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September 19, 2023

Qualifying for Long-Term Care Insurance

The Importance of Discussing LTCI with Clients Before It’s Too Late

Don Levin

The PDF in which this article appears can be found at BIFOCAL Vol. 45, Issue 1. 

When they hear the term long-term care, most people think of a nursing home—a place most want to avoid. The reality is most long-term care takes place in the home, allowing individuals to stay where they are most comfortable. Long-term care insurance (LTCI) makes it a lot easier to receive professional care at home, however, the key is to purchase LTCI before it’s too late.  Clients need to view long-term care as an event to plan for, rather than a place to avoid. Planning ahead for long-term care offers more options for future care and helps clients avoid depleting their life savings or exhausting loved ones.

Paying for Long-Term Care

After Medicare and Medicaid were first established, additional amendments to the Social Security Act in 1974 set standards for long term care facilities and increased the cost of inpatient care. Medicare pays for a very limited amount of long-term care; Medicaid became the payor of last resort when families had spent through their life savings.  Many insurance companies launched private long-term care insurance products, providing individuals the option to mitigate the risk of paying for long-term care.

Long-term care insurance has been around for almost 50 years, and the risk of needing care only continues to grow. Only 10% of the general population has LTCI. As a result, Medicaid remains the top payer of long-term care services in the U.S.—currently standing at 42.1%.

In order to qualify for Medicaid, individuals must meet strict requirements. For example, an individual must spend down their assets to a state-specific limitation—typically $2,000. (If the applicant is married, their healthy spouse can retain a separate amount that varies by state but is no more than $148,620 in 2023.) Applicants cannot simply give away their assets to meet these requirements. To prevent this, Medicaid enforces a lookback period of 60 months and penalizes applicants for disposing of assets during this period.

Qualifying for Long-Term Care Insurance

As part of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the federal government began mandating certain features and benefits for traditional long-term care insurance policies. For instance, the tax-qualification of these plans allowed policyholders to deduct the cost of the premium based on annual attained age ranges. Additionally, traditional LTCI implemented benefit qualification factors based on basic triggers, such as requiring assistance with at least two activities of daily living (ADLs) or evidence of cognitive impairment.

ADLs include transferring, bathing, dressing, toileting, and eating. Organic cognitive impairment includes chronic conditions such as Alzheimer’s disease, dementia, Lewy Body Dementia (LBD), and Parkinson’s disease. Non-organic cognitive impairment may be caused by a traumatic brain injury (TBI) sustained during an accident or injury, but it may also include cases of depression and other behavior-related conditions that diminish an individual’s ability to care for themselves.

Like other types of insurance, LTCI is designed to alleviate risk for the policyholder and their loved ones. Unlike other forms of insurance, however, LTCI is rigorously underwritten based on the applicant’s current health and health history and is priced based on attained age. Therefore, the older the applicant, the more expensive their premium. Additionally, the less healthy the client, the more likely they are to be declined coverage.

For many years, insurance carriers collected family health history as part of the LTCI application process for anecdotal purposes only. Now, however, most carriers utilize this information when considering the insurability of an applicant. Overall, applicants aged 40 to 45 have about a 12.4% chance of being declined coverage, and that risk jumps to 47.2% for those aged 70 to 74.

Since individuals can only qualify for long-term care insurance when they’re healthy, it can be difficult for some to determine whether they are a good candidate. In general, individuals who meet the following criteria have a higher likelihood of qualifying for LTCI:

  • Have never been prescribed a handicap sticker
  • Do not require help with any activities of daily living
  • Have never been diagnosed with AIDS, HIV, or ARC disorders
  • Have never been diagnosed with or presented symptoms of Alzheimer’s disease, dementia, memory loss, multiple sclerosis, muscular dystrophy, ALS, or Parkinson’s disease
  • Are capable of walking for blocks or climbing two flights of stairs

When applying for long-term care insurance, the applicant is first interviewed by an LTCI professional, who will ask them questions about their personal health, finances, family health history, and what they want the policy to cover. The LTCI professional will then design a policy to fit the applicant’s specific situation, including budgetary considerations. In some cases, especially when there’s age or health concerns, the insurance carrier may request the applicant’s medical records. After the completed application is submitted, the underwriting process begins. This process typically lasts four to eight weeks, depending on how quickly doctors’ offices respond to requests for medical records.

After the policy is issued, the next step is qualifying for benefits. For LTCI benefits to begin, basic triggers include a doctor’s diagnosis of cognitive impairment or certification that the policyholder requires assistance with at least two activities of daily living for a period of at least ninety days. LTCI funds are typically available either as reimbursement or cash indemnity after the policyholder qualifies for benefits.

The Benefits of Private LTCI

According to the majority of LTCI policyholders, the greatest benefit to owning private long-term care insurance is peace of mind.  More tangibly, LTCI policyholders are able to choose where they receive care.  If care in a skilled nursing facility is required, more placement options are often available to private-pay patients compared to when Medicaid coverage is needed.  Medicaid primarily covers skilled nursing facilities with a patchwork of waiver programs for community-based care. LTCI can be used for assisted living facilities as well as at-home care. Since most LTCI claimants desire to receive care at home, it could be argued that this is the greatest benefit available to policyholders. At-home care options allow individuals to remain in comfortable, familiar surroundings near their loved ones.

Another benefit of at-home care is that unpaid family caregivers can assume the role of care managers and be relieved of some of the heavy caregiving burden. In 2021, family caregivers provided an estimated equivalent of $600 billion worth of unpaid care across the U.S. Unpaid caregivers provide this care often to their own detriment in terms of personal health, professional advancement, loss of earnings, and a negative impact on familial relationships.  

