Understanding long-term care insurance — questions and answers

Q. What is long-term care insurance?

A. Long-term care insurance provides coverage to seniors who need help with daily activities, ranging from bathing, dressing, meal preparation, all the way to skilled nursing care. These services may be delivered at home or in a senior community setting or nursing facility. The insurance does not pick up the expense of medical care that is normally covered by traditional health insurance or government programs like Medicare or Medicaid. (The U.S. Department of Health and Human Services has more information.)

Q. Who needs long-term care?

A. Most Americans who reach the age of 65 will need some form of long-term care in their lifetimes. The federal government projects that, by 2020, 12 million older Americans will need long-term care, due to chronic illness, injury or the effects of aging.

Q. Why do I need insurance?

A. You might not need it. But, since expenses for home care are quite high — and likely to be much higher in the future — long-term care insurance can be a way of protecting your financial assets late in life. However, premiums for this coverage are very expensive, and the plans available are varied and complex.

Q. Can anyone qualify for long-term care insurance?

A. If you have a chronic illness or permanent disability, you may have trouble securing long-term care insurance. The best time to apply for it is when you are healthy. You will not qualify if you are already using long-term care services.

Q. What choices do I have in a long-term care insurance policy?

A. You select a daily benefit amount (for example, $100/day), which represents how much of the expenses for care the policy will pay. Most policies let you choose from $50/day to as much as $500/day. Unused benefits accumulate (up to your maximum lifetime benefit), so you do not have to "use it or lose it."

You can choose whether you want the policy to pay the same daily benefit amount for care in all settings, or whether you want the policy to pay less for care in less costly settings (such as home care). Common choices include a home care benefit of 50% or
75% of the daily nursing home benefit amount.

Most policies have an "elimination" period, which you must fulfill before you can collect benefits. So, you might have to wait for some time (for example, 30 days) from the time you qualify and apply for benefits before they will start paying out. The shorter your elimination period, the higher premium you will pay.

You choose a Maximum Lifetime Benefit or total lifetime amount you want the policy to provide. Policies typically offer a choice of lifetime dollar amounts — for example $100,000 or $300,000. The dollar amounts may correspond to a period of time. For example, a three-year policy at $100/day of benefits would provide you with $109,500 worth of care. Some insurers also sell “Lifetime” or “Unlimited” coverage that has no dollar limit; you receive benefits as long as you continue to need long-term care and receive covered services.

You choose the type of coverage you prefer – “comprehensive” or “facility care only.” Most policies today are comprehensive, but some people prefer to buy facility-care-only policies. These pay for care in a nursing home or assisted living facility, but not for care at home or in the community. These policies may still include hospice or respite care. Facility-care-only policies cost less than comprehensive policies, and, if people prefer and have family or friends to provide care at home, they may only have the policy to reimburse them for paid care in a facility if and when they need it.

Many policies offer additional optional benefits or “riders” allowing you to customize the coverage. One important option is Inflation Protection, which helps protect you from the rising cost of care over time. It works the same way that an inflation clause on your homeowners' insurance works: As the cost of replacing your home increases, so does the amount of insurance coverage that you maintain on the home. There are many different types of Inflation Protection in long-term care insurance. Be sure to find out more about inflation protection options in any policy you are considering.

Some policies may pay for services or devices to support people living at home, for example:

• Equipment such as in-home electronic monitoring systems
  

• Home modification, such as grab rails and ramps
  

• Transportation to medical appointments
  

• Training for a friend or relative to learn to provide personal care safely and appropriately

Some policies provide some payment for family members or friends to help care for you, but may do so on a limited basis or only in relation to the costs that the family member incurs.

Many policies provide a care coordinator, usually a nurse or social worker in your community. The care coordinator can meet with you and discuss your specific personal situation. The care coordinator helps arrange for and monitors your care needs on an ongoing basis, if you want that kind of help.

Q. Is long-term care insurance right for everyone?

A. No. The premiums are quite expensive. If you can't afford the premiums throughout your lifetime, you will lose any benefits you may have accumulated. The National Association of Insurance Commissioners (NAIC) says a "rule of thumb" is that you probably can't afford this insurance if the premiums are more than 7% of your income. If your total assets are less than $30,000, they feel it's probably not be worth it for you to pay for insurance.

Q. When is a good time to sign up for long-term care insurance?

A. The best time is when you are healthy and able to pass medical underwriting. The premiums are generally based on your age at the time of application, so the younger you are when you apply, the lower the annual premiums will be throughout your lifetime; however, you can end up paying more over the life of the policy.

Q. Do my spouse and I need to purchase separate policies?

A. Many insurance companies offer a single policy with "shared" benefits. That means you can pool the coverage so that if one of you needs more of the benefits than the other, it will be available. Purchasing it this way can save money over the cost of two policies.

Q. Once I sign up, are my premiums fixed forever?

A. Not necessarily. Insurance companies may increase your premium over the life of the policy if their losses increase. Premium increases are not automatic. Companies must prove that they need to increase rates so they can meet their obligations to policyholders and pay future claims. All long-term care insurance policy rates must be reviewed by the Commerce Department for compliance with Minnesota law.

Q. Are my benefits taxable?

A. Benefits from long-term care insurance are generally not taxable. (Check with a qualified tax advisor.) You may be able to deduct some of your premiums on your federal taxes if, combined with other health expenses, they exceed 7.5% of your adjusted gross income. You can also qualify for a $100 tax credit on your Minnesota income tax form. The amount of the credit is the lesser of $100/person or 25 percent of the premium paid for each beneficiary. So, a married couple filing a joint return could qualify for up to a $200 credit.

Q. What Is a typical comprehensive long-term care insurance benefit?

Comprehensive policies typically cover care and services in a variety of long-term care settings:

• Your home, including skilled nursing care, occupational, speech, physical and rehabilitation therapy, as well as help with personal care, such as bathing and dressing. Many policies also cover some homemaker services, such as meal preparation or housekeeping, in conjunction with personal care services.
  

• Adult day health care centers
  

• Hospice care
  

• Respite care
  

• Assisted living facilities
  

• Alzheimer's special care facilities;
  

• Nursing homes

Q. What is usually not covered by a long-term care insurance policy?

A. Most policies do not pay for care you receive from a family member, friend, or other individual who is not paid to provide your care, although some do have benefits that to allow you to receive a cash payment for each day that you receive care from anyone, even if it is a family member or friend. Most policies provide training and support for these informal caregivers, but do not pay benefits to you when you receive care from someone who is not a paid caregiver.

Most policies require that the facility, agency or individual providing your care meet certain minimum standards with respect to quality, safety, and training. Costs of a nursing home that is not licensed would not be covered.

Long-term care policies focus on paying for the types of services and providers that someone needs when they cannot perform their activities of daily living or when they have a cognitive impairment, so they do not pay for care or services unrelated to these needs, such as hospital stays or prescription medications.

Some policies do pay for prescription drugs, provided while you are in a care facility (but not at home), and some policies pay for transportation costs to help you get to medical appointments when you are physically or cognitively impaired.

Some policies provide coverage for care related to everyday household needs such as housekeeping, laundry, meals, and managing medications, so-called “instrumental activities of daily living,” but only when you receive that help as part of the help you get from a formal care provider assisting with activities of daily living. So most policies do not pay for in-home help if all you need is help with housekeeping, meals, laundry, transportation and the like.

Also, long-term care policies do not pay for items provided solely for your comfort or convenience. For example a television in your nursing home room or a visit to the facility's hair care salon would not be covered.

(Posted: March 3, 2008)