purchasing a policy. Currently, there is no universal standard for defining long-term care facilities. A placement that is covered under one company’s policy may not be covered by another. Physicians can also play a part in denial of a placement by stating that the facility of choice is either not adequate or too advanced for an individual’s needs.

When to purchase a policy is another important consideration. Individuals with a preexisting diagnosis for a debilitating condition or illness may not be eligible for coverage. This clause is common in most insurance policies of any type. However, purchasing a policy too far in advance of an anticipated need can work against a buyer. The health care industry is currently in a state of flux, and technological advances are rapid. The benefits provided in a policy that is purchased at one point in time may not match the care available in the distant future, giving the company reason to deny benefits.

Generally, LTC insurance operates as an indemnity program for potential nursing home and home health care costs. Additionally, many policies provide coverage for adult daycare, for care delivered in an assisted living facility, and for hospice care. Rarely are all costs covered. Some LTC policies are pure indemnity programs, which pay the insured a daily benefit contracted for by the insured. The pure indemnity program pays the full daily benefit regardless of the amount of care that the insured receives each day.

Other LTC policies pay for covered losses, or the cost of care actually received each day, up to the selected daily benefit level. This type of policy is referred to as a pool-of-money contract.

Insurance for LTC is available either as part of a group or as individual coverage, although most policies are currently purchased by individuals. Most policies cover skilled, custodial, and intermediate LTC services. A purchaser would be wise to consider a contract that covers all of these levels.

Benefits under a LTC contract are triggered in a tax-qualified policy when an insured person becomes unable to perform a number of activities associated with normal daily living or develops a cognitive impairment that requires supervision. Non–tax-qualified policies usually offer more liberal eligibility criteria. This includes long-term benefits required due to medical necessity.

Risks

Long-term care insurance policies can be expensive and may be restrictive in what they provide. Before purchasing the policy, persons should be certain that the cost is within their means and that the plan will meet their anticipated needs. Some policies allow policy holders to use survivor death benefits for health care needs. It is advisable for several different policies to be compared in detail. Policies that seem

QUESTIONS TO ASK BEFORE PURCHASING LTC INSURANCE

  • Will the policy meet my needs?
  • Is the policy affordable?
  • What restrictions or exemptions exist?
  • Under what conditions, if any, can this plan be canceled?
  • Are there any laws to protect me from insurance companies or LTC facilities that provide substandard conditions and/or services?

too inexpensive when compared against the competition should be carefully evaluated. There may be hidden clauses in the contracts that limit coverage.

Organizations that can help consumers

The Health Insurance Association of America (HIAA) protects consumers from the financial risks of illness and injury by providing flexible and affordable products and services that embody freedom of choice, and advocates on a number of issues—including LTC insurance.

The United States Department of Health and Human Services oversees the Administration on Aging’s Ombudsmen Program. Established in 1972 by the Older Americans Act, the Program operates throughout the country on behalf of aging residents. Its purpose is to investigate over 260,000 complaints annually regarding various topics, including selection and payment of LTC insurance policies. The ombudsmen advocate for residents of nursing homes, LTC homes, assisted living facilities, and similar adult care facilities; they have made dramatic differences in the lives of LTC residents. On behalf of individuals and groups of residents, they provide information to residents and their families about the LTC system and work to improve local, state and national level programs. Ombudsmen also provide an ongoing presence in LTC facilities, monitoring care and conditions and providing a voice for those who are unable to speak for themselves.

Resources

BOOKS

Matthews, J. Long-Term Care: How to Plan and Pay for It. 6th ed. Berkeley CA: NOLO, 2006.

Shelton, P. Long-Term Care: Your Financial Planning Guide. 4th ed. Richmond, VA: LTCi Publishing, 2007.

Truesdell, C. Dignity for Life: Five Things You should Know Before Considering Long Term Care Insurance. 4th ed. Kirkland, WA: LTC Financial Partners, 2007.

PERIODICALS

Kapp, M. B. “Medicaid planning, estate recovery, and alternatives for long-term care financing: identifying the ethical issues.” Care Management Journal 7, no. 2 (2007): 73–78.

Prazich, M. N. “Long-term care insurance 101.” Northwest Dentistry 86, no. 4 (2007): 31–34.

Quinn, J. B. “Insuring your future care.” Newsweek 149, no. 25 (2007): 66–67.

Thomalla, K. C. “Should I purchase long-term care insurance?” CDS Review 100, no. 5 (2007): 16–20.

ORGANIZATIONS

AARP. 601 E. Street NW, Washington, DC 20049. (888) 687-2277. http://www.aarp.org.

