Long-term care (LTC) insurance primarily pays for supervision or assistance with everyday tasks (such as bathing or dressing) whether at home, in a community program, in an assisted living facility (ALF) or in a nursing home. Most LTC services do not require a licensed health care professional to provide care. Some LTC policies only pay benefits for care in institutional settings such as nursing homes and assisted living facilities, while others only pay for home and community-based care such as adult day care (ADC) facilities. Comprehensive policies include benefits for all of the places listed above.
People often need LTC services after an illness or injury, such as a stroke or a broken hip, or because of a cognitive disorder, such as Alzheimer’s disease. Many people live at home with help from family members or paid caregivers and go to a nursing home only as a last resort. Others go directly to a nursing home from a hospital because of the severity of their condition. Assisted living facilities provide LTC services and often act as a bridge when a person can no longer live at home, but doesn’t need to be in a nursing home.
Planning for LTC is challenging because there are various ways to pay for this type of care and various places where you can receive it. In addition, you have no way of knowing whether you will need LTC or how long you will use it. Some people will never need LTC, some will only need it for a short period of time and others will require care for many years. Some people will be able to live at home with small amounts of assistance while others will be required to live in a nursing home. Planning to pay for LTC requires a careful review of:
- All your retirement plans
- Income: actual and expected
- Assets: actual and expected
- Expert advice from trusted financial advisor
You should include family members in your planning because your adult children may be involved when you need care. You can also consult free community legal service programs, Elder Law attorneys and certified financial planners for help and information.
If you are considering LTC insurance, you should research the best set of benefits for your needs, as well as the best company to provide those benefits. You should also consult your accountant or tax advisor to understand any tax issues that might affect you, especially if you are considering a life insurance policy or annuity with LTC benefits, or an LTC insurance policy you pay for with a large, one-time premium.
Counselors from the Health Insurance Counseling & Advocacy Program (HICAP) can help you sort through many of these issues, help you understand how these benefits work, compare the benefits and features of several policies from different companies, and help you understand when you need advice from a trusted financial advisor or other professional. To make an appointment for HICAP counseling, find your local office online or call 1-800-434-0222.
If you can’t afford LTC insurance, depending on your income and assets, you may be eligible for Medi-Cal, which can help pay for the LTC services you need.
Note: LTC insurance is not part of Medicare. While Medicare covers certain short-term care (when skilled care is provided), it does not cover most LTC. You do not need to be on Medicare to get LTC insurance.
- Ways to Buy LTC Insurance
- Types of LTC Insurance Policies
- The Partnership
- Tax Qualified (TQ) & Non-Tax Qualified (NTQ) Policies
- Health Screening
- Premiums & Premium Increases
You can buy LTC insurance several different ways:
- As an individual (the same way you buy any other insurance)
- As a member of a group or faith-based organization
- As an employee or family member of an employee
For example, some people may be eligible for LTC coverage through the California Public Employees’ Retirement System (CalPERS) or the Federal Long Term Care Insurance Program (FLTCIP) because of their own or a family member’s public employment or military service. Neither of these employer-based systems pays any part of the LTC premium, but each sponsors its own LTC insurance program. Some private employers also sponsor LTC insurance, as do associations such as AARP (formerly known as the American Association of Retired Persons) and some faith-based groups.
If you buy an individual LTC insurance policy in California, it will meet the current state requirements and exceed the legal requirements of most other states. However, benefits purchased through a group or nationwide organization may not be required to meet those same standards. You should find out about this before you buy a policy.
An LTC insurance policy purchased in one state will pay benefits in any state. However, the places where care is provided in one state may be different than in the state where the policy was purchased or in its definitions. If there is a conflict between the definitions in the policy and the structure of the place where care is provided, the laws in the state where the policy was purchased will apply.
Three types of LTC policies are available in California, named according to where benefits are paid. They are:
- Home Care Only
- Nursing Home & Residential Care Facility Only
Note: When life insurance or annuity policies include benefits or riders for LTC, they must generally meet the same requirements for each of the types of benefits described below.
