Long Term Care Insurance
Understanding Long Term Care Insurance
Long-term care (“LTC”) insurance reimburses policyholders a daily amount (up to a pre-selected limit) for services to assist them in meeting their personal care needs involving the activities of daily living).
Most policies provide benefits when the policyholder cannot perform two or three Activities of Daily Living (“ADLs”), including: bathing, dressing, using the restroom, transferring to and from a bed or chair, caring for incontinence, and eating, or if they need supervision because of Alzheimer’s Disease or dementia.
Some LTC policies provide benefits and support services when a policyholder cannot perform tasks known as Instrumental Activities of Daily Living (“IADLs”), including: housework, managing money, taking medication, preparing and cleaning up meals, shopping for groceries and clothes, using the telephone and communication devices, caring for pets, and responding to emergencies such as fire alarms.
LTC policies are customizable. You can select a range of care options and benefits that allow you to get the services you need, where you need them.
In recent years, LTC insurers have structured policies into two primary types: traditional and hybrid. Traditional policies collect premiums on a monthly, quarterly, or annual basis. If the insured never requires long-term care, the premiums are kept by the insurance company (like most types of insurance). Hybrid policies are a combination of both life insurance and LTC insurance. The insured pays premiums on a monthly, quarterly, or annual basis; however, instead of forfeiting premiums if coverage goes unused, the premiums are returned in the form of a tax-free life insurance benefit upon the insured’s death. Hybrid policies have gained popularity in recent years due to the guarantee that premium payments will result in a benefit to the insured or the insured’s estate; however, they may offer less benefits on the LTC side.
The cost of LTC premiums, whether in a traditional or hybrid policy, is based on the following factors:
- How old the purchaser is when they buy the policy.
- Gender: women usually have up to 50% higher premiums due to longer life expectancy,
- Family health history (especially diseases associated with the aging process: dementia, Alzheimer’s Disease, Parkinson’s, broken hips or spinal breaks causing the need for a wheelchair, Macular Degeneration/Glaucoma leading to low vision or blindness) and your own health history,
- The maximum amount of benefits that a policy will pay per day,
- The maximum number of days or years that a policy will pay benefits, or for a lifetime,
- Any optional benefits you choose, such as benefits that increase with inflation.
If you are in poor health or already receiving LTC services, you may not qualify to purchase LTC insurance, as most individual policies require medical underwriting. In some cases, you may be able to buy a limited amount of coverage, or coverage at a higher “non-standard” rate. Some group policies do not require underwriting.
- What type of expenses does Long-Term Care (“LTC”) insurance cover?
- At what age should you acquire LTC insurance coverage?
- What factors affect premiums (i.e. age, health, location)?
- When do LTC benefits kick in?
- Do LTC insurers have the right to seize my assets?
- If you plan to collect Social Security, Medicare, or Medicaid, do I need LTC insurance?
- Should you acquire a reimbursement or indemnity policy?
- Can an insured choose their own caregivers?
- Can an insured stay in their own home or must they stay in an assisted living facility to be covered?
- What happens if you have paid for insurance annually for many years and when I need it , the insurance carrier no longer provides coverage in my state?
Purchasing Long-Term Care Insurance
Before purchasing LTC insurance, you should consider the following:
- Because the cost of LTC insurance is quite high, don’t buy more insurance than you need. Depending on your personal finances, you may have enough income to pay a portion of your care costs and you may only need a small policy for the remainder, or you could set aside the amount you would be paying for LTC, invest it and self- insure, when and if you need it. You also may have family members willing and able to supplement your care needs.
- Don’t buy too little insurance. That will only delay the use of your own assets or income to pay for care. Think about how you feel about having care costs that are not covered. While you can usually decrease your coverage, it is more difficult to increase coverage, especially if your health has declined.
- Look carefully at each policy and read the full policy. Or, hire an attorney to outline the policy for you so that you fully understand what you are buying. Some policies state that you only get the benefits “in existence at the time of need.” There is no “one-size-fits-all” LTC policy and in some policies the benefits can change year to year, becoming more restrictive.
- If you choose a policy that only pays for room and board (or rent) in a facility, plan for other expenses, such as additional private caregivers, supplies, medications, linens, and other items and services that your policy may not cover.
- It costs less to buy coverage when you are younger, but you pay for many more years before you possibly need it. . The average age of people buying long-term care insurance today is about 60. The average age of those purchasing policies offered at work is about 50. Even in policies that advertise the premiums will not go up in large print, read the small print for exceptions. You may not want to be in a position of taking out insurance at 60 at one rate, and then at age 80 the premiums jump dramatically and you do not need or qualify for benefits until age 85 or later.
- Make sure that you can afford the long-term care insurance policy over time, as your monthly income may change.
- Some statistics indicate that less than 50% of the U.S. aging population ever uses long term care assistance.
People with certain conditions may not qualify for long-term care insurance. Since standards vary between different insurance companies, if one company denies you, it is possible that another company will accept you. Common reasons why you might not be able to buy long-term care insurance include:
- You currently use long-term care services,
- You already need help with Activities of Daily Living (ADL),
- You have AIDS or AIDS-Related Complex (ARC),
- You currently have an Alzheimer’s Disease diagnosis or any form of dementia or cognitive dysfunction,
- You have a progressive neurological condition such as multiple sclerosis or Parkinson’s Disease,
- You had a stroke within the past year to two years or a history of strokes,
- You have metastatic cancer (cancer that has spread beyond its original site).
Insurance companies also consider other health conditions when determining your eligibility. If you buy your long-term care insurance before you develop one of the health conditions listed above, then your policy will cover the care you need for that condition.
