What Is Long-Term Care?

It is assistance for months or years with basic activities of daily living like bathing, dressing, or getting in and out of a bed. Unlike medical care, which is designed to get you back to the way you were before you became sick or injured, purpose of long-term care is custodial - that is, to keep you as safe and comfortable for your period of incapacity.

Who pays for Long-Term Care?

Either you pay, the government pays, or an insurance company pays. Most long-term care is delivered by families for each other at home, perhaps with some paid help depending on family financial resources. When the family becomes emotionally and physically exhausted, it places the loved one in a nursing home. There it continues to pay until it becomes financially exhausted, at which time the government begins to pay, but not with Medicare, a form of health insurance; rather it pays with a welfare program called Medicaid. Private health insurance does not pay for long-term care either, because the purpose of the care is not to cure or restore, but to provide custodial care. Long-Term Care insurance is designed to pay for custodial care. Yes, Long-Term Care insurance will pay for facility care, but it is more commonly used to pay for professional caregivers at home. That helps the family to keep a loved one at home for a longer period of time and with less stress.

Does my health affect my ability to get Long-Term Care?

Definitely. There is an old saying in life and health insurance: "your premiums pay for the policy, but only your good health can buy the policy." About half of applicants below age 50 get good health discounts, while less than 20% of applicants above age 69 get such discounts. Worse yet, about 43% of applicants above age 69 do not qualify for a policy. Only 7% of applicants under age 50 fail to qualify for a policy.

Once I am insured, can the insurance carrier raise my rates?

With today's guaranteed renewable policies, the carrier cannot raise your rates, because you became older or sicker. If the carrier finds that it has mispriced policies like yours for everyone in the state, it can ask the insurance department to raise the rate on all owners of similar policies proportionally. After investigating the request, the insurance department may grant the carrier's request, approve it partially, or reject it.

Are premiums fixed once I enroll, or do they increase each year?

The premiums are fixed at the time of purchase. The premium is based on the age and health status of the applicant. However, once issued, the premiums remain the same (unless rates are raised for an entire class of policyholders as mentioned above) even though the benefits of the policy may increase every policy anniversary.

If I go on claim, will I still need to pay my premiums?

No. Most policies today are issued with a provision called "waiver of premium" that cancels the requirement to make further premium payments while the insured receives benefits or has received care for a certain number of days. If the claimant recovers, then he must resume paying premiums, but no back premiums are levied.

If I die without ever going on claim, what happens to all those premiums I have paid? Can they be refunded?

If you are lucky enough to live a long life and never go on claim, then your premium dollars (plus the interest they have earned) will go towards paying the claim of the other insured(s) who were not as lucky as you. If such a result annoys you, then you can purchase an extra cost rider called Return of Premium at death rider. It returns the premiums you paid into the policy minus any claims that were paid. The Federal law that governs tax qualified Long-Term Care policies prohibits interest being added to the amount returned at death.

How do I apply and what is involved in the underwriting process?

You will fill out a paper application with your financial advisor that contains a brief medical history and lists the names of your doctors and their office contact information. Your advisor may also collect a partial premium and submit it together with the application to the insurance carrier. What happens next depends on the carrier and the information on the application. But the general outline is as follows: First, the good news. There will be no blood draws, urine samples, or stress tests. The next part depends on your age and the carrier selected. If you are age 70 or older, the carrier will send a nurse to your home to conduct a face to face interview about your health history and to conduct a brief series of mental status tests. If you are under 70 years old, the carrier will have the nurse conduct a telephone interview with you. The mental status queries will still be a part of the interview. In most cases, the carrier will also get medical records from your primary care physician and may also request records from specialists and surgeons that you have recently consulted in the past few years.

I am in a non-traditional union, is there a discount for my partner?

Almost always yes. However, one must be able to demonstrate a level of mutual commitment: owning property jointly, or pooling income and sharing expenses.

Is it possible to deduct my premiums on either my Federal or State returns?

Yes. The premiums for tax qualified (TQ) Long-Term Care policies are treated much like the premiums for health insurance when it comes to Federal income tax. Individuals who itemize their deductions can deduct some or all of their TQ Long-Term Care premiums subject to the 7.5% medical expense threshold. Self employed individuals, which include for Federal income tax purposes Sub S owner operators, general partners, most LLC members and professional corporation owner-operators, can make an above the line adjustment to their gross income. Also many states offer tax deductions or credits for TQ premium payments, too. You should consult your tax adviser about the applicability of available deductions and credits to your circumstances.

Why do I need LTCi , if my plan is for my spouse and family to take care of me - just like my parents did for each other?

