Click here for the glossary.

What is long term care? Long term care is the type of care that a person receives when they can no longer care for themselves. It includes a wide range of mostly non-medical services that are designed to help people maintain the maximum level of independence and to remain in their own homes. Care can be custodial, intermediate or skilled in nature and can be provided in the home, community or institutional setting. Long term care can be provided in a formal or informal manner. Formal long term care refers to services that are paid for while family or friends provide informal care.
What is long term care insurance? Long term care insurance covers the insured for the costs associated with receiving care when they can no long take care of themselves. Long term care is designed to pay expenses that typically arise when someone is chronically ill. The three generic types of coverage are typically called nursing facility, home care and comprehensive, which includes home care, assisted living and nursing facility coverage. Mandated benefits vary by state of residence. Check the policies in your areas for specific outlines of coverage.
Why does my client need long term care insurance? To protect their retirement lifestyle, assets and income. To be able to remain in their own homes as long as possible. Most people work hard all their lives to build a nest egg. Unfortunately, when they get older and need long term care, they are often forced to liquidate or spend-down their assets due to the catastrophic costs of long term care. Due to the high cost of care many individuals are forced onto the welfare rolls and lose their independence. Many spouses of such individuals also suffer a diminished lifestyle.

Long term care insurance provides the funds necessary to pay for the high cost of caring for someone when they can’t take care of themselves.

The Health Insurance Association of America reports that the primary reason people purchase long term care insurance is asset protection, maintenance of the spouse’s standard of living, choice, and quality of care, welfare avoidance, and peace of mind.

If my client has high assets why does he/she need long term care insurance? People purchase various forms of insurance coverage to protect specific assets. They buy casualty insurance to protect their property, medical insurance to pay the bills when they get sick, disability insurance to protect their income if they become unable to earn a living and life insurance to provide liquidity for their survivors or to pay taxes. In each case they’ve chosen to pay for insurance coverage because it represents a low cost way to protect their assets against highly probability events. In fact they recognize that insurance benefits represent high value for a discounted dollar.

With the exception of death, the probability of needing long term care is higher than most other risks that people insure. Statistically more than 50% of us will eventually need long term care. The numbers are rising as we live longer.

Therefore, given the high probabilities and costs associated with the need for long term care, why would someone choose not to pay pennies on the dollar to protect their assets? If their rationale is that they may not need to use the coverage or that they can self-insure, then they ought to drop all of their insurance policies except their life insurance.

Doesn’t Medicare pay for long term care? No. Medicare is designed to pay for the services associated with acute medical conditions. Medicare pays for a very limited amount of skilled care that is provided after a 3-day prior hospitalization. The care that Medicare covers includes skilled care only in a facility (less than 1% of all care is provided in a nursing home) and some limited home health care designed to rehabilitate someone after a hospitalization. This rehabilitation is limited to skilled services such as respiratory, speech or physical therapy. Home health care does not include services associated with independent living such as housekeeping, meal preparation, shopping, etc.
What has to happen for my client to qualify for benefits? Today, all long term care insurance policies pay benefits to the insured when they either suffer the loss of two of the activities of daily living or are diagnosed with a severe cognitive impairment (e.g. Alzheimer’s or dementia) such that they require some level of assistance in caring for themselves (contractual language varies from state to state). Some companies still offer a third benefit trigger, medical necessity, in their non-tax qualified policies.

The activities of daily living include eating, bathing, dressing, continence, toileting and transferring. In California non-qualified policy forms include ambulating.

What does the claims process look like? Generally, once the insured has suffered the loss of two activities of daily living or is diagnosed with a severe cognitive impairment, the insured, their doctor and family and the insurance company enter into the case management, assessment and plan of care process. The insurance company either contracts with or employs case management professionals that assist the insured and their family in determining the care needs of the insured. This assessment process looks at the functional incapacity of the insured and from this a plan of care is created. This plan of care, or prescription for care, outlines the insured’s needs. The insurance company will base its claims payment on this plan of care and will periodically request that a new assessment be performed in order to assure that the insured is receiving the levels of care that they require.
Once they qualify for benefits what will a long term care insurance policy pay for? In a home or community setting the policy will typically reimburse for such things as: adult day care, home care services (using the telephone, managing medications, assistance with moving about outside, shopping for essentials, laundry and light housekeeping), home maker services, hospice and respite care. If the insured needs to go to a nursing home or some other institutional setting, the long term care insurance policy will pay for the expense associated with that stay up to the limits of the policy. These items can vary from state to state.
What is the best age to purchase long term care insurance? The 50s appear to be the best time to purchase long term care insurance. Premiums for people in their 50s are more affordable and the insurability issues facing people in their late 60s and early 70s are not typically a problem. Finally, many people in their 50s are business owners. Because of this they may be able to tax deduct some or all of their long term care insurance premiums.
What is the difference between tax qualified and non-tax qualified long term care insurance? Tax qualified long term care insurance was created by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). It provides some levels of tax deductibility of premiums depending upon the insured’s status as a taxpayer. It also guarantees that the benefits, when paid, will be tax free.

Non-tax qualified long term care insurance policies do not qualify for tax favored status under HIPAA guidelines. The premiums are never tax deductible and Congress has not yet determined the taxability of non-qualified benefits.

Should an employer group consider offering long term care insurance to their employees? The worksite is a great place to offer high quality individual long term care insurance to employees. It allows them to purchase programs at a lower premium than if they were buying it directly. A number of companies offer endorsed group discounts to employer groups, sometimes as much as 15%. Additionally, owners of closely held C-Corporations can purchase tax qualified policies on a tax-favored basis for themselves and key employees.
What is the best long term care product? This is the most frequently asked question. The answer is, it depends. The agent needs to answer many other questions before he/she gets the answer. We always look at a company’s financial ratings. In light of the fact that most insured’s will not make a claim for 15 to 30 years from now, you should put your clients with a company that is financially sound and isn’t playing games with low-ball rates and overly aggressive underwriting.

The next question that needs to be answered is who my client is. Companies typically niche their products by age of insured and by health. This means that carriers focus their rate structure on specific age bands. Also, some are only preferred risk carriers while others are more aggressive and willing to consider special risks.

Finally, what benefits do you wish to offer? Some companies offer basic benefit packages. Others highlight certain “bells and whistles” that may appeal to other clients. Therefore, before you ask who is the best company you need to answer the question, who is my client and what’s important to them?

What is the California Partnership and how does it work? The California Partnership for Long Term Care Insurance (CPLTCI) is a partnership between state government and a handful of insurance companies. The primary purpose it to encourage people to protect their assets by purchasing a specially qualified long term care insurance policy. The inducement for the buyer is protection against Medi-Cal asset spend-down. CPLTCI policies typically meet or exceed traditional policies in terms of benefits with the added advantage of asset spend-down protection. While they may not be for everyone anytime an agent in California proposes anything less than lifetime benefits, they need to advise their client of the CPLTCI option. It is usually in the client’s best interest to consider a Partnership plan because of the spend-down feature and it protects the agent from a future E & O suit.

Click here for the glossary.