Long Term
Care (Nursing Home / Home Care) & Long Term Care Insurance (LTCi)
An Overview
By: Paul M. League, QFP, CFP®
Preamble:
A Case for the Need of Long Term
Care Insurance ("LTCi")
Seniors,
and others,
have another very serious need to protect against Long Term Care (“LTC”)
Nursing Home and/or Home Care confinements and the costs that accompany
them.
For many seniors the annual cost for
Nursing Home care (averaging here in
CA, in 2005-2006, at around $50,000 per year, or $140 per day) could cause them to either completely
loose or seriously deplete assets that would otherwise be used and depended
upon for retirement income.
What most do not understand is that Medicare
does NOT cover Long Term Nursing & Home
Health Care unless one is fully impoverished, and it is not at all likely
that Government will ever be able to provide the resources to cover the kind of
care most persons would want under such circumstances.
We offer Tax Qualified and Non-Tax Qualified LTC
Insurance plans, both Private and
State Sponsored, that can help you to effectively address this problem.
We strongly recommend that persons get this type of coverage as soon as
possible.
Through an affiliation with the national firm, Long Term Care
Resources, we also offer many endorsed and discounted LTC Insurance Plans for
national Associations and their Members. Please contact us for details.
Remember
that while it’s true that money pays for these coverage's only good health
actually buys them; therefore, don't delay your decision to obtain these
types of highly valuable insurance coverage's.
The Article:
Long
Term Care ("LTC")
refers to a broad spectrum of medical and support
services provided to persons who have lost some or all capacity to function
on their own due to chronic illness or disabling injury.
LTC services are
rendered in a setting other than the acute care center of a hospital.
LTC services are generally necessary for a long period of time since geriatric
injuries and illnesses tend to be progressive and/or overlapping.
The primary caregiver in LTC situations is not a physician, as in hospital/medical
scenarios, but someone less skilled. A Registered Nurse, Licensed
Practical Nurse, Physical, Speech, Respiratory or Occupational Therapist,
nurse’s aide, homemaker, or spouse most commonly renders Long Term Care.
The NAIC (National
Association of Insurance Commissioners), in its ‘Long Term Care Insurance
Model Act of 1986’ defined Long term Care Insurance as:
“Any insurance policy
or rider advertised, marketed, offered or designed to provide coverage
for not less than 12 consecutive months for each covered person on an expense
incurred, indemnity, pre-paid or other basis for one or more necessary or
medically necessary diagnostic, preventative, therapeutic, rehabilitative,
maintenance or personal care services, provided in a setting other than
an acute care unit of a hospital. Such term also includes the policy
or rider which provides for payment of benefits based on cognitive impairment
or the loss of functional capacity.”
California's Definition of LTC
Insurance:
"Long-term care insurance is a form of individual health insurance that has
been available in roughly its present form since the late 1980s. Originally
conceived in 1974 as an extension of Medicare’s skilled nursing benefit, it
has, over the last 25 years, become a comprehensive form of coverage meant to
relieve the burden of long-term care expenses, while preserving independence,
choice and economic well-being. It has also expanded well beyond its earlier
market of Medicare eligible seniors and is now regarded as an integral part of
financial and retirement planning.
Long-term care insurance premiums are level and are determined by the age of
the client at time of purchase. They are payable for life, or for set periods
such as five or 10 years, or to a set age such as 65. The contractual form is
known as
Guaranteed Renewable, which means that the insurance cannot be cancelled and
premiums cannot be raised for an individual, though they may be raised for all
policyholders if claims exceed the required regulatory level.
The number of long-term care policies ever sold has risen from 815,000 in 1987
to 2.9 million in 1992. But the number of policies actually in force is
considerably lower, because of the high lapse rate. Only 4 to 5 percent of
elderly have some kind of private long-term care insurance (Health Insurance
Association of America, Families USA Foundation 74).
“Long-term care insurance” includes any insurance policy, certificate or rider
advertised, marketed, offered, solicited, or designed to provide coverage for
diagnostic, preventative, therapeutic, rehabilitative, maintenance, or
personal care services that are provided in a setting other than an acute care
unit of a hospital.