American College of Healthcare Executives. One North Franklin, Suite 1700, Chicago, IL 60606-4425. (312) 424-2800. http://www.ache.org.

American Medical Association. 515 N. State Street, Chicago, IL 60610. (312) 464-5000. http://www.ama-assn.org.

Health Insurance Association of America. 601 Pennsylvania Avenue, NW, South Building, Washington, DC 20004-1204. (202) 778-3200. http://www.hiaa.org.

U.S. Administration on Aging (AOA), United States Department of Health and Human Services. 330 Independence Avenue, SW, Washington, DC 20201. (202) 619-0724. http://www.aoa.gov.

United States Department of Health and Human Services, 200 Independence Avenue, SW, Washington, DC 20201. (877) 696-6775. http://www.hhs.gov.

OTHER

American Health Care Association, National Center for Assisted Living. Information about Long-term Care Insurance. 2007 [cited December 26, 2007]. http://www.longtermcareliving.com.

The Federal Long Term Care Insurance Program. Information about Long-term Care Insurance. 2007 [cited December 26, 2007. http://www.ltcfeds.com.

United Seniors Health. Information about Long-term Care Insurance. 2007 [cited December 26, 2007]. http://www.unitedseniorshealth.org.

American Association for Long-Term Care Insurance.Information about Long-term Care Insurance. 2007 [cited December 26, 2007]. http://www.aaltci.org/.

L. Fleming Fallon, Jr., MD, DrPH

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Long-Term Care Insurance

views updated May 14 2018

Long-term care insurance

Definition

Long-term care (LTC) insurance provides for a person's care in cases of chronic illness or disability. Policies for LTC provide insurance coverage for times when an individual cannot independently manage the essential activities of daily living (ADLs). These are universally known as feeding, dressing, bathing, toileting, and walking, as well as moving oneself from a bed to a chair (transferring). However, disabilities are not confined to these physical situations; they can be mental as well. The key element is that they limit the individual's ability to perform any of these functions.


Purpose

The purpose of LTC insurance is to provide coverage for a succession of caregiving services for the elderly, the chronically ill, the disabled, or the seriously injured. This care may be provided in a skilled nursing facility (SNF); a nursing home; a mental hospital; in a per son's home with a registered nurse (RN), a licensed practical nurse (LPN), or nurse's aide; or even in an assisted living facility (ALF). It is important to note the societal changes responsible for the increased need for professional services to care for our loved ones. Although today's families are smaller and a number of women are working outside the home, the majority of LTC continues to be provided by unpaid, informal caregiversfamily members and friends.

In 2003, more than 24 million households in the United States included a caregiver who was 50 years of age or older. About 73% of unpaid caregivers were womenand one-third of them are more than 65 years old. Many caregivers, especially women, balance multiple roles by providing care for both their parents and their children. Caring for a loved one full-time can overwhelm even the most devoted family member. As a result, more caregivers than ever are turning to outside resources to help with the care of a family member.


Demographics

In 2030, it is anticipated that people aged 65 and over will comprise 20% of the population. The United States Census Bureau is projecting that the population aged 65 and over will be 39.7 million in 2010, 53.7 million in 2020, and 70.3 million in 2030. As of 2003, at least 6.4 million people aged 65 and over require LTC; one in two people over the age of 85 require this kind of care now, and at least half of the population who are over the age of 85 will need help with ADLs.

Although the elderly rely on LTC most frequently, younger persons who have chronic illnesses, severe disabilities, or have experienced a serious injury may also benefit from having LTC insurance.


Advantages to purchasing LTC insurance

The financial risks of illness and injury are rarely considered when one is healthy and able, but that is also when the greatest choice of products with the best flexibility in cost is available for those considering LTC insurance. Having a LTC insurance policy enables access to quality care and choice of care provider when the need is greatest. Purchasing a policy when a person does not need it gives them the opportunity to investigate the company's financial stability (whether it is solid and how it is rated), operating performance, insurance industry rating, and its claims ratio. Rates should be guaranteed renewable, and coverage shouldn't be canceled because of age or a change in a person's health nor should premiums be increased on a class-wide basis.

There are several government organizations that can be of assistance in the purchase, evaluation, and monitoring of LTC insurance. One is the state health insurance assistance programSHIPthat can review the policy before the actual purchase. Another excellent organization is the Health Insurance Association of America (HIAA), which protects consumers from the financial risks of injury and illness by providing affordable and flexible services that represent a choice. In the United States, HIAA focuses on managed care, and, specifically, advocates on issues such as disability income and LTC insurance.

The mission of the Health Insurance Association of America is to preserve financial security, freedom of choice, and dignity in LTC insurance. Because of its mission, HIAA seeks to:

  • Provide access to quality care and let a person choose where care is obtained.
  • Eliminate out-of-pocket costs and avoid reliance on government programs for the poor.
  • Ensure quality of life for a patient's caregivers.

Description

Advantages

Having a LTC insurance policy cuts out-of-pocket costs and keeps the patient from having to rely on government assistance programs. Studies from the United States Department of Health and Human Services estimate that people with LTC insurance save between $60,000 and $75,000 in nursing home costs, more than $100,000 for assisted living, and actually ensure a higher quality of life for their caregiver. By having LTC at home, spouses and other family members are able to continue working or run errands while their loved one is being care for.

People of all ages usually prefer to receive LTC in their own homes, or in homelike assisted-living facilities. More than three-quarters of older Americans in need of LTC live in their communities. Most receive no paid services. The majority of LTC is provided by unpaid, informal caregivers, such as family members and friends.


Government assistance

Long-term care options can be uncoordinated and expensive for individuals, their families, and public programs. According to AARP (formerly known as American Association of Retired Persons) millions of Americans have no access to LTC services. They are caught in the trap of having too much money to qualify for government assistance, but not enough money to afford the types of services they need.

Recent changes in the United States federal tax law allow for a portion of a long-term insurance premium to be tax-deductible. The amount of the deduction increases with the insured person's age.

Medicare may cover a month or two of home health care after a stay in the hospital, but benefits are then usually capped. This government program, administered by the Social Security Administration, is well known for providing financial assistance to seniors 65 years of age and older and to the disabledfor medical and hospital expensesbut it does not cover LTC expenses. Medicare Supplement Insurance does not cover LTC either.

The federal/state Medicaid program is available, but the criteria to qualify for assistance is strict. Those who meet the guidelines for Medicaid must demonstrate financial need to receive assistance; most individuals must deplete most or all of their savings and assets before becoming eligible for any benefits. Still, in 2003, approximately two-thirds of nursing home residents were dependent on Medicaid to finance at least some of their care. For the majority of residents, LTC insurance is cost-prohibitive. To make matters worse, preexisting conditions often prevent them from obtaining coverage for which they might qualify.


Personal policies

Long-term care insurance policies are often complex. People who purchase them may not read the fine print and are later forced to cancel their policies because they do not fit their needs. Increasing rates factored into some long-term policies, known as climbing premiums, may also become prohibitively expensive. However, long-term care insurance can benefit consumers, provided that such items as affordability, coverage gaps, and timing of purchase are carefully considered.

It is advisable to check the financial stability and the claims ratio of an insurance company. Long-term insurance is a serious financial investment and should be considered a part of estate planning. A qualified, independent professional should be consulted to review the policy before purchase. The state health insurance assistance program (SHIP) is also available to answer questions.

The type of care that an individual seeks or requires is an important consideration before purchasing a policy. Currently, there is no universal standard for defining long-term care facilities. A placement that is covered under one company's policy may not be covered by another. Physicians can also play a part in denial of a placement by stating that the facility of choice is either not adequate or too advanced for an individual's needs.

When to purchase a policy is another important consideration. Individuals with a preexisting diagnosis for a debilitating condition or illness may not be eligible for coverage. This clause is common in most insurance policies of any type. However, purchasing a policy too far in advance of an anticipated need can work against a buyer. The health care industry is currently in a state of flux, and technological advances are rapid. The benefits provided in a policy that is purchased at one point in time may not match the care available in the distant future, giving the company reason to deny benefits.

Generally, LTC insurance operates as an indemnity program for potential nursing home and home health care costs. Additionally, many policies provide coverage for adult daycare, for care delivered in an assisted living facility, and for hospice care. Rarely are all costs covered. Some LTC policies are pure indemnity programs, which pay the insured a daily benefit contracted for by the insured. The pure indemnity program pays the full daily benefit regardless of the amount of care that the insured receives each day.

Other LTC policies pay for covered losses, or the cost of care actually received each day, up to the selected daily benefit level. This type of policy is referred to as a pool-of-money contract.

Insurance for LTC is available either as part of a group or as individual coverage, although most policies are currently purchased by individuals. Most policies cover skilled, custodial, and intermediate LTC services. A purchaser would be wise to consider a contract that covers all of these levels.

Benefits under a LTC contract are triggered in a tax-qualified policy when an insured person becomes unable to perform a number of activities associated with normal daily living or develops a cognitive impairment that requires supervision. Nontax-qualified policies usually offer more liberal eligibility criteria. This includes long-term benefits required due to medical necessity.


