An important component of life and financial planning is the question of long-term care. Although usually associated with the elderly, the need for long term care can happen at any age. A serious accident, contracting a debilitating chronic illness or being born with certain types of disabilities can require long-term care at any age and for varying lengths of time. Where and how an individual receives long term care, the quality of service and how to pay for the care, are considerations that can leave a consumer bewildered by the variables that need to be considered.
Long-term care (LTC) refers to a broad range of medical, personal, and social services provided to people outside the hospital who are unable to care for themselves over a relatively long period of time. Although most people think long-term care refers to care in a nursing home, care can also be provided in a number of other venues.
Individuals may need LTC due to a chronic illness, serious accident, disability, terminal illness or frailty that leaves an individual incapable of performing the activities of daily living as described below.
LTC can be divided into two broad categories of care. The first is health care which, for insurance purposes, is considered skilled care. The second is personal care (also called custodial care) which is considered non-skilled care.
Generally skilled care refers to medical care ordered by a physician and provided under the supervision of licensed medical personnel such as registered nurse services, occupational, physical or speech therapists.
Non-skilled care is the personal care, physical assistance, prompting, and/or supervision of the performance of the Activities of Daily Living (ADL). These activities are bathing, dressing, eating, maintaining continence, toileting, and transferring between bed and chair. Taking medication and ambulating may sometimes be considered an ADL. Non-skilled care may also include Instrumental Activities of Daily Living (IADL) which include such activities as cooking, cleaning, chore services and shopping.
Long-term care can be provided at a wide range of care facilities and/or from different people and professionals. These reflect the many care needs of different individuals and families. The providers meeting these needs may include but are not limited to the following:
|At Care Facilities||From Professionals & Others for Hire|
|nursing homes||respite care for primary caregivers|
|assisted living facilities||chore workers|
|adult residential care centers||licensed health care aid|
|home health agencies||family members|
|adult family homes||professional case managers|
|hospital sub-acute units|
|continuing care retirement communities|
|adult day health care|
The cost of long term care depends upon the type and quality of care, and the geographical area where it is received. Cost varies around the country.
Note: The above link is to the Federal Employees Long Term Care Insurance webpage. It gives an estimate of the cost of LTC in different areas of the nation but the insurance specific information is for federal employees only.
The Senior Information and Assistance has detailed lists of the long term care facilities in King County.
Medicare, medigap policies, health maintenance organization, traditional health insurance and retirement health insurance plans generally pay for only a small fraction of LTC costs. For example, Medicare will pay for a limited stay in a nursing home under very specific conditions. These conditions require that a physician certifies that the patient needs skilled nursing or rehabilitative services on a daily basis. The patient must go to a Medicare-participating facility for skilled care within 30 days after release from the hospital for the same or related condition for which the patient was hospitalized.
The non-skilled services are almost always the larger portion of all LTC costs. These are paid for by the patient and/or family using one or a combination of the following:
Long Term Care Insurance (LTCI), is an insurance policy that is specifically geared to cover some or all of the costs of long term care outside of the hospital. The decision about whether or not to purchase LTCI is an important aspect of Financial Life Planning. LTCI may protect an individual from a large financial loss and may assure better choices about the type and quality of services received if long-term care is necessary.
An LTC insurance policy may be a good planning decision for you if you:
An LTC insurance policy may not be appropriate for you if you:
Review the policy to see what types of long-term care it will cover. Consider the different types of long term care listed above when comparing options. The most comprehensive or integrated coverage offers benefits for a larger range of options including nursing home, assisted living, home health, and community based options.
Examine how much the policy will cover per day, per type of care and for how long the policy will pay. These are variables that must be considered, depending upon one's age, health, and how much of a risk you are willing to assume.
When comparison shopping, you should examine the different exclusion clauses. These should be specifically identified in the long term care policy. Different states have different regulations regarding exclusions. Most policies cover care anywhere in the USA, but only a few extend coverage outside of country.
Policies may have terms and conditions, benefit triggers, that must be met before the policyholder is able to receive benefits. Only two benefit triggers are currently allowed in the state of Washington:
Be sure to read the definition of "substantial assistance." Some policies may require hands-on assistance which means the individual is much more debilitated than a person needing only standby assistance.