Insurers use a process called underwriting to determine whether to sell you a policy. Each insurance company will review your health status, documentation and will only offer you a policy if you meet their internal guidelines. Federal law prohibits insurers from refusing to sell you health insurance policies based on your health status. However, this does not apply to long-term care insurance.
During the application process, LTC insurers may ask detailed questions about your personal and family health history. Some insurers require the submission of medical records, a statement from your doctor, or require you to take a medical exam. Answer all health questions truthfully. If a company later learns you gave incomplete or false information on your application, it has the power to cancel your policy and refuse to pay your claim.
When you apply for insurance, the insurance agent will complete a personal worksheet with you to determine whether an LTC policy is right for you. Ask the agent to provide you with the company’s long-term care premium rate increase history for the past 10 years (which should be readily available). By law, insurance companies are permitted to raise your premiums if it also raises the rates for policies similar to yours.
Filing a Claim
When filing a long-term care insurance claim, follow these tips:
- Contact your insurer as soon as you believe you may qualify for LTC benefits. The insurer will provide you with assistance on how to document and file a claim. The insurance company will need to review clinical records and perhaps even send a nurse or social worker to visit a client before it approves a claim. The claim process can be very time consuming, as a result. You may need the help of an attorney at this point. If you are denied, there is an appeal process.
- Be aware of your policy’s elimination period. Policies typically include a deductible, known as an elimination period, of 20, 60 or 90 days. Insurers differ on how they calculate days in the elimination period. Some policies use “calendar days”—paying for services 60 days after you file a claim or after the doctor or company certifies that you have a covered disability. Other policies use “service days,” counting only the days that you pay for a home health aide during the waiting period. The policyholder will continue to be liable for LTC expenses until the elimination period is met.
- Document the need for LTC assistance. Claimants must typically prove that they need help performing two or three activities of daily living (“ADLs”), such as bathing or eating, or need supervision for dementia, in which case a nurse may be sent out to evaluate (a family member should be present for this interview) to obtain LTC benefit. A licensed health care provider should confirm in writing the details of the patient’s disabilities, such as what ADLs the claimant cannot perform. A treating physician can write a letter to the LTC insurer on this subject or fill out a form prescribed by the insurer. When you call the insurer to file a claim, make it clear up front that you have documentation from a physician.
- Review the policy and be aware of claim filing requirements. Check your LTC policy to find out the deadline for filing a claim and how frequently you need to verify disability in order to get benefits (this could be every six months). Knowing the rules is critical to getting your claim paid. Failing to adhere to the rules can give an insurer an excuse for denying your claim.
Filing a Claim
Review and complete the steps outlined in “Preparation Before Filing a Claim.” Complete claim paperwork carefully. Be sure to retain a copy for yourself and file the claim as directed by your insurance company or agent.
The Claims Process
After filing the claim form, most insurers will set up a face-to-face assessment between the claimant and a nurse. During the visit, the nurse will assess the claimant’s functional abilities, cognitive status, personal needs and environment in order to assist the insurance company in determining benefit eligibility. It is important that the claimant have a caregiver or family member present during this meeting.
At the initial claim assessment, it is recommended to have the following documents ready or accessible:
- Two forms of photo identification (driver’s license, ID card, passport),
- Contact information for all treating physicians,
- List of all current medications,
- Contact information for all current and recent LTC caregivers, and
- Medical history, such as dates of hospitalizations and major procedures.
Following the initial claim assessment, the insurer will approve the claim, deny the claim, or request further information. Be sure to comply with any information requests in a timely manner, as failure to do so is a valid ground for denial of the claim.
It is important to note whether you have a reimbursement policy or an indemnity policy. A reimbursement policy makes benefit payments based primarily on the billing invoices that are submitted for LTC expenses. The insurer will reimburse an LTC claimant up to the policy’s defined coverage limits. An indemnity policy makes benefit payments in an amount specified upon confirmation that the insured has received covered care and services. For instance, an indemnity policy may pay a claimant $200/day for LTC treatment, regardless of whether the claimant actually incurs $200 in medical expenses every day. The type of policy will affect how LTC benefits are documented and paid to the insurer.
Negotiation, Mediation, Limitations
Standard Policy Exclusions
Long-term care policies typically exclude coverage for conditions resulting from:
- Alcoholism and drug addiction;
- Suicide, attempted suicide, or intentionally self-inflicted injuries;
- Participation in a crime, riot, felony, or insurrection;
- War or an act of war, whether declared or undeclared;
- Service in the armed forces; or
- Aviation activities, if you weren’t a fare-paying passenger.
Long-term care policies may exclude coverage for some conditions, either completely or for a limited time. Policies often exclude:
- Preexisting conditions: A preexisting condition is an illness or disability for which you got medical advice or treatment in the six months before the date of coverage. An LTC policy may delay coverage for a preexisting condition for up to six months after the policy’s effective date.
- Mental and nervous disorders: LTC policies can exclude coverage for some mental and nervous disorders, but the policy must cover serious biologically-based mental illnesses and brain diseases, such as schizophrenia and major depressive disorders, and Alzheimer’s disease and other age-related disorders. However, insurers may refuse to sell a policy to someone already suffering from Alzheimer’s.
- Care by family members: Most policies won’t pay members of your family to take care of you. On the other hand, some policies will pay to train family members to be caregivers.
Long-term care policies won’t pay for care that is covered under a government program. The exceptions are Medicaid and expenses that Medicare pays as a secondary payer.
If you are unable to resolve the claim with your insurer, suggest mediation through First Mediation, JAMS or a similar organization.
When the matter is resolved, put the settlement agreement in writing.