Long-Term Care Planning

Medicaid and Nursing Home Care

As you enter your 60s and 70s, health may become more of an issue than it once was, and your thoughts may turn to the future. Who will take care of you when you can no longer care for yourself? If you must enter a nursing home, how will you pay for it? By learning as much as you can about Medicaid right now and planning appropriately, you may be able to resolve these issues and create a more secure future.

Nursing homes provide different levels of long-term care

You may need to enter a nursing home if you become physically or mentally incapacitated and can no longer care for yourself properly. If the services of an in-home caregiver are inadequate or unavailable, or if you require around-the-clock care, entry into a nursing home on a long-term basis may be your only option.

A nursing home is a state-licensed facility that may provide skilled nursing care, intermediate care, and/or custodial care.

• Skilled care: This around-the-clock care, ordered by a physician and performed by skilled medical personnel, is designed to treat a medical condition.
• Intermediate care: This involves occasional nursing and rehabilitative care provided by registered nurses and certain other medical personnel under the supervision of a physician.
• Custodial care: This type of care is designed to help you perform the activities of daily living (e.g., bathing, eating, dressing). It can be provided by someone without professional medical skills but is supervised by a physician.

Medicaid can help you pay for nursing home care

Medicare (Part A), Medigap insurance, and Medicaid can each provide some assistance in paying for long-term care. However, Medicare and Medigap provide only short-term coverage for skilled care at nursing homes; only a certain number of days per year are covered. Also, they do not provide coverage for intermediate and custodial care in nursing homes.

In contrast, Medicaid (in most states) will pay for skilled care and intermediate care in nursing homes, and for custodial care at home. The bottom line is that most nursing home residents are left with only three alternatives for paying their nursing home bills: Medicaid, their own assets (e.g., cash, investments), and long-term care insurance (LTCI).

Although an LTCI policy may be an ideal solution, you may not be able to purchase such a policy later in life if you’re uninsurable for health reasons, or if you find the premiums too high. If you don’t want to spend your life savings on nursing home bills and can’t afford LