There are many options to consider when shopping for a long term care insurance (LTCI) policy. The type of policy, how benefits are paid, amount of coverage, determination of benefit eligibility, benefit start dates, and inflation protection are some of the considerations that factor into the overall cost and function of a policy. Let’s try to simplify what these details actually mean.
Two main types of LTCI policies exist; tax qualified (sometimes just referred to as qualified), and non-tax qualified. One of the differences between these two policies is how the benefits which are paid are categorized, either as taxable income (non-qualified policy) or not as taxable income (qualified policy). Another difference is that premiums for qualified policies may be included as deductible medical expenses for federal income tax purposes. In order for a policy to be qualified, it must meet the following federal standards: be guaranteed renewable (the company must offer you the opportunity to renew the policy, no matter what your health status is. Your premiums may increase, but only if the company raises the premiums on all of the same policies in your state.), cover services which are required by chronically ill people and provided according to a plan of care prescribed by a licensed health care professional, have only limited cash surrender values, and include certain consumer protection provisions. To qualify as chronically ill, an individual must require substantial assistance from another person to perform at least two activities of daily living for at least 90 days; or if an individual requires extensive supervision to maintain health and safety due to a cognitive impairment.
LTCI benefits can be paid using three different methods. Most policies use the expense-incurred method, in which the company determines that you are eligible for benefits and the claim is for eligible services, and payment is made either to the policyholder or service provider of the lesser amount of the care expense or the dollar limit of the policy. Another method is the indemnity method, in which the benefit is a set dollar amount. Once an individual is deemed eligible for benefits and the necessary service(s) is covered by the policy, the policyholder is paid the set dollar amount up to the policy limit. The actual expense of the service is not considered for this method. A third method is the disability method, in which the policyholder must only meet the eligibility requirements to receive benefits, even if no services are being utilized. When shopping for a policy, find out which type of payment method will apply for each policy under consideration. The benefit amount of a LTCI policy is usually paid by the day, week, or month. Most policies define a total dollar amount that they will pay, called the “maximum lifetime benefit”. However, some policies will state this benefit in years instead of dollars. The cost of a policy will be affected by the amount of the maximum lifetime benefit and the length of the benefit period.
There are many choices related to the type, amount, and eligibility requirements for benefits. LTCI policies may cover more than one person or more than one type of long term care service, and are referred to as having “pooled benefits.” For example, a couple may have a single policy, and either individual may utilize part of or the entire benefit, or the benefit may be used toward a combination of services for both. A pooled benefit that pays for more than one type of service allows a person greater flexibility in how benefits are spent. The desired amount of daily, weekly, or monthly coverage for care in a facility must be decided on by the purchaser of the policy, and should be based on the cost of care in the area where the policyholder believes services may be received. The amount of coverage for home care may be the same as for care in a facility, or it may be calculated as a percentage of the benefit for facility care. Inflation protection is an option that is available to help protect against the rising costs of long term care. This option is especially important for younger people who are purchasing LTCI.
Eligibility for benefits will be based on specific criteria set forth in the policy, such as the need for assistance with certain activities of daily living (ADLs). ADLs include bathing, toileting, dressing, eating, continence, and transferring. A policy may specify the amount of assistance (hands-on or stand-by) which is required, the number of ADLs which require assistance (at least 2 of the 6), and/or which particular tasks require assistance, to determine eligibility to receive benefits. A test of cognitive function also may be used to determine benefit eligibility. The start date for payment of benefits also will vary by policy. Most policies have an “elimination period,” which is a waiting period from when services actually start to when the policy will begin to pay for them. Elimination periods can range from 0-100 days, and may be calculated based on calendar days from the first date of service, or only dates that service is actually received. Some policies may require an elimination period for every separate episode of care, while others may have one elimination period for a lifetime.
Obviously, there are many details involved in choosing a long term care insurance policy. It is important to take your time and make sure that you fully understand the different aspects of the policies you are considering. One size does not fit all when it comes to LTCI. For additional information and greater detail about the options that have been discussed in this article, a “Shopper’s Guide to Long Term Care Insurance” is available on the National Association of Insurance Commissioners’ website at www.naic.org.
Karen Kaslow, RN
Keystone Elder Law