Long Term Care Insurance FAQ

What Is Long Term Care Insurance? As the senior population grows and health care costs escalate, adult children are becoming increasingly concerned about caring for their aging parents. Many families are dealing with the challenges of mental or physical disability or prolonged illness. For thousands of others, these realities may be just around the corner.

The challenge for these families is to provide the best possible long term care for a parent without causing severe financial hardship for the rest of the family. In most cases, families must plan ahead without knowing the answers to key questions: Will a parent need round-the-clock nursing home care or assistance with daily activities such as bathing and dressing? Will home health care be enough? Will Medicare pay for it? Does the parent qualify for Medicaid? What cost will the family incur?

One thing is certain — long term care is very expensive. Unlike traditional medical care, which seeks to rehabilitate or correct certain medical ills, long term care aims to help people with chronic conditions compensate for limitations on their ability to function independently. Long term care involves a wide variety of services and, generally, older people often need more care than they anticipate.

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A long term care insurance policy is one way many families are opting to prepare for the uncertain future. Technically speaking, long term care insurance provides at least twelve consecutive months of coverage for health services received in a place other than an acute care unit of a hospital or similar facility. The services are given to patients who suffer from chronic physical or cognitive impairment.

A long term care policy pays for necessary expenses incurred in nursing, assisted living and retirement homes, community settings such as adult day care centers, in the insured’s own residence, and in hospices. Benefits are available to pay for services received from skilled, intermediate, and custodial caregivers. For benefits to be paid, the services received must be given under a doctor’s written plan of care.

What Are the Benefits?

The basic benefits consist of reimbursement of covered expenses, subject to the elimination period, up to the maximums provided by the policy. The overall maximum reimbursement may be a dollar amount such as $120,000 or a formula amount such as $200 per day for up to 600 days of nursing home benefit. There is also a maximum daily limit for the various benefits. Typically the nursing home benefit is the maximum daily benefit, such as $200, and care provided at home or in as assisted living facility may be some percentage of the maximum daily benefit, such as 50%. If the daily reimbursements of the policy are less than maximum daily benefit, under the typical policy the benefits are extended until the overall maximum is attained. Often, a portion of the overall maximum benefit may be reinstated if you recover for a specified period of time.

Several options are usually available that provide protection from future increases in long term care costs. You may not need long term care until many years after the policy is first issued. From the time you first buy the policy until you actually need to use the benefits, the cost of care is likely to increase. Maine law requires insurers to offer you an option to increase the amount of benefits in your policy to take into account the growing cost of care. These options come in a number of forms and are usually available only when the policy is initially purchased. These options increase the overall and daily maximums in the policy as follows:

• An automatic built in percentage increase each year with no change in premium. This increase may occur even if you are disabled. The cost of this option increases the premium a great deal.
• An automatic offer to increase benefits each year at the then current price for the increase in benefit, subject to you periodically using this option. The cost of this option causes premium increases in future years when you choose it.
• An increase in the benefit that occurs only while you are disabled. This option is usually associated with one of the other two options previously mentioned.

These options may be called different names like guaranteed insurability, cost of living coverage, inflation protection, etc.

When you first buy your policy, you must be offered the opportunity to include a surrender benefit (sometimes called a nonforfeiture benefit). The nonforfeiture benefit gives you a benefit at a later date if you decide that you no longer want to continue the policy by paying the premium. This benefit may be cash or some form of limited long term care benefit and usually increases with the length of time that the policy is in force. The cost of this benefit can be very expensive.

If you don't accept the offer of a nonforfeiture benefit when you first buy the policy, a company is required to provide a "contingent benefit upon lapse." This means that when your premiums increase to a certain level (based on a table of increases), the "contingent benefit upon lapse" will take effect. For example, if you're 70 years old and have not accepted the insurance company's offer of a nonforfeiture benefit, when the premium rises to 50% more than the original premium, you will be offered the opportunity to accept one of the "contingent benefits upon lapse." The benefits offered are:

1. a reduction in the benefits provided by the current policy so that premium costs stay the same;
2. a conversion of the policy to paid-up status with a shorter benefit period

You may also choose to keep your policy and continue to pay the higher premium.

Where Do You Get Long Term Care Insurance?

People usually buy long term care policies from private insurance companies. However, a growing number of employers are now offering policies to their employees, employees’ parents and retirees.