There are four reasons the old strategies don't work as well today as in the past:
   1. You will live far longer than your parents or grandparents; that means you will need your elderly, frail spouse to be your caregiver. That will kill her, not you.
   2. If you need care, you will need it far longer than they did: for your parent a broken hip or severe stroke meant death within a year. You will survive, but need care for years.
   3. You do not share the same house with your children and grandchildren; they may live in another state.
   4. Both your sons and daughters work for wages outside the house, not just your sons. To ask your daughter to be your daytime caregiver is to impoverish her and impoverish your grandkids.

Doesn't my existing health insurance plan cover Long-Term Care? Won't Medicare pay for Long-Term Care when I am older?

Both your health insurance policy and Medicare distinguish between "medical" care and "custodial" care. The medical care is designed to get you back to the way you were before you became sick or injured. If that is not possible, the medical care is aimed at preventing further deterioration of your vital signs. On the other hand, custodial care is designed to keep you safe, clean, and comfortable - not to get you better. Neither employer sponsored health insurance policies nor Medicare will pay for care whose primary purpose is custodial. Hence the need for a special policy to pay for that custodial care: Long-Term Care insurance.

I refuse to go to a nursing home, why then would I want a policy?

To protect your family. They will be giving you the care at home; they will suffer the physical stress that day in, day out caregiving for months and years will bring on. To relieve themselves they will hire paid caregivers to the tune of fifty to one hundred thousand dollars per year, impoverishing themselves in the process. Today's Long-Term Care policies pay for home care as well as facility care. In fact, the claims for home care services are far more numerous than for facility care. In short, a Long-Term Care policy will allow your family to keep you at home for longer, with less physical stress, and less loss of wealth.

How is buying LTC Insurance different from just using my own savings?

To be reasonably certain that you would be able to pay for 95% of all future Long-Term Care claims, a married couple would need to set aside now and invest about $275,000 each! That sum of $550,000 is most or more than typical 55 year old pre-retirees have saved for retirement. With good luck they will never apply the money toward long-term care bills. With bad luck, they will inadvertently impoverish their spouse. Alternatively, they could buy Long-Term Care policies that would provide equivalent coverage to the half million dollars set aside. Their cost would be about $1,500 per year each. In return for that modest premium, they know that their financial outcome will be unaffected by whether or not one or both or neither spouse ever has a Long-Term Care claim.

I won't go on claim until I am old. Why not self-insure by investing the premiums?

Simply put, a Long-Term Care policy will deliver far more dollars should you go on claim than you are likely to acquire through a dedicated personal savings plan. You would need the premium dollars to earn 25% to 30% or more year in and year out to deliver equivalent funds in case of need. See our self insurance calculator to compare self insuring to buying insurance.

Won't the government pay for Long-Term Care, if we get a national heath plan?

Not if follows the pattern already established by other industrial countries like Canada, Germany, and the UK. All of them have government sponsored health plans that pay for medical care. But like the USA, those governments finance custodial care only through their welfare systems after the claimant has "spent down" his wealth. By the way, back in 1993, when the Clintons proposed a national health plan, it did not include coverage for Long-Term Care.

I have extensive wealth or will when I am older, do I really need LTC?

People who achieve wealth learn to deploy their dollars efficiently. As a wealthy person you could rebuild your mansion after a fire or replace a luxury vehicle after an accident with petty cash. But why would you do so when the insurance mechanism allows you to rebuild or replace for pennies on the dollar. Remember too, that the personal wealth spent on expensive personal care for one spouse will not be able to grow over the surviving spouse's life.

How much coverage will I have; What does a "Total Lifetime Benefit" mean?

The total lifetime benefit is also known as the benefit pool of money or as the benefit bank. It is calculated by multiplying the daily benefit - say $200 per day by 365 days in a year and by the "so called" benefit period - say 5 years. The product of those multiplications is the total lifetime benefit - in the above example the amount is $365,000. The benefit period is actually a term of art. It describes the amount of time it would take to exhaust the total lifetime benefits/benefit bank in the example above, assuming the claimant were using the full daily benefit ($200) each and every day for five years. In real life use, claimants typically use less than the maximum benefits in the early part of a claim. Maybe, they are using only a few hours of care a day. If using only $100 per day, it would take ten years at that rate, not five, to exhaust the total lifetime benefits/benefit bank

The LTC plan offers several amounts for daily benefit. How do I determine what is the right amount?

First some benchmarks (MetLife Mature Market Institute Cost of Care Studies): custodial home care costs about $15 per hour. That means a $150 per day benefit would pay for ten hours of care - roughly enough for a healthy spouse to continue working and commute. $120 to $150 per day will also pay for room, board, medication management, and care in most assisted living facilities. The lower amount would be for someone who needed assistance with activities of daily living, the higher amount for someone in a memory impairment unit. The biggest variances across the USA occur in cost of skilled nursing facilities. They range from $160 per day to $370 and more in some areas. The good news is that the vast majority of care can be given at home or in an assisted living facility. But for someone with a medically complex condition that needs the attention of a registered nurse or respiratory therapist every day, it will be necessary to receive care in a skilled nursing facility. Therefore, your plan must be prepared to pay for that possibility. That does not mean that the policy daily benefit must match the cost of a room in a nursing home in your area. Your financial advisor can help you to determine the amount that you could prudently contribute from your income (but never from your assets) should you need care in a nursing home without diminishing your spouse's standard of living. This amount is called the co-insurance amount.

How do I begin receiving benefits?

Your doctor - or more likely a visiting registered nurse or medical social worker sent to your home by your doctor - does an assessment of your abilities to care for yourself. If in the professional opinion of the nurse or social worker you need hands on or even stand by assistance with two or more self care functions (called "activities of daily living") and those "deficits" are likely to last longer than 90 days, then you qualify for policy benefits. The enumerated activities of daily living are getting in and out of a bed or chair, bathing, dressing, eating, toileting, and maintaining continence. Some people are physically able to do the activities of daily living, but they do not know how or when to do them. People suffering from Alzheimer's or other dementias are a danger to themselves or others. If in the opinion of the nurse sent by your doctor, your are severely, cognitively impaired, then that would trigger the policy benefits, too.

Is there a way to transfer unused benefits of my plan to my spouse or partner?

Yes. Most carriers offer an extra cost rider to the base coverage that allows the benefits not used by one spouse to be made available to the surviving spouse. Other carriers accomplish much the same thing by issuing a single joint policy that covers both spouses.

How can my coverage keep pace with future increases in cost of care?

By adding a rider to the policy that automatically increases the daily benefit (and also the total lifetime benefit) by a set amount on each and every policy anniversary date. The most commonly chosen amount is to increase the previous year's benefits by 5% each year. It is called 5% compounding. The net effect is to double the daily benefit and benefit bank every fifteen years. It is important to note that the premium for the policy with the automatic benefit increase rider is designed to stay level for the life of the policy. Only the benefits increase; the premium is designed to stay the same in the future as on the day the policy was issued.

What are Pooled Benefits?

In the old days - meaning just fifteen years ago - it was common for Long-Term Care policies to have separate pools of money for home care and for facility care. For example, two years worth of benefits for home care and another two years for nursing home care. If you exhausted your home care pool of money, you would have to move to a nursing home to continue to receive benefits, even if that was not medically necessary. Today's top tier policies have a single pool of money that can be used in any care venue for as long as there is money in the pool.

What type of care will it cover?

While Long-Term Care policies will cover the skilled care from a registered nurse or physical therapist, those services would normally be paid by Medicare or an employer sponsored health insurance. What drives the need for Long-Term Care policies is the unskilled custodial care needed for an incapacitated person. Health insurance and Medicare do not pay for unskilled custodial care: the day in, day out need for assistance with mundane but crucial tasks like bathing, dressing, and eating. Such care might be given at home, at an adult day center, in a hospice facility, an assisted living facility, or even in a nursing home. Modern Long-Term Care policies will cover such care in all of those care venues. As for home care, most policies will also pay for housekeeping and chore services performed by the caregiver.

Will I be able to pay my family members to be my caregiver?

For the large majority of policies the answer is no. However, there is a category of tax qualified policies called "cash benefit" policies that simply pay a monthly amount, say $4,500 per month, with no requirement to show who gave care or even if any care was given at all. Cash benefit policies allow you to hire anyone you choose to be your caregivers: licensed or unlicensed, friends or even family. The downsides of cash benefit policies is that they are very expensive, less efficient financially as a means of leveraging money over a long period, and could wind up being tax inefficient, too.

Will a Long-Term Care policy allow me flexibility to choose my caregivers?

Yes, indeed. Most top tier policies allow the insured to use properly licensed caregivers, even if they are not employed by a home care agency. Incidentally, by licensed we do not mean that the caregivers must be doctors, registered nurses and the like. We are talking about nurse assistants, aides, and personal care assistants. Some top tier carriers even permit caregivers to be unlicensed. They must merely demonstrate to a care professional that they can do the tasks required of them in an appropriate and safe manner.

Am I covered if I move to another State or Country?

Yes, if you move anywhere within the USA. However, policies differ dramatically on how and where they will pay for care outside the USA. If you plan to live outside the USA in the future, you should check with your financial advisor to make sure that the policy you purchase delivers the benefits you want in the country to which you plan to move.