Long-term care insurance
includes all products containing any of the following benefits types:
-
coverage for institutional
care including care in a nursing home, convalescent facility, extended care
facility, custodial care facility, skilled nursing home, or personal care home;
-
home care coverage including
home health care, personal care, homemaker services, hospice, or respite care;
-
community-based coverage
including adult day care, hospice, or respite care.
Long-term care insurance
includes disability based long-term care policies but does not include insurance
designed primarily to provide Medicare supplement or major medical expense
coverage. Long-Term care policies, certificates and riders are regulated under
this. The commissioner shall review and approve individual and group policies,
certificates, riders, and outlines of coverage. Other applicable laws and
regulations shall also apply to long-term care insurance insofar as they do not
conflict with the provisions of CA Code.
Long-term care benefits designed to provide
coverage of 12 months or more that are contained in or amended to Medicare
supplement or other disability policies and certificates are regulated under
these CA Code provisions."
--
Whether as an indemnifying
contract paying a specified dollar benefit per day, or as an insurance
plan offering reimbursement for medical expenses and services incurred,
LTC insurance is much different from other coverage's. Long Term Care
underwriting criteria is more concerned with the applicant’s lifestyle,
cognitive state, and ability to perform ‘Activities of Daily Living’ (ADLs)
such as bathing, dressing, eating, transferring, toileting and continence.
The underwriting intent is to screen out applicants who currently are at
risk of entering a nursing home, are cognitively impaired, or who already
have ADL dependencies.
On the medical services
side, Long Term Care requires less technical and intensive medical expertise
than services for an acute condition requiring hospitalization. The
physician plays a less prominent role and is not usually the primary source
of care. The providers of Long Term Care are usually not the same
as those in the major medical/HMO arena. When needing long term care
services, the policyholder will interact with nurses, nursing aides, rehabilitation
specialists, therapists of all kinds, homemaker service aides, nursing
home administrators and social workers.
The factors that
define which care platform is used are the Level of Nursing Care required
and the Place Where Service Is Rendered.
Levels of Nursing
Care:
Skilled Nursing
Care is the highest level, requiring the greatest professional expertise,
and is generally prescribed for the most severely impaired person who cannot
tend to his/her own needs. Skilled nursing care is 24-Hour care ordered
by a physician and provided by a Registered Nurse (RN) or Licensed Practical
Nurse (LPN).
Intermediate Nursing
Care is similar to skilled care, except the patient does not receive
or need 24-Hour attention. Thus, intermediate nursing care is skilled
care provided on a non-continuous basis.
Custodial Care
is the most basic level of nursing care. Custodial care is usually
of a non-medical nature in which the patient receives assistance with the
‘Activities of Daily Living’ (ADLs) such as bathing, dressing, eating,
transferring, toileting and continence. Persons providing custodial
care need not be professionally trained nurses or therapists.
Place of Service:
Long Term Care can
be rendered almost anywhere--in a skilled nursing unit of a hospital, at
a Long Term Care facility, an Alternate Care facility, in the Community,
or in a person's home.
Long Term Care
Facilities: The most common deliverer of LTC services is the Long Term
Care facility, sometimes known as nursing home, extended care facility,
convalescent care facility, or nursing sanitarium. Depending on the
services provided and the scope of the facility’s license, these facilities
usually admit those people requiring either a constant or semi-constant
skilled level of medical care.
Alternative Living
Facilities are additions to the LTC service delivery continuum.
They are generally smaller facilities that provide specialized services
directed at patients with a particular set of needs.
Congregate housing
facilities
are dormitory-like settings where people live in the same
building, occupy private rooms or apartments, and share some meals.
Care is usually of a custodial nature, with emergency medical assistance
readily available.
Board and Care
Homes are living arrangements modeled after ‘halfway houses’ for recovering alcoholics and drug addicts. In a Board and Care
Home, a resident is provided room, meals, help with ADLs, and some degree
of protective supervision. They are not usually certified by Medicaid,
but are usually licensed by the state. Board and Care Homes are sometimes
known as domiciliary care homes, personal care homes, community residence
facilities, rest homes, and other similar terms.
In an Alzheimer’s
Care Center, the emphasis of care is more on supervision of the patient
and providing a safe and controlled environment. Medical disabilities
in most Alzheimer’s patients are usually less severe and disabling than
for those persons requiring confinement in a nursing home.
