Long-Term Care Insurance

I. Nature of the Product

The phrase long-term care insurance describes a wide variety of private contracts between insurance companies and policyholders. Most such policies are sold by insurance agents to individuals, although access to long-term care insurance is increasingly provided on a group basis. Membership organizations like the American Bar Association or the American Association of Retired Persons, large employers, and health maintenance organizations are among the groups that make such insurance available.

The contract itself varies with the particular issuer. In general, the policy covers the cost of long-term care for the insured individual in certain settings after an elimination period has expired, for a specified length of time.

II. Coverage

Long-term care insurance covers skilled care in a skilled nursing facility (SNF), and usually intermediate care as well. Such care is characterized by the provision of medical care. This insurance can also cover Assisted Living and In-Home Care. This care is more Custodial in nature.>

Custodial Care is usually defined as providing assistance with the so-called Activities of Daily Living, or ADL’s: eating, bathing, dressing, toileting, transferring from bed to chair, and maintaining continence. In the context of custodial care, medical care is usually limited to providing assistance with medications. However, it has been estimated that 19 out of 20 residents receive custodial care. Accordingly, most persons want a long-term care insurance policy that specifically covers custodial care whether in a nursing home, assisted living or at home.

Home health care may involve different services provided by home health aides, nurses, social service agencies, physical therapists, and other sources. This avenue of assistance may or may not be covered by long-term care insurance. If it is included, there are usually some restrictions tied to the cost of care or length of time covered. Often, these cost restrictions are related to the policy’s coverage of nursing home care. For example, a policy covering $100 per day of nursing home costs might also cover appropriate home health care, but only up to $50 per day in this setting.

III. Financial Limits on Covered Costs

The coverage provided by private long-term care insurance is usually subject to several financial limitations.

A. Daily Dollar Maximum

First, there may be a daily dollar maximum or a range of daily maximum coverages from which a policyholder can choose when initially securing the policy. Some maximums are designed to cover most if not all relevant expenses, while lower limits introduce a greater co-insurance element. In other words, the policyholder will pay the difference between the SNF’s charges and the policy’s limits. In general, the lower the limit, the greater the policyholder’s remaining exposure to costs, but the lower the policy premium itself should be.
Although daily maximums are the most common financial limit, some policies limit coverage to a stated percentage of the SNF’s charges.

Inflation protection riders may be expressed as additional costs per day or as a percentage of the daily maximum. Additional variations include annual percentage increases that are simply added on or are compounded annually.

B. Duration of Coverage

A second major financial limit on covered costs is the duration of a policy’s coverage. That is, the length of time that an insurance company will pay the designated benefits is also variable. Once again, the standard insurance trade-off applies; the longer the period of coverage, the lower a policyholder’s exposure, but the higher that policy’s premiums are likely to be. Duration periods typically start at one year and go up to five years or more. Less common is a benefit period equal to the policyholder’s remaining life. Alternatively, the maximum coverage of a long-term care policy might be stated in terms of dollars consumed rather than time covered, but the effect is the same: limit the coverage of the policy and thereby moderate its premium cost.

C. Waiting Period

A final financial limit on covered costs is the waiting or elimination period. The period used is selected by the policyholder when the policy is first obtained and functions like a deductible in more familiar insurance contexts: no insurance benefits are paid during the first 30-120 days of an otherwise covered long-term care situation. Once again, the classic insurance trade-off applies: the longer the elimination period, the greater the out-of-pocket exposure the policyholder might face, but the lower the cost of the insurance policy itself should be.

IV. Medical Limits on Coverage

A. Pre-Existing Conditions

The most significant of the medical limitations deals with so-called pre-existing conditions, medical conditions of a policyholder that existed when the policy was first obtained. Other conditions do not preclude issuance of a policy but are simply excluded from its coverage. Common examples include alcoholism, drug addition, illnesses caused by an act of war, attempted suicide or other intentionally self-inflicted injuries, or nervous disorders other than Alzheimer’s disease.

If long-term care becomes necessary after the policy takes effect but is attributable to a pre-existing condition, the company may deny coverage for a certain period of time beyond the customary elimination period. This denial period is usually specified in the policy and is generally no more than six months. In some cases, however, particularly group policies where acceptance by the insurance company is automatic for group members, the denial period may be much longer-even indefinite. In effect, such policies provide no coverage ever for long-term care that is attributable to a pre-existing condition.

B. Case Management

A second medical limit on covered costs is a case manager provision, or gatekeeper of sorts. Under this provision, an insured person needing long-term care will be examined by a caseworker, who is frequently an employee of the insurance company. This person will assess the policyholder’s condition and determine whether that person’s needs can best be satisfied in a SNF situation or in some less intensive setting. This assessment process occurs when long-term care is first required and may be redone regularly thereafter to monitor the policyholder’s progress and ongoing needs. Any plan of treatment at variance with the caseworker’s assessment will typically be denied coverage.

V. Other Key Policy Provisions and Options

A. Guaranteed Renewability

An important safeguard in long-term care insurance is that a policy be guaranteed renewable. In some instances, however, a company may raise its rates, but must do so for an entire class of policyholders, not just policyholders who have filed claims for benefits. State law may also dictate under what circumstances policies may be canceled, other than for nonpayment of premiums, of course.

B. Waiver of Premium

Nonpayment of premiums can be a real problem once long-term care commences. One response to this dilemma is a waiver of premium provision. Under this clause, a policyholder is not required to pay premiums to keep a policy in force once benefits become payable under the policy, or after some period — often ninety days — beyond that point.

VI. Other Key Points to Consider

A. Shop Around

B. Look at Financial Strength of Insurance Company – What is its rating?

C. Check Consumer Sites