Long term care insurance
Encyclopedia
Long-term care insurance (LTC or LTCI), an insurance product sold in the United States, United Kingdom and Canada, 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
(ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.
Age is not a determining factor in needing long-term care. About 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. About 40% of those receiving long-term care today are between 18 and 64. Once a change of health 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.
, assisted living
, adult daycare, respite care
, hospice care, nursing home
and Alzheimer's facilities. 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 visiting or live-in caregiver
, companion, housekeeper, therapist or private duty nurse
up to seven days a week, 24 hours a day (up to the policy benefit maximum).
Other benefits of long-term care insurance:
In the United States, Medicaid provides some of the benefits of long-term care insurance.
A welfare program, Medicaid does provide medically necessary
services for people with limited resources who "need nursing home care but can stay at home with special community care services."
However, Medicaid generally does not cover long-term care provided in a home setting or for assisted living
. People who need long-term care often prefer care in the home or in a private room in an assisted living facility.
As they relate to U.S. income tax, two types of long term care policies offered are
Fewer non-tax qualified policies are available for sale. One reason is that 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. 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.
Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is 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 usually only cover nursing care and do so at a rated benefit.
Group policies may have provisions for non-restricted or open enrollment periods and underwriting may be required. Group plans may or may not be guaranteed renewable or tax qualified. Some group plans include language allowing the insurance company to replace the policy with a similar policy and to change the premiums at that time. Some group plans can be canceled by the insurance company. To compensate for the higher insurance risk group plans may have higher deductibles and lower benefits than individual plans. Some group plans have a 3 ADL (activities of daily living) requirement for nursing care.
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.
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 six main factors: the person's age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard). Most companies will offer couples and multi-life discounts on individual policies. Some companies define “couples” not only to spouses, but also to two people who meet criteria for living together in a committed relationship and sharing basic living expenses. 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.
Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.
You should not purchase any long term care insurance if you currently receive or may soon receive Medicaid benefits, if you have limited assets and can’t afford the premiums over the lifetime of your policy, or if your only source of income is a social security benefit or supplemental security income. Insurance companies and the National Association of Insurance Commissioners say you should not spend more than 7% of your income on this insurance.
The Deficit Reduction Act of 2005
makes partnership for long-term care available to all states. Partnership provides "lifetime asset protection" from the Medicaid spend-down requirement. Originally, four states had Partnership plans: New York, Indiana, Connecticut, and California. As of October 2008, an additional 16 states had active Long Term Care Insurance Partnership programs.
or when you need help because you have a severe
cognitive impairment.
Most policies have an elimination period or waiting period similar to a deductible. This is the period of time that you pay for care before your benefits are paid. Elimination days may be from 20 to 120 days. The higher deductible period the lower the premium. Some 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 policies require that the policy for long-term care be paid up to one year before becoming eligible to collect benefits.
Long-term care
Long-term care is a variety of services which help meet both the medical and non-medical need of people with a chronic illness or disability who cannot care for themselves for long periods of time....
beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
, Medicare
Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
, or Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...
.
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
Activities of daily living
Activities of Daily Living is a term used in healthcare to refer to daily self-care activities within an individual's place of residence, in outdoor environments, or both...
(ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.
Age is not a determining factor in needing long-term care. About 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. About 40% of those receiving long-term care today are between 18 and 64. Once a change of health occurs long-term care insurance may not be available. Early onset (before age 65) Alzheimer's
Alzheimer's disease
Alzheimer's disease also known in medical literature as Alzheimer disease is the most common form of dementia. There is no cure for the disease, which worsens as it progresses, and eventually leads to death...
and Parkinson's disease
Parkinson's disease
Parkinson's disease is a degenerative disorder of the central nervous system...
are rare but do occur.
Benefits
Long-term care insurance generally covers home careHome care
Home Care, , is health care or supportive care provided in the patient's home by healthcare professionals Home Care, (also referred to as domiciliary care or social care), is health care or supportive care provided in the patient's home by healthcare professionals Home Care, (also referred to as...
, assisted living
Assisted living
Assisted living residences or assisted living facilities provide supervision or assistance with activities of daily living ; coordination of services by outside health care providers; and monitoring of resident activities to help to ensure their health, safety, and well-being.Assistance may...
, adult daycare, respite care
Respite care
Respite care is the provision of short-term, temporary relief to those who are caring for family members who might otherwise require permanent placement in a facility outside the home....
, hospice care, nursing home
Nursing home
A nursing home, convalescent home, skilled nursing unit , care home, rest home, or old people's home provides a type of care of residents: it is a place of residence for people who require constant nursing care and have significant deficiencies with activities of daily living...
and Alzheimer's facilities. 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 visiting or live-in caregiver
Caregiver
Caregiver may refer to:* Caregiver or carer - an unpaid person who cares for someone requiring support due to a disability, frailty, mental health problem, learning disability or old age...
, companion, housekeeper, therapist or private duty nurse
Private duty nursing
Private duty nursing is the care of clients by nurses, whether an RN or LPN/LVN .Most nurses who provide private duty care are working one-on-one with individual clients...
up to seven days a week, 24 hours a day (up to the policy benefit maximum).
Other benefits of long-term care insurance:
- Many 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 expensesOut-of-pocket expensesOut-of-pocket expenses are direct outlays of cash which may or may not be later reimbursed.In operating a vehicle, gasoline, parking fees and tolls are considered out-of-pocket expenses for the trip...