Note: Federally “tax-qualified” plans that provide for special tax treatment under the 1996 Health Insurance Portability and Accountability Act (HIPPA) may contain stricter triggers. They are designed to guarantee that the benefits received from a policy will not be subject to federal taxes but there have not yet been any court rulings. It would be advisable to consult with an income tax expert.
A policy elimination period is the amount of time that needs to pass, after a person begins receiving long-term services before the policy begins to pay. For example, if a policy has an elimination period of 60 days, then you are financially responsible for paying for care received during the first 60 days. The LTC policy will begin its agreed upon amount of payment for that type of long-term care on the 61st day. If you have an elimination period, be sure that the reduction in the cost of the insurance is justified by the potential “out of pocket” expense.
Different states have different regulations so it is important to review the regulations of the state in which the LTC policy is being purchased. In Washington State, no insurer can refuse to renew any long-term care contract or coverage issue after January 1, 1988, except for nonpayment of premium.
An inflation protection option will increase the policy’s benefit amount annually to help cover the rate of market inflation. The riders may or may not keep up with the actual cost increases over the life of a policy, but it does assist with the inevitable rise in cost of providing long-term care. It is critical to understand the differences in what is referred to as “inflation protection” in the industry. In Washington, you must be offered the option to purchase an optimal “automatic compound inflation” rider. With this option, your coverage will increase by 5% compounded, each year, without a corresponding increase in the cost of the insurance. Some companies also offer 2% or 3% and may also offer “simple” or “level” inflation at a lower price. Another form of inflation protection that may be offered is “periodic inflation” or “guaranteed purchase option (GPO).” LTCI premiums are based on your age at the time of purchase. GPO’s offer the opportunity to purchase additional coverage each year but the new premium may be based upon your current age, not the age when you originally took out the policy. Thus the additional premium required to keep up with inflation may be prohibitive.
Work with an agent who knows about Long-Term Care Insurance. There are different levels of training that agents receive on long term care. Ask any potential agent about the depth of training they have received and how many years of experience he/she has with LTCI. Some agents only represent one company and other agents are brokers for different companies. Compare policies.
The financial stability of any commercial insurance company is best learned through Standard and Poor’s or A.M. Best. The A.M. Best rating should be A (Excellent) or better. Ask how long the company has been marketing LTC insurance. A company with ten or more years marketing LTCI is desirable.
LTCI plans offered through employers may or may not be the best option for any particular individual’s needs. Shop and compare. The advantage to a group plan is the underwriting may be less rigorous.
As stated in sections above, Washington State has different regulations than other states. Generally speaking Washington has strong consumer protection.
In Washington, LTCI premiums rates must be filed and approved by the Washington State Office of the Insurance Commissioner. Premium rates cannot be increased on a policy by policy basis. They can only be increased if justified and are raised for all policy holders within a “class.”
All 50 states have volunteer programs that assist seniors with questions about health insurance, called State Health Insurance Counseling & Assistance Programs.
Note: some state programs train their volunteers in LTCI and others do not.
In Washington the SHIP program serves all ages, not just seniors. It is called the SHIBA (Statewide Health Insurance Benefits Advisors) HelpLine. SHIBA HelpLine is a statewide network of trained volunteers that are available to educate, advise and advocate for consumers about health insurance and health care access issues. Some SHIBA volunteers are trained and experienced in Long-Term Care. These volunteer counselors can meet in person or over the phone to assist consumers with questions. The statewide phone number is 1-800-397-4422.
The state of Washington is one of the few states that regulate companies involved in viatical settlements. To learn more, read the Viatical Settlements section on page 17 of the Consumer's Guide to Financing Long-Term Care and Other Options published by Office of the Insurance Commissioner.
A viatical settlement is simply the sale of an existing life insurance policy by a terminally ill person (viator) to another party. The amount received by the viator is a discount to the face amount and is negotiated between the viatical settlement company (purchaser) and the viator or by a broker representing the viator. The purchaser then collects the full amount of the policy after the terminally ill person is deceased.