Home Care Only
Home Care Only policies only cover care in your home or a community setting, but not in an assisted living facility or nursing home. These policies must include benefits for home health, adult day health care (ADHC), hospice, respite care, personal care and homemaker services.
Nursing Home & Residential Care Facility Only
Nursing Home & Residential Care Facility Only policies only cover care in a nursing home or a place licensed as a Residential Care Facility for the Elderly (RCFE) that provides assisted living care. The benefits of these policies must include the cost of all LTC services you receive in the facility — not just the charge for room and board — up to the policy’s maximum daily benefit amount.
Assisted living benefits in this type of policy issued after 1998 must be paid when you are in any RCFE-licensed facility, including small neighborhood homes (often called board and care facilities), retirement homes and specialized community facilities for Alzheimer’s patients. In addition, the assisted living benefits in these policies must equal at least 70% of the nursing home care benefit.
Comprehensive policies cover care in a nursing home, assisted living facility, home care and community care (such as adult day care) under the same rules as the 2 types of policies above.
Note: Some of the policies described above may also be labeled as Partnership policies (see below).
Before LTC insurance benefits can be paid, you must meet certain requirements listed in the policy. In California, insurance companies must pay LTC benefits when you cannot perform 2 activities of daily living (such as bathing, dressing or eating) or you have a cognitive impairment serious enough to require supervision. This standard is the same whether care is needed in a nursing home, at home or in an assisted living facility.
The California Partnership for Long-Term Care is a program of the California Department of Health Care Services (DHCS). It is an innovative partnership between consumers, the State of California and certain participating insurance companies. Partnership policies meet all the requirements of state law as well as additional program requirements. Each Partnership LTC policy:
- Is tax qualified (TQ)
- Includes automatic 5% compounded inflation protection
- Has a unique state-guaranteed asset protection feature that allows you to retain a certain amount of your assets if you need to apply for Medi-Cal later in life. As a result, those protected assets will not be counted and can be left to your heirs as part of your estate, or used in any way you choose.
Partnership policies can be purchased as either Comprehensive or Nursing Home and Residential Care Facility Only policies. Partnership policies must be labeled as such on the front page of the policy. Premiums may be the same or nearly the same for Partnership and non-Partnership policies if they have the same benefits and inflation protection. Some companies sell both Partnership and non-Partnership policies, but only agents who have taken additional specialized training can sell Partnership policies.
For more information, contact the California Partnership for Long-Term Care online or at 1-800-227-3445.
Note: If you are eligible for LTC coverage through the California Public Employees’ Retirement System (CalPERS), you can choose a Partnership policy through CalPERS.
Tax qualified (TQ) policies allow you to deduct some or all of your premium from your federal and state income taxes as a medical expense. The amount that can be deducted is based on your age, combined with your medical expenses that exceed 7.5% of your adjusted gross income (AGI) if you are 65 or older, and 10% if you are younger. Benefits paid under TQ policies are not taxed as income. The specific amount you can deduct each year at your current age increases by an amount calculated by the federal government. You can access that information each year through an accountant or from your insurance company.
Non-tax qualified (NTQ) policy premiums can’t be deducted from your income taxes and the benefits are not intended to be tax-free. However, NTQ policies may have more generous benefit triggers and pay benefits sooner than TQ policies, as allowed under federal law. For example, an NTQ policy can begin paying benefits when you are unable to perform 2 Activities of Daily Living (ADLs) out of a list of 7, which includes walking. Tax-qualified policies only pay if you are unable to perform 2 ADLs out of a list of 6.
TQ policies require certification by a health care professional that your expected need for LTC services will be at least 90 days. This is not a waiting period before benefits can begin, but rather verification that the need for care isn’t short-term. If you didn’t need care for the full 90 days, your insurance company would still be required to pay any benefits that were due to you during the 90-day period, except for the days (if any) Medicare paid for your care.