. 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 deductionTax deductionIncome tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...
. The amount of the deduction depends on the age of the covered person. 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% deductibleDeductibleIn an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...
if not included in employee's taxable incomeTaxable incomeTaxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
.
In the United States, Medicaid provides some of the benefits of long-term care insurance.
A welfare program, Medicaid does provide medically necessary
Medical necessity
Medical necessity is a United States legal doctrine, related to activities which may be justified as reasonable, necessary, and/or appropriate, based on evidence-based clinical standards of care. Other countries may have medical doctrines or legal rules covering broadly similar grounds...
services for people with limited resources who "need nursing home care but can stay at home with special community care services."
However, Medicaid generally does not cover long-term care provided in a home setting or for assisted living
Assisted living
Assisted living residences or assisted living facilities provide supervision or assistance with activities of daily living ; coordination of services by outside health care providers; and monitoring of resident activities to help to ensure their health, safety, and well-being.Assistance may...
. People who need long-term care often prefer care in the home or in a private room in an assisted living facility.
Types of policies
Private long-term care (LTC) insurance is growing in popularity in the United States. Premiums, however, have risen dramatically in recent years even for existing policy holders. Coverage costs can be expensive, especially when consumers wait until retirement age to purchase LTC coverage.As they relate to U.S. income tax, two types of long term care policies offered are
- Tax qualified (TQ) policies are the most common policies offered. A TQ policy requires that a person 1) be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily livingActivities of daily livingActivities of Daily Living is a term used in healthcare to refer to daily self-care activities within an individual's place of residence, in outdoor environments, or both...
(eating, dressing, bathing, transferring, toileting, continence) without substantial assistance (hands on or standby); or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a TQ policy are non-taxable.
- Non-tax qualified (NTQ) was formerly called traditional long term care insurance. It often includes a "trigger" called a "medical necessityMedical necessityMedical necessity is a United States legal doctrine, related to activities which may be justified as reasonable, necessary, and/or appropriate, based on evidence-based clinical standards of care. Other countries may have medical doctrines or legal rules covering broadly similar grounds...
" 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. NTQ policies include walking as an activity of daily living and usually only require the inability to perform 1 or more activity of daily living. 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.
Fewer non-tax qualified policies are available for sale. One reason is that 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. 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.
Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is 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 usually only cover nursing care and do so at a rated benefit.
Group policies may have provisions for non-restricted or open enrollment periods and underwriting may be required. Group plans may or may not be guaranteed renewable or tax qualified. Some group plans include language allowing the insurance company to replace the policy with a similar policy and to change the premiums at that time. Some group plans can be canceled by the insurance company. To compensate for the higher insurance risk group plans may have higher deductibles and lower benefits than individual plans. Some group plans have a 3 ADL (activities of daily living) requirement for nursing care.
The Consolidated Omnibus Budget Reconciliation Act (COBRA)
Consolidated Omnibus Budget Reconciliation Act of 1985
The Consolidated Omnibus Budget Reconciliation Act of 1985 is a law passed by the U.S. Congress on a reconciliation basis and signed by President Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving...
provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.
Retirement systems such as CalPERS
CalPERS
The California Public Employees' Retirement System or CalPERS is an agency in the California executive branch that "manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families"...
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 six main factors: the person's age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard). Most companies will offer couples and multi-life discounts on individual policies. Some companies define “couples” not only to spouses, but also to two people who meet criteria for living together in a committed relationship and sharing basic living expenses. 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.
Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.
You should not purchase any long term care insurance if you currently receive or may soon receive Medicaid benefits, if you have limited assets and can’t afford the premiums over the lifetime of your policy, or if your only source of income is a social security benefit or supplemental security income. Insurance companies and the National Association of Insurance Commissioners say you should not spend more than 7% of your income on this insurance.
The Deficit Reduction Act of 2005
Deficit Reduction Act of 2005
The Deficit Reduction Act of 2005 is a United States Act of Congress concerning the budget, that became law in 2006.-Legislative history:The Senate's version passed after a tie-breaking vote was cast by Vice President Dick Cheney. The bill passed the chamber with no Democrats and five Republicans...
makes partnership for long-term care available to all states. Partnership provides "lifetime asset protection" from the Medicaid spend-down requirement. Originally, four states had Partnership plans: New York, Indiana, Connecticut, and California. As of October 2008, an additional 16 states had active Long Term Care Insurance Partnership programs.
Benefit eligibility and deductibles
You qualify for covered benefits with most plans when you need help with activities of daily livingActivities of daily living
Activities of Daily Living is a term used in healthcare to refer to daily self-care activities within an individual's place of residence, in outdoor environments, or both...
or when you need help because you have a severe
cognitive impairment.
Most policies have an elimination period or waiting period similar to a deductible. This is the period of time that you pay for care before your benefits are paid. Elimination days may be from 20 to 120 days. The higher deductible period the lower the premium. Some 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 policies require that the policy for long-term care be paid up to one year before becoming eligible to collect benefits.
See also
- Health insurance in the United StatesHealth insurance in the United StatesThe term health insurance is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased insurance, social insurance or a non-insurance social welfare program funded by the government...
- Activities of daily livingActivities of daily livingActivities of Daily Living is a term used in healthcare to refer to daily self-care activities within an individual's place of residence, in outdoor environments, or both...
- CLASS Act