Discussing Long-Term Care Insurance with Clients

Since LTCI has such a stringent underwriting process, it is important to consider buying long before it is needed. Unfortunately, most individuals believe they will never require professional care, despite the statistics that prove otherwise. So, what motivates individuals to purchase long-term care insurance? The most common reasons include:

  • Avoid being a burden on their loved ones
  • Safeguard their assets
  • Access high-quality medical care
  • Maintain independence and decision-making
  • Avoid Medicaid
  • Peace of mind

LTCI has new forms that make it more attractive to many consumers. Often labeled as asset-based, hybrid, combination, or linked benefit policies, these products are typically built on annuities or life insurance policies.

Asset-based LTCI offers more than just long-term care benefits—it also offers a death benefit in the event the policyholder does not use the LTCI benefits. Therefore, the benefit is paid whether or not the policyholder needs long-term care. Any amount of the death benefit, which is typically more than premiums paid, that is not used for long-term care while the policyholder is living is subsequently paid to their beneficiaries tax-free. For even more flexibility, asset-based policies also offer liquidity, which allows the policyholder to redeem the policy’s cash value at will. Asset-based LTCI offers the ultimate flexibility when it comes to planning for long-term care.

There is a level of resistance to purchasing LTCI. In many cases, clients simply need to have a discussion about long-term care insurance and its benefits. Then, they can make an informed decision. Whether they want to mitigate risk or protect their financial future, the wide range of LTCI coverage available today allows each individual client to choose a policy tailored to their specific needs, desires, and financial circumstances.

Estate planning and elder law attorneys should include a discussion on LTCI insurance with their clients. It is part of the spectrum of planning options.

Addressing Increased Long-Term Care Insurance Premiums

Probably everyone has heard about increases in premiums on LTCI. Why were these increases necessary, and why do they continue to occur? In short, the applicable pricing utilized by insurance carriers and their actuarial departments were based on assumptions that later proved to be faulty. Most notably, the assumption that there would be a 5% (0.05) lapse rate of policies, which later proved to be only 1/10th of that projection (approximately 0.005). The second erroneous assumption related to the average length of an LTCI claim as well as the age at which beneficiaries would trigger their benefits.

Traditionally, consumers have been protected by federal guidelines provided to each state’s Department of Insurance regarding stringent requirements that allow only the sale of high-quality LTCI products. There are three primary areas of state regulation:

  • Prior approval of policies based on policy readability, standardization of policy terms, and minimum benefit requirements
  • Monitoring marketing and business practices to protect consumers from unfair or deceptive practices under unfair trade practice regulations
  • Premium rate review/control and efforts to ensure solvency of companies selling policies

In regard to the last requirement, insurance companies are required to have reserves to meet an expected premium-to-loss ratio of at least 60% for individual policies. Traditionally, premium-to-loss rations have been used with health and accident policies as a benchmark of a reasonable relationships between premiums and benefits paid.

Nearly all states have instituted some form of the model act of regulation approved by the National Association of Insurance Commissioners (NAIC) and require insurance carriers to donate a percentage of premiums to the State Insurance Guaranty Association that guards against the insolvency of individual policies even in the event of a carrier leaving the industry. To date, policyholders of only two carriers—Conseco (2009, 140,000 policyholders) and Penn Treaty (2018, 76,000 policyholders)—have been forced to turn to their state for assistance.

When faced with increased premiums, there are changes that can be made to the policy that may help alleviate some of this additional cost while still providing meaningful benefits in the event of long-term care. Considerations include:

  • Benefit Multiplier: Consider dropping from an unlimited/lifetime benefit to a set benefit period. For someone who was in their 60s when they bought an unlimited plan and is now in their 80s, this may be a natural pivot point.
  • Daily/Monthly Benefit: Shift from a catastrophic nursing home scenario to a more modest plan that addresses the costs associated with home health care and/or an assisted living facility.
  • Inflation Protection: Reducing the inflation protection from five percent to three percent (or perhaps to zero if the client is older and the plan has grown accordingly) may soften the blow and even eliminate a rate increase.
  • Modal Premium: Shift from annual to semi-annual payments.

Personally, my wife and I have been owners of a shared LTCI plan that we purchased in 1999, and it is considered part of the legacy bloc of business of one of the largest carriers in the industry. For the first eight years, we had no increases. Since that time, we have undergone no less than eight or nine increases. However, if we were to purchase the same policy today, it would cost significantly more than our current premiums. The ancillary tax relief for paying these premiums is also a plus, but our concern is mostly to insure against a future risk of long-term care and maintain as much control as we can over how and where we receive care. When it comes to LTCI policyholders who have experienced increases and are considering letting their policies lapse, they must simply ask themselves if the same is true for them.


The U.S. population is living longer than ever before, thus increasing the need for expensive long-term care services. In order to avoid the need for Medicaid and to take advantage of additional flexibility and care options, individuals can privately insure against this risk by purchasing long-term care insurance. With the availability of both traditional and asset-based long-term care insurance policies, consumers can choose a LTCI plan suited to their specific situation.

Since individuals can only qualify for LTCI coverage while they’re still relatively young and healthy, it is imperative to discuss long-term care insurance with clients before it’s too late. For those who encounter clients who already have LTCI coverage and are experiencing increases in annual premiums, it is imperative that they re-examine the reasons they initially purchased the coverage and establish what the current level of benefits have grown to and what a new policy, if available, would cost in terms of attained age and benefit growth.

    Don Levin, J.D., MPA, CLF, CSA, LTCP, CLTC

    Strategic Relations Director

    Don Levin, J.D., MPA, CLF, CSA, LTCP, CLTC, is the Strategic Relations Director for Krause Financial following its acquisition of USA-LTC. Krause Financial is an attorney-led firm that provides asset preservation solutions for estate planning and elder law attorneys and their clients planning for long-term care.

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