Health screening (also known as medical underwriting) is a process insurance companies use to determine if they will sell you an LTC policy. If you already need LTC, or you have a serious medical condition, companies will not sell you an LTC policy.
Health screening procedures vary by company. Some companies are very strict and review each patient’s medical records, others do so only if you are over a certain age when you apply, and still others conduct a phone or face-to-face interview when you are over a certain age. Increasingly companies will conduct a paramedic exam complete with blood work, or a mini mental exam to check for any cognitive dysfunction. A few may rely solely on your answers to the application questions. Some companies will sell you a policy even if you have certain health conditions, but they may charge you a higher premium for your policy.
Every company will ask you to sign a medical records release. Some companies require copies of your medical records before they decide whether to issue you a policy, while others may not require records until you file a claim.
Once you have a policy, your company will require additional health screening if you want to increase your benefits or buy new benefits the company may have developed. In both cases, the premium you pay for additional benefits will be based on your current age and gender, and the increased cost for these benefits will be added to your annual premium.
Premiums for LTC policies are based largely on the choices you make when you buy a policy. You choose the:
- Type of policy
- Amount of daily benefit that will be paid
- Number of years the policy will pay benefits when you need care
- Number of days (if any) before the company will begin paying benefits after you qualify for those benefits
- Option of inflation protection
These 5 factors, combined with your age and gender when you buy the policy, determine the premium you will pay. Women generally will pay more than a man of the same age. Some companies will insure you if you have a particular pre-existing condition, but they may charge you a higher premium.
Annual premiums can range from a few hundred dollars if you buy at age 45, to several thousand dollars if you buy at age 75. In addition, each company calculates the cost of the benefits you choose differently, so you can find substantial differences between premiums for similar benefits. For example, premiums may be calculated for each $10 of the daily benefit you choose. If one company charges $95 for each $10 of daily benefit at your current age and gender, the premium for a daily benefit of $100 would be $950 per year. Another company may charge $150 for a similar package of benefits, resulting in an annual premium of $1,500. The amount and method of inflation protection you choose will also affect the premium for the benefits you choose, sometimes doubling the cost for people in their 40s and 50s who are not expected to need care for many years.
When choosing a policy, it is important to remember that LTC insurance is an investment you should expect to finance for the rest of your life. As you age, your ability to replace an LTC insurance policy diminishes, but the likelihood of developing health conditions that would make you ineligible to apply for new benefits often increases. Be sure you purchase a policy from a solid company with experience in LTC insurance.
Premiums for LTC policies can increase over the years. When you buy an LTC policy, the agent must give you a Personal Worksheet that will inform you, among other things, if the company has had a rate increase anywhere in the country since 1990. It will also tell you how much premiums increased and in which states. You can also find rate increases for every company that sells LTC insurance in the state on the California Department of Insurance (CDI) website, or from your local Heath Insurance Counseling & Advocacy Program (HICAP) office online or at 1-800-434-0222.
In 2000, California passed legislation that makes it more difficult for LTC insurance companies to increase future premiums. In addition, as of 2006, a company that files for a premium increase over a certain amount may be required to offer you the choice to stop paying your premium and keep your benefits equal to the total amount of premiums you have already paid. In most cases, the total amount of premiums you have already paid would only finance a small amount of care, but you wouldn’t lose all of your benefits following a premium increase you were unable to pay. Contact the CDI to find out if a rate increase you receive qualifies. You also have the right to negotiate with the company for a lower premium by reducing some of the benefits in your policy. See the FAQ: Should I cancel my LTC policy if I can’t afford to pay the premium?
Note: Some companies that have been the subject of a class-action lawsuit may offer members of the class this option, or a similar option as part of the settlement agreement.
If you receive notice of a rate increase, or you need to lower your LTC premium, contact your local Heath Insurance Counseling & Advocacy Program (HICAP) office online or at 1-800-434-0222 to find out more about these protections.