Government assistance programs generally offer very little help. Medicare — the federal health insurance program for people over the age of 65 — provides very limited long term care benefits and can require substantial co-payments. Medicaid — the public health care program for low-income Americans — has strict financial eligibility criteria and generally requires beneficiaries to deplete their savings, or "spend down," before it will pay for services. Other public services may be available but typically are offered on a sliding-fee scale, based on ability to pay. There also may be waiting lists.

Private individual long term care insurance is medically underwritten. This means the insurance company can refuse your application for a policy if you do not meet its guidelines.
Policies vary widely in coverage and cost. Some only cover nursing home care; others only home care. Shop around and consider the following factors before buying a policy:

• The age, health, overall retirement objectives and financial resources of the person who is to be insured;
• The financial stability of the insurance companies you’re considering; and,
• The "triggers" each company requires to start coverage.

Existing health problems, such as Parkinson’s or Alzheimer’s, might prevent some people from obtaining long term care insurance due to medical underwriting standards that insurance companies use to keep their rates affordable. Without such provisions, most people would not buy coverage until they needed services.

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Long Term Care Premiums

Once you are issued an individual policy, the policy is renewable as long as premiums continue to be paid. If premiums are not paid, the insurer can terminate the policy subject to any nonforfeiture benefit that the policy may have.

Premiums are lower the younger you are when the policy is issued.
Although the policy is guaranteed to be renewable, that does not stop the premium from increasing. However, increases in premiums are allowed only for the entire "class" of persons with the same coverage and only with the prior approval of the Maine Superintendent of Insurance. For example, the premium may be increased for all insureds who have the same policy and who have reached their 68th birthday. Premium increases are based on an increase in the company's claims experience as insureds grow older. The insurer may not raise you premium based only on your claims.

The insurer may offer a premium discount if you and your spouse are covered.
Some companies offer several options regarding how long the premiums are payable. The typical premium paying period is over your lifetime. However, for those young enough, the premium paying period may be reduced so that payments are limited to 10 years or to age 65. These limited payment options come with a steep increase in annual premium, however, they could save money over the long term, especially if there are future rate increases that affect premiums that would have been paid after the reduced premium paying period.

Rate increases have become more common on long term care policies primarily because companies introduced this product when there was no reliable data on which to base their rates and their assumptions were too optimistic. These premium increases have been significant in some instances. Although the insurers' data has been developed and the revised legal requirements encourage adequate rates, the potential for rate increases is still there.

Before a company issues a policy, many state's require long term care insurers to give you information on how often and by how much they have increased premiums in the past. Having this information may help you to determine the likelihood of future premium increases from this company.

Some policies offer an additional benefit if your spouse is covered. For instance, the coverage on a surviving spouse may be extended after the first death.

Sample Long Term Care Policies

The following comparison information shows a snapshot of several different available benefit periods (how long your benefits will last) and the different available elimination periods (the amount of time you have to wait before benefits are paid) that each company offers in their long term care policies.

To make premium comparisons as close as possible, companies were asked to quote rates as close as possible to a 5 year benefit period and a 90 day elimination period. Not all companies that sell long term care policies in your state are included in this chart. The examples below are from Maine. Companies enter and leave the market frequently. Consequently, by the time this booklet is published, it may not show an accurate reflection of all the companies who sell policies.

*Premium based on best rate class for a single insured, comprehensive policy with no cost of living option.

Some Definitions

The following are some terms that are commonly used in long term care policies:

• Elimination Period: The number of days of care that you receive and must pay out-of-pocket before the insurance company begins to pay.
• Benefit Period: How long your benefits will last. These are usually stated in terms of a maximum number of days or years, or for home health care, a maximum number of visits.
• Pre-Existing Conditions: A pre-existing condition is a health problem you may have or already have had when you apply for a policy. A pre-existing condition is defined as a condition for which medical advice or treatment was recommended by or received by you within 6 months before the effective date of your coverage. A policy may not exclude coverage for a loss or confinement that is the result of a pre-existing condition unless the loss or confinement begins within 6 months following the effective date of your coverage.
• Home Health Care: Services received in your home that may include skilled nursing care, speech, respiratory, physical or occupational therapy, or home health aide services. Assistance with personal hygiene, dressing or feeding may also be included.
• Adult Day Care: Provides supervision for the insured during the day when family members are not at home.
• Assisted Living Facilities: Provide ongoing care and related services to support those needs resulting from a person’s inability to perform activities of daily living.
• Respite Care: Includes services that can give family members a rest or vacation from their care giving responsibilities. It can be provided in a variety of settings including an individual’s home or a nursing home.
• Hospice Care: A program of care and treatment either in a hospice care facility or in the home for persons who are terminally ill and have a life expectancy of six months or less.