Home Health Care
and Community-Based Care has been considered a lower cost alternative
to LTC Facility confinement, and is becoming more popular as more providers
of this service enter the marketplace.
Since the service
comes to the patient, it can be more economical than nursing home placement
and works quite well for intermediate and custodial levels of care.
Services are provided
by a wide range of providers, from RN's, LPN's, therapists and nurses’ aides (CNA's),
to chore persons (HHA's) and homemakers. Other services include Adult Day
Care, senior transportation services and "meals on wheels."
Private long term
care insurers responded to these criticisms and made substantive changes
to their products to meet the growing demands of consumers. The resulting
newer policies are more comprehensive in scope and contain less restrictive
provisions. Characteristics include:
-
Home health care benefits
no longer contingent upon prior confinement.
-
All levels of care covered
upon admission.
-
Elimination of prior
hospital stay.
-
Raising of benefit amounts
over time. (Inflation riders such as simple or compound, at a fixed
rate of interest or tied to the CPI.)
-
More extensive home
health care benefits such as personal or chore services.
-
Benefit eligibility
based on activities of daily living (ADL) dependencies versus medically
necessary.
-
ADLs commonly found
in policies are: Eating, Dressing, Bathing, Toileting, Transferring and
Continence.
-
Benefit eligibility
base on cognitive impairment.
Newer LTC policies may
also incorporate instrumental activities of daily living (IADLs) as a benefit
determination. IADLs were developed to assess the level of cognitive
as well as physical impairment and include such activities as: shopping,
using the telephone, housekeeping, doing laundry, taking medications, and
managing finances. IADLs are not as well understood as ADLs and are
more difficult to assess.
-
Alzheimer’s/dementia
disease specifically named as covered conditions.
-
Removal of separate
maximums on nursing home and home health care with one overall lifetime
maximum.
REGULATORY CLIMATE:
Guided by National
Association of Insurance Commissioners (NAIC), the state focus on LTC insurance
has been primarily directed toward product design and market practice
issues. Early NAIC models were generally flexible enough to meet
the needs of the marketplace but consumer advocate pressure, mounted in
the late 1980s, prompted the NAIC to add consumer protection policy standards
such as:
-
Prohibition on prior
hospitalization requirements.
-
Prohibition on linking
one level of care to another level (e.g., predicating receipt of custodial
care benefits upon prior skilled care benefit).
-
Minimum standards established
for home health care.
-
Minimum benefit period
of 1 or 2 years.
-
Certain post-claim underwriting
practices are forbidden. Contestability period may be shortened from
2 years to 6 months.
-
Increased supervision
of agent conduct.
-
Standards set for products
offering long-term care tied into life insurance products.
-
Mandated benefit levels.
-
Regulation of rates
and reserves.
-
There are also LTC state
‘partnership’ initiatives funded by the Robert-Woods Johnson foundation
to pursue an alternative of public/private approaches wherein the first
couple of years of long term care are covered by a private plan.
Each partnership state
(New York, Indiana, Connecticut, and California) has created a prototype
LTC policy to encourage consumers to purchase private coverage. In
this product design, the benefits spent under the private policy shelter
the policyholder’s assets on a dollar-for-dollar basis against Medicaid
spend down requirements. The result of this ‘private sector/social
insurance hybrid’ is that the State’s Medicaid Program is not the sole
source of funding for Long Term Care services for its citizens.
TAX
QUALIFIED LONG TERM CARE
On April 23, 1996,
the U.S. Senate passed the Health Insurance Portability & Accountability
Act (Kennedy-Kassenbaum Health Insurance Reform Bill) which provides favorable
tax treatment for long term care insurance, effective for tax years beginning
after December 31, 1996. This act allows for individuals who have
LTC policies to receive tax free benefits, subject to conditions, and it
allows for deductions of insurance premiums on itemized tax returns.
Any LTC policy, which was issued on December 31, 1996 and prior will be
“grandfathered” to receive favorable tax treatment (“material changes”
to such a policy can cause it to loose its “grandfathered or protected”
status; however, a change in premium mode would not be considered “material”
but a change in benefits or the dollar amount of benefits would be).
