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 hasAs a result, Medicaid remains the top payer of long-term care services in the U.S.—currently standing at
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
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 theUnpaid 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.