Website SurveyA Shopper’s Guide to Long-Term Care Insurance(March 2009) What is Long-Term Care?Long-term care is a type of personal care service you may need if you become unable to care for yourself because of a prolonged physical illness, a disability, or a cognitive impairment, such as Alzheimer’s disease. Long-term care is different from traditional medical care that attempts to treat or cure illnesses. Long-term care helps you maintain your current lifestyle, but it may not improve or correct your medical problems. Care may be provided at home or in a hospice, adult day care center, nursing home, or assisted living facility. If you have a physical illness or disability, you may need hands-on or stand-by assistance with your normal daily activities, such as eating or getting around. If you are cognitively impaired, you may need supervision, protection, or reminders to take medicines or perform other activities. Long-term care may also include care management services to evaluate your overall needs. There are different types of long-term care services. “Skilled care” is care for medical conditions that require medical personnel, such as a registered nurse or a professional therapist. This type of care is usually provided in a nursing home or a similar facility and requires a physician-prescribed plan of care. “Personal care” (sometimes called “custodial care”) helps you perform activities of daily living (ADLs). ADLs include bathing, eating, dressing, toileting, continence, and transferring. Personal care is less involved than skilled care, and it may be given in many settings. The Cost of Long-Term CareLong-term care can be expensive. The cost depends on the amount and type of care you need and where you receive it. For instance, daily nursing home benefits may range from $50 to $250 per day. The average cost for a day of nursing home care could be $150 to $200, depending on where you live, the level of services you need, and other factors. To determine how much coverage you might need, call local nursing facilities, home health care agencies, and adult day care facilities and ask about their cost for daily care. Keep in mind that costs will likely increase as you get older. Assisted living can cost $900 to $3,000 per month in Texas, with costs even greater in urban areas and for upscale facilities. Home health care costs can vary greatly, depending on where you live and the level of care you need. Skilled care provided by a nurse is more expensive than care provided by a home health aide. Round-the-clock care is more expensive than periodic visits. Paying for Long-Term CarePeople pay for long-term care in a variety of ways. Medicaid pays most long-term care expenses for eligible individuals with low incomes. Medicaid is a state and federal assistance program. To qualify for Medicaid, you must meet state and federal guidelines for income and assets. Many people pay for long-term care out of their own pockets until they become eligible for Medicaid. To learn more about Medicaid eligibility, call your local Area Agency on Aging or Texas Health and Human Services Commission office. A list of phone numbers is included on the inside front cover of this publication. Medicare may pay some long-term care costs. Medicare is a federal program that pays for health care for people over age 65 and for people under age 65 with disabilities. It covers the cost of some skilled care in approved nursing homes or in your home in certain situations. Medicare also might cover some custodial care in your home if you are receiving skilled care. If you don’t qualify for Medicaid or Medicare, you’ll either have to pay your long-term care expenses out of pocket, with a long-term care insurance policy, or by some alternative means. Types of Long-Term Care Insurance PoliciesTexas Long-Term Care Partnership Program PoliciesTexas created the Long-Term Care Partnership Program as an incentive for Texans to plan for their long-term care needs. The partnership is a joint effort between private insurers and the state. Insurers must follow state and federal guidelines to sell partnership policies. Partnership policies have an asset disregard benefit that is useful if you deplete your insurance benefits and need to apply for Medicaid. Partnership policies, however, do not guarantee you’ll be accepted into Medicaid. You’ll still have to meet income, medical, and other eligibility criteria. With the asset disregard benefit, every dollar of long-term care benefits your partnership policy pays will equal one dollar of countable assets that will be disregarded to determine if you’re eligible for Medicaid. This means you can retain assets above the normal limit and you won’t need to “spend down” your assets to qualify for Medicaid. In addition, the assets that were disregarded in the Medicaid eligibility process will not be subject to Medicaid liens and recoveries after you die. In addition to asset disregard, long-term care partnership policies must also include the following benefits: Inflation protection. Inflation protection helps your policy continue to pay long-term care benefits as costs rise. Partnership policies provide varying levels of inflation protection based on your age:
