Long-Term Care Insurance

An alternative to qualifying for Medicaid or paying all long-term care costs out-of-pocket is to purchase long-term care insurance (LTCI). LTCI is designed specifically to pay for custodial long-term care services. There are three basic types of policies: nursing home only policies covering care in a nursing home or, on occasion, care in an assisted living facility; home health care only policies; and comprehensive policies providing nursing home, assisted living, and home or community benefits. There are a few rules of thumb to follow before purchasing a long-term policy.

Steps to Take

First, only purchase a policy if you have significant assets and income and want to protect them. The premiums should be paid out of income you would otherwise be adding to your savings or from savings you don't mind using for this purpose (between five to ten percent of your income both earned and unearned). Do not sacrifice your current standard of living in order to pay the premiums.

Second, make sure that you purchase enough coverage both for now and for the future when you might actually have to use the insurance. Like other health care costs, inflation in nursing home fees far exceeds the normal inflation rate. It will do you little good if you have only $100 a day of coverage and the cost of a nursing home when you need it is $250 or more a day. So, this means buying an inflation rider, or purchasing substantially more coverage than you need today, or both. To get an idea of how much coverage you will need use this formula:

average daily cost of nursing home x 2 minus monthly income and divided by 30
$150.00 x 2 = $300 - $50($1,500  30 = $50) = $250

Third, purchase home care coverage as well as nursing home coverage. You do not want to feel pressured to move to a nursing home because you have insurance to pay the costs and none to pay the costs of home care.

Fourth, only buy insurance from a top-rated company. Compare insurance companies and rates. The company should be rated A or A+ by A.M. Best.

These guidelines will make the policy more expensive, which brings us back to the initial rule of thumb. Only purchase the insurance if you can afford it. It will do you little good to purchase a cheaper policy that does not provide the coverage you need.

Benefits

Benefit triggers are defined in the policy and vary between policies. The same policy may have different triggers for home or community based care than for nursing home care. In
Massachusetts individual policies must provide benefits if you require assistance with two activities of daily living or suffer from severe cognitive impairment and need substantial assistance. The qualifying activities of daily living are bathing, continence, dressing, eating, toileting and transferring. However, if the policy is also tax-qualified it may contain a more restrictive benefit trigger. Group policies that are not tax-qualified can use any standard they choose.

Tax-Qualified Policy

A tax-qualified policy must meet certain federal standards and offers certain federal income tax advantages if you itemize your deductions. It must be guaranteed renewable, include consumer protection provisions, and cover only “qualified long-term care services”. These are services required by a “chronically ill” person and furnished by a long term care provider under a care plan prescribed by a licensed health care practitioner. You may be able to deduct part or all of the premiums, depending on your age at the end of the tax year. Benefits paid by a qualified long-term care insurance policy are generally not taxable as income.

It may not always be to your benefit to choose a tax-qualified policy over one that is not tax-qualified since you may need to meet more stringent levels of incapacity under a tax-qualified benefit. Please note that benefits received under a non tax-qualified policy could be taxable as income.

Inflation Rider

An inflation rider provides inflation protection, either simple or compound. The compound method will give you the greater benefit in the long run. Automatic inflation protection will increase your benefits each year by a fixed percentage while special offer inflation protection provides the option of purchasing inflation protection at set intervals. Premium increases may be imposed based on your age at the time you exercise the option. If you decline the option you may not have another opportunity.

Non-Forfeiture

For an additional premium you may chose the non-forfeiture option. In general, this means that you can cancel the policy and stop paying the premium and still receive some reduced policy benefits.

MassHealth Qualified Policy

If you receive MassHealth (Medicaid) benefits from the Division of Medical Assistance, you may be exempted from some eligibility and estate recovery rules if you have a MassHealth qualified LTCI policy. The minimum requirements that the policy must meet are:

1. It must cover nursing home care for at least 730 days.
2. It must pay at least $125 per day for nursing home care.
3. The elimination period may not be longer that 365 days.

If you anticipate applying for MassHealth benefits and you have purchased a long-term care policy, be sure to check with a professional well versed in MassHealth regulations to make sure the application for benefits is filled out properly.

Group Policy

If considering a group policy be sure to compare the exact same benefits with one or two individual policies. If you consider a group policy (generally offered by an employer or association) check out the following:
1. Is the policy guaranteed issue (underwriting much less difficult)
2. Does if offer Consumer Price Index type inflation rider.
3. Is the home care benefit equal to the nursing home benefit.
4. What are the triggers for eligibility for benefits.

Additional Questions to Ask

1. How are the benefits paid, by the expense-incurred method or the indemnity method. The indemnity method pays the full daily amount regardless of cost of service and uses up the total benefit of the policy at a faster rate. The expense-incurred method pays the provider the lesser of the daily amount or the actual cost.
2. Does the policy cover services in adult day care centers or in other community facilities.
3.
What triggers will activate the policy.
4. Is there a limit to six months excluded coverage for pre-existing conditions with no distinction based on age.
5. What is the maximum benefit limit and daily or monthly benefit limit.
6. Will the policy be canceled because of age or deteriorating health and is it guaranteed renewable.
7. What will cause the premium to go up.
8. Have there been any premium rate increases or decreases in the last five years.
9. What is the “free look” period.
10. Does the policy provide for third party notice if you forget to pay the premiums so that the policy is not canceled.
11. Does the policy provide restoration of benefits if benefits were not used again for a period of time.
12. Is there any premium refund at death.
13. Does the policy cover emergency medical response services.
14. Ask to see a specimen policy.
15. Review each policy illustration form and outline of coverage.
16. The premium should be payable to the insurance company, not the broker.
17. Ask your agent what the commission percentage is for each policy he is offering.

LTCI is not offered on a guaranteed issue basis. A company may deny coverage or limit benefits during a pre-existing condition waiting period.

Do not be pressured into making a quick decision. Make sure you understand each component of the policy so that there are no surprises when you need to access the benefits. For more detailed information on LTCI policies in Massachusetts request a copy of “Your Options for Financing Long-Term Care: A Massachusetts Guide” from the Massachusetts Division of Insurance.

The experts recommend that you check the cost for each level of care in your area by calling three to five home health care agencies, adult day care, centers, assisted living facilities and nursing homes.