Risks

Long-term care insurance policies can be expensive and may be restrictive in what they provide. Before purchasing the policy, persons should be certain that the cost is within their means and that the plan will meet their anticipated needs. Some policies allow policy holders to use survivor death benefits for health care needs. It is advisable for several different policies to be compared in detail. Policies that seem too inexpensive when compared against the competition should be carefully evaluated. There may be hidden clauses in the contracts that limit coverage.


Organizations that can help consumers

The Health Insurance Association of America (HIAA) protects consumers from the financial risks of illness and injury by providing flexible and affordable products and services that embody freedom of choice, and advocates on a number of issuesincluding LTC insurance.

The United States Department of Health and Human Services oversees the Administration on Aging's Ombudsmen Program. Established in 1972 by the Older Americans Act, the Program operates throughout the country on behalf of aging residents. Its purpose is to investigate over 260,000 complaints annually regarding various topics, including selection and payment of LTC insurance policies. The ombudsmen advocate for residents of nursing homes , LTC homes, assisted living facilities, and similar adult care facilities, they have made dramatic differences in the lives of LTC residents. On behalf of individuals and groups of residents, they provide information to residents and their families about the LTC system and work to improve local, state and national level programs. Ombudsmen also provide an ongoing presence in LTC facilities, monitoring care and conditions and providing a voice for those who are unable to speak for themselves.


Alternatives

The only alternative to LTC insurance for individuals is to pay for all expenses themselves when the need for LTC arises.

See also Private insurance plans.


Resources

books

Abromovitz, L. Long-Term Care Insurance Made Simple. Los Angeles, CA: Health Information Press, 1999.

Lipson, B. J. K. Lasser's Choosing the Right Long-Term Care Insurance. New York, Wiley, 2002.

McCall, N. Who Will Pay for Long-Term Care: Insights from the Partnership Programs. Chicago, IL: Health Administration Press, 2001.

Stevens, W. S. Health Insurance: Current Issues and Background. Hauppauge, NY: Nova Science Publishers, 2003.

periodicals

Cohen, M. A. "Private Long-term Care Insurance: A Look Ahead." Journal of Aging and Health 15, no. 1 (2003): 7498.

Cubanski J., and J. Kline. "Medicaid: Focusing on State Innovation." Commonwealth Fund Issue Brief 617 (2003): 18.

Luecke R. W., and D. T. Blair. "Designing Long-term Disability Plans: Tax Efficiency vs. Maximizing Wage Replacement." Benefits Quarterly 19, no. 1 (2003): 5160.

Polivka, L., et al. "The Nursing Home Problem in Florida." Gerontologist 43, no. 2 (2003): 718.

Schwartz, M. "Dentistry for the Long-term Care Patient." Dentistry Today 22, no. 1 (2003): 5257.

organizations

AARP. 601 E. Street NW, Washington, DC 20049. (800) 424-3410. <http://www.aarp.org>.

American College of Healthcare Executives. One North Franklin, Suite 1700, Chicago, IL 60606-4425. (312) 424-2800. <http://www.ache.org>.

American Medical Association. 515 N. State Street, Chicago, IL 60610. (312) 464-5000. <http://www.ama-assn.org>.

Health Insurance Association of America. 1201 F Street, NW, Suite 500, Washington, DC 20004-1204. (202) 824-1600. <http://www.hiaa.org>.

U.S. Administration on Aging (AOA), United States Department of Health and Human Services. 330 Independence Avenue, SW, Washington, DC 20201. (202) 619-0724. <http://www.aoa.gov>.

United States Department of Health and Human Services, 200 Independence Avenue, SW, Washington, DC 20201. (877) 696-6775. <http://www.hhs.gov>.


other

American Health Care Association, National Center for Assisted Living. Cited May 6, 2003. <http://www.longtermcareliving.com>.

The Federal Long Term Care Insurance Program. July 1, 2003 (cited July 7, 2003). <http://www.ltcfeds.com>.

The National Council on the Aging. Cited July 7, 2003. <http://www.unitedseniorshealth.org>.

"Planning for Long-Term Care." Booklet. United Seniors Health Council, Washington, DC. New York: McGraw-Hill, 2002.

Teachers Insurance Annuity Association of America (TIAA CREF). (Cited May 6, 2003.) <http://www.tiaa-cref.org/ltc>.


L. Fleming Fallon, Jr., MD, DrPH
Randi B. Jenkins, BA

QUESTIONS TO ASK BEFORE PURCHASING LTC INSURANCE


  • Will the policy meet my needs?
  • Is the policy affordable?
  • What restrictions or exemptions exist?
  • Under what conditions, if any, can this plan be canceled?
  • Are there any laws to protect me from insurance companies or LTC facilities that provide substandard conditions and/or services?