Tax qualification. You may be able to deduct part of the premium from your taxes as a medical expense, and policy benefits are generally not taxable as income. If you’re considering a long-term care policy, ask your insurance company or agent if a partnership policy meets your needs. If you purchased a long-term care policy on or after February 8, 2006, ask your agent about exchanging your policy for a partnership policy. The insurance company is required to certify that each agent who sells partnership policies or certificates complies with the training requirements. Note: Partnership policies will be accompanied by a disclosure statement identifying the policy as a long-term care partnership policy. Be aware that if you make any changes to your partnership policy, you could lose your partnership policy status. Your agent can tell you what changes will result in a status change. List of companies selling partnership program policies in Texas Tax-Qualified Long-Term Care PoliciesYou may be able to deduct part of the premium for a tax-qualified long-term care policy from your taxes as a medical expense. In addition, qualified long-term care policy benefits are generally not taxable as income, subject to an annual dollar cap in the case of an indemnity policy. Policies sold on or after January 1, 1997, may be either tax-qualified or non-tax-qualified. All policies sold before January 1, l997, are automatically tax-qualified. To determine whether your policy is tax-qualified, look for a statement on your policy similar to this: “This policy is intended to be a qualified long-term care insurance contract as defined by the Internal Revenue Code of 1986, Section 7702B(b).” Consult with an attorney, accountant, or tax advisor about the tax implications of purchasing long-term care insurance. To claim a tax deduction for long-term care premium payments, your out-of-pocket medical expenses, including long-term care premiums, must be more than 7.5 percent of your adjusted gross income. The maximum amount of long-term care premium you can deduct depends on your age at the end of each tax year. Maximum Long-Term Care Premium Deductions, 2009*
* Maximum deduction amounts change annually Non-Tax-Qualified Long-Term Care PoliciesPremiums for non-tax-qualified long-term care policies are not tax deductible. In addition, you might have to pay taxes on any benefits the policy pays above expenses incurred. To receive benefits from a non-tax-qualified policy, you must have a cognitive impairment, such as Alzheimer’s or a similar disease, or be unable to perform two of six ADLs. However, some policies may offer more favorable benefit eligibility requirements. For example, a policy might require only a medical necessity and the inability to perform one of six or two of seven ADLs. Comparing Tax-Qualified and Non-Tax-Qualified Policies
Qualifying for CoverageCompanies selling long-term care insurance “underwrite” their coverage. That means they look at your current health status and health history and will issue a policy only if you meet their established guidelines. Some companies ask only a few questions about your health. Others may ask for more details, examine your medical records, ask for a health statement from your doctor, or require you to take a medical exam. Answer all health questions truthfully and thoroughly. If a company later learns you did not fully disclose your health status on the application, it could cancel your policy or refuse to pay your claim. When you apply for insurance, the insurance agent will complete a personal worksheet with you to determine if a long-term care policy is right for you. Answer all questions truthfully and thoroughly. The agent will also give you the company’s long-term care premium rate increase history for the past 10 years. An insurance company can increase your premium rates in the future, but only if it increases the rates for all policies in the same class. In addition, you’ll receive an explanation of the nonforfeiture and contingent nonforfeiture benefit upon lapse. Replacing a PolicyIf you’re considering replacing a long-term care policy, first determine how your current policy differs from the new one. Your current policy might have benefit limitations that a newer policy won’t have. For instance, policies issued prior to 1992 could include the following limitations:
An older policy also might not include some of the benefits that companies must now offer. Compare all of your current policy’s benefits to any new policy you are considering. Remember, that a new policy with better benefits may cost significantly more than your current policy. In addition, if you bought your current policy before January 1, 1997, it is tax qualified. A new policy might not be. Make sure you tell the agent if you’re buying a long-term care policy to replace another one. The agent must provide you with a notice explaining how replacing the policy will affect you. If you decide to replace your policy, don’t cancel your current policy until the new one is in effect to avoid any gaps in coverage. Ways to Buy Long-Term Care InsurancePrivate insurance companies sell long-term care insurance. You can buy an individual policy, or you can buy a group policy through an employer or through membership in an association. You can also get long-term care benefits through a life insurance policy. Individual Policies Group Policies An employer’s group policy may be similar to what you could buy with an individual policy. An advantage of a group policy for active employees is that you may not have to meet any medical requirements or there may be a relaxed screening process. Many employers also let retirees, spouses, parents, and parents-in-law apply for this coverage. Relatives must usually pass the company’s medical screening to qualify for coverage and must pay the premium. Generally, insurance companies must let you keep your coverage after your employment ends or your employer cancels the group plan. In most cases, you will be able to continue your coverage or convert it to another long-term care insurance policy. Your premiums and benefits may change, however. Federal and State Government Policies If you or a family member is a state or public employee or retiree, you may be able to buy long-term care insurance under a state government program. Association Policies How Long-Term Care Insurance WorksLong-term care insurance policies are not standardized. Companies sell policies that combine benefits and coverage in different ways. Elimination Period Some policies have only one elimination period, while others require an elimination period for each new “period of care.” Be sure to check how the elimination period works before buying a policy. Benefit Period How Benefits Are Paid When the expense-incurred method is used, the insurance company must decide if you are eligible for benefits and if your claim is for eligible services. Your policy or certificate will pay benefits only when you receive eligible services. Once you have incurred an expense for an eligible service, benefits are paid either to you or your provider. The coverage will pay for the lesser of the expense you incurred or the dollar limit of your policy. Most policies bought today pay benefits using the expense incurred method. When the indemnity method is used, the benefit is a set dollar amount. The benefit is not based on the specific services received or on the expenses incurred. The insurance company only needs to decide if you are eligible for benefits and if the services you are receiving are covered by the policy. Once the company decides you are eligible and you are receiving eligible long term care services, the insurance company will pay that set amount directly to you up to the limit of the policy. When the disability method is used, you are only required to meet the benefit eligibility criteria. Once you do, you receive your full daily benefit, even if you are not receiving any long term care services. Pooled Benefits and Joint Policies One type of pooled benefit covers more than one person, such as a husband and wife, two partners, or two or more related adults. This type of benefit is sometimes called a “joint policy” or a “joint benefit.” This pooled benefit usually has a total benefit that applies to all of the individuals covered by the policy. If one of the covered individuals collects benefits, that amount is subtracted from the total policy benefit. For example, if a husband and wife have a policy that provides $150,000 in total long-term care benefits, and the husband uses $25,000 in benefits from the policy, $125,000 would be left to pay benefits for either the husband or the wife, or both. Another kind of “pooled benefit” provides a total dollar amount that can be used for various long-term care services. These policies pay a daily, weekly, or monthly dollar limit for one or more covered services. You can combine benefits in ways that best meet your needs. This gives you more control over how your benefits are spent. For example, you may choose to combine the benefit for home care with the benefit for community-based care instead of using the nursing home benefit. Some policies provide both types of pooled benefits. Other policies provide one or the other. Services Covered by Long-Term Care InsuranceLong-term care insurance policies may pay for several types of care, including:
Talk to your agent to design a policy that meets your needs. You might not need a policy that includes all of the above services. Coverage Amounts Maximum Benefit Limit Most nursing home stays are short, but illnesses that last several years could mean long nursing home stays. You will have to decide if you want protection for long stays. Policies with longer maximum benefit periods cost more. Read your long-term care insurance policy carefully to learn the length of the benefit period. Daily, Weekly, and Monthly Benefit Limits When you buy a policy, insurance companies let you choose a benefit amount (usually $50 to $350 a day, $350 to $2,450 a week, or $1,500 to $10,500 a month) for care in a nursing home. If a policy covers home care, the benefit is usually a portion of the benefit for nursing home care (for example, 50 percent or 75 percent). However, a growing number of policies pay the same benefit amounts for care at home and in a facility. You can often select the home care benefit amount that you prefer. It is important to know how much skilled nursing homes, assisted living facilities, and home health care agencies charge for their services before you choose the benefit amounts. Check the facilities in the area you think you may receive care. Services Not Covered by Long-Term Care InsuranceLong-term care policies may exclude coverage for some conditions, either completely or for a limited time. Policies typically exclude:
Standard Policy Exclusions Texas long-term care policies may exclude coverage for conditions resulting from
In addition, long-term care policies won’t pay for care already paid for by Medicare (with the exception of expenses that Medicare pays as a secondary payor) or any other government program, except Medicaid. Long term care policies may not provide benefits for services or items paid for by another long-term care or health insurance policy. The insurance company cannot deny a claim because services were provided in another state other than the state of issue. Optional FeaturesCompanies must offer the following optional features for an additional premium: Inflation Protection Make a careful decision not to sacrifice necessary benefits in the future for a lower premium today. If you buy a partnership policy and are under 76 years old, you must purchase and maintain inflation protection to ensure you won’t lose your policy’s partnership status. Policies must offer inflation protection in at least one of the following ways:
The company must give you a graphic comparison of benefits on a policy with and without inflation protection over a 20-year period. If you don’t want inflation protection, you must reject it in writing. Nonforfeiture Benefit Generally, a nonforfeiture benefit will either pay up to the total amount of all premiums paid or 30 times the daily nursing home benefit at the time the policy lapsed, whichever is greater. A nonforfeiture benefit can significantly increase a policy’s premium. If you decide not to buy a nonforfeiture benefit, you must reject the offer in writing and the company must explain its “contingent nonforfeiture benefit.” The company must also offer a contingent nonforfeiture benefit upon lapse each time it raises your premium substantially. The benefit allows you to either choose a reduced benefit amount to prevent premium increases or to convert your policy to a paid-up status. If no election is made within 120 days of the due date of the premium increase, the election can be converted to a paid-up status. The paid-up status will be the greater of either the total sum of all premiums paid for your policy or 30 times the daily nursing home benefit at the time the policy lapsed. Companies must notify policyholders at least 45 days before premiums with rate increases are due. Individuals who purchase limited premium payment policies that are paid in full within a certain time are also entitled to a contingent nonforfeiture benefit with different qualifying conditions. Talk to your agent about these conditions. Optional Benefits Companies May OfferWaiver of premium Refund of premium Restoration of benefits Bed reservation Long-Term Care RatesInsurance companies determine long-term care premiums based on several factors. Some of these include:
Premium Increases View TDI's Long-Term Insurance Care Rate Guide to view rates for companies selling long-term care insurance. Policy Renewals and CancellationsLong-term care policies are “guaranteed renewable.” This means the company must renew your policy each year unless you misrepresented your health status in your application, failed to pay your premiums, or exhausted your benefits. You can cancel your policy at any time by providing notice to the insurance company. The company must return any unearned premium to you. Unearned premium does not apply to a single premium policy or to policies that will be paid in full in one to four years. Policies that will be paid in full in five to 10 years are subject to a return of premium as described in the policy. After a policy has been in force for two years, a company cannot cancel it or refuse to pay claims because of misstatements in the application, unless the misstatements are fraudulent. If a policy has been in force less than two years, a company can deny an otherwise valid claim or cancel the policy if it can prove misrepresentation or intent to deceive. When you buy a long-term care policy, the company will ask you to designate another person who will also receive notice if your policy is about to be canceled because you have not paid the premium. The other person can be a relative, friend, or a professional, such as your lawyer or accountant. Although the company is required to ask, you do not have to designate anyone to receive this notice. The designated person will not be responsible for paying the premium and will only be notified if the payment is more than 30 days past due. A company may not cancel a policy for nonpayment of premium unless the premium has gone unpaid for at least 65 days past the due date. The company must wait 30 days after the due date