Debate continues
within the long term care industry, consumer groups and state departments
of insurance over whether or not tax qualified plans are best for the consumer.
The following briefly outlines what is different about tax qualified long
term care insurance policies.
What is different
about a Tax Qualified ("TQ") long term care insurance plan?
The government has
set forth guidelines that must be strictly followed before a policy can
be tax qualified.
- Benefit
Triggers- Modified for tax qualified policies
- Medical necessity
can no longer be utilized as a benefit trigger.
- Uses NAIC model
of Activities of Daily Living – eating, toileting, transferring, bathing,
dressing, continence
- Care received must
be certified by a Licensed Health Care Practitioner* (does not apply to
“grandfathered” LTC policies) as a result of (1) being unable to perform
(without substantial assistance from another individual) at least 2 Activities
of Daily Living “expected “ to last for a period of 90 days** due to a
loss of functional capacity, or (2) requiring substantial supervision to
protect yourself from threats to health and safety due to severe
- Cognitive
Impairment.
*Any physician, registered
professional nurse, or licensed social worker.
**This is not a waiting
or “elimination period".
Policy Caps, Benefits & Tax Deductibility Issues - Per Diem or Reimbursement Policies
Tax Advantages for Premium Payments:
Premiums paid by
individuals are deductible, subject to limitations. The amount deductible
is based on their age at the end of the year. This amount will change
each year due to inflation.
The deductible limits under Section 213(d)(10) for eligible long-term care
premiums includable in the term ‘medical care’ are as follows:
In order
for an insured to itemize their LTC premium as a tax deduction, their total
medical expenses must exceed 7.5% of their adjusted gross income.
Employers who pay
LTC premiums for their employees and self-employed individuals are also
entitled to tax advantages.
Effect on Benefit
Payments:
Effective January
1, 1997, every insurer will be required to report all benefit payments
made to the IRS.
All benefit payments
made to an insured that has a LTC policy which reimburses expenses incurred
(a reimbursement benefits policy) will not be considered taxable income.
All LTC policies
which pay a “per diem”* benefit, verses a reimbursement benefit, have guidelines set by the federal
government. All “per diem” benefit payments up to certain caps are not
considered taxable income; however, any amount above the following caps is
considered as "taxable income"; however,
the taxpayer may exclude from income the "excess benefits" to the extent of the
individual's actual un-reimbursed
Tax-Qualified Long-Term Care expenses:
| 2006
Daily Benefit, Non-Taxable Cap |
2007
Cap |
2008
Cap |
| $250 |
$260 |
$270 |
(*A pre-determined
benefit amount which is payable regardless of the amount of expenses incurred).
A Non-forfeiture
Benefit provides protection if you cancel your
coverage for a period of time that it would take to exhaust the benefits value
for long term care needs. Non-forfeiture provides limited benefits, typically
based on the amount of time you’ve had the coverage and the amount of premium
payments you’ve paid.
Coordination
with Medicare:
All tax qualified
policies coordinate with Medicare. This means that if Medicare pays
for services, the insured can not receive payment for the same services
from their LTC policy. Additionally, benefits from their LTC policy can be used
as “co-insurance” or to pay Medicare deductibles. It is now a federal
offense to consciously commit Medicare fraud and if convicted, the offender is
subject to a prison sentence.
California Medi-Cal - Resource Limits & Other Details for - 2008:
Spousal Impoverishment
Limits - Community Resource Allowance (CRA): $104,000.00
Minimum Monthly Maintenance Needs Allowance (MMMNA): $2,541
The Average Daily Private Pay Rate (ADPRR) for Nursing Facility Care is: $210
California
Partnership Policies:
The minimum Daily Benefit for CA Partnership LTC
Policies is equal to 70% of the above ADPRR rate or $150, with 70% of this amount
for Residential Care & Assisted Living Benefits.
__________
Please contact us directly for a personalized proposal and rate quote as Long
Term Care Insurance plans, whether private or through the California
Partnership for Long Term Care, are too complex to be discussed and quoted
over the Internet: 800.482.5347
(0507242A/010207/050308)
Contact Us
Today! Phone: 1.800.482.5347 /
www.LeagueFinancial.com
/ Info@LeagueFinancial.com