before notifying you and any person you designated that it will cancel the policy for nonpayment. Once the company has mailed the notice, it must allow five days for you to receive it. From that date, the company must give you 30 days to pay the premium. You may want to consider paying your long-term care policy premiums by automatic bank draft. However, you’ll have to notify the company and the bank in writing to stop the withdrawals if you no longer want the policy or you want to change the method of payment. If the company cancels your policy for nonpayment, it must reinstate the policy upon receiving proof within approximately five months of the cancellation date that you failed to pay premiums because of mental or physical impairment. The company must also pay any claims for eligible services. You will have to pay back premium to the date the policy lapsed. Deciding if Long-Term Care Insurance is Right for YouLong-term care insurance can help protect your assets against the high cost of extended long-term care. However, long-term care insurance usually only makes sense if you have significant assets to protect other than your home, car, and a small amount of cash. Long-term care insurance is probably not a good idea if you have trouble stretching your income to pay for utilities, food, or medicine. If you don’t have significant assets, you may have to pay for your care out of pocket until you exhaust, or “spend down,” your assets enough to qualify for Medicaid. To determine whether long-term care insurance is right for you, consider your personal risk factors, assets, income, costs, and available alternatives. You can also use the Long-Term Care Insurance Suitability Worksheet to help you decide. Agents are required to provide you with a worksheet and list of “things you should know before you buy” to help you decide if long-term care insurance is right for you. Personal ‘Risk Factors’The following factors might affect your likelihood of needing long-term care:
Financial ConsiderationsLong-term care is typically less expensive if you purchase it when you’re younger. You may want to seek help from a trusted financial advisor to decide if it meets your needs. Consider the following questions about your personal financial situation:
If you decide you want to buy a policy, you can use the Long-Term Care Insurance Policy Comparison Worksheet to compare companies and coverages before you purchase a policy. Alternatives to Long-Term Care InsuranceHere are some other methods to help you pay for long-term care services in lieu of long-term care insurance: Life Insurance There are also some life insurance policies that offer long-term care insurance as a rider. If your policy includes any of these options, you may be able to pay for long-term care with the proceeds. Annuity Contracts Viatical and Life Settlements If you sell your policy, the buyer becomes the policy owner, pays the premiums, and collects the policy’s benefit upon your death. Make sure you check with your insurance company about any cash value you may have in your policy to determine if the cash value is more beneficial to you than selling the policy. To get a list of registered viatical or life settlement companies and brokers, call the Texas Department of Insurance (TDI) Consumer Help Line or visit our website
Reverse Mortgages For More Information or AssistanceFor answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
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The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company. Helpful Telephone Numbers and WebsitesMedicare (questions about Medicare coverage, long-term care planning tools, and nursing home finder comparison tool)
Medicare and TrailBlazer Health Enterprises (questions about Medicare Part A and Part B coverage or claims and requests for Medicare participating provider directory)
“Own Your Future” Texas Long-Term Care Insurance Partnership Program (state initiative to increase awareness of the importance of long-term care planning) “Own Your Future” National Clearinghouse for Long-Term Care Information (U.S. Department of Health and Human Services)
Social Security Administration Toll-free Hot Line (questions about Medicare enrollment and eligibility and requests for the Medicare and You handbook)
Texas Department of Aging and Disability Services Information and Referral Hot Line (statewide services for seniors and locations of Area Agency on Aging offices)
Texas Department of State Health Services (questions about health facility compliance and licensure)
Texas Health and Human Services Commission’s Medicaid Hot Line (questions about Medicaid coverage)
Texas Medical Board’s Customer Service Hot Line (questions about licensing and certification of doctors and complaints about care provided in a doctor’s office)
Texas Medical Foundation Health Quality Institute Beneficiary Help Line (questions or complaints about quality of care provided to Medicare beneficiaries and requests for publications)
For more information contact: |
Texas Department of Insurance Home Page · www.tdi.state.tx.us · Consumer Helpline: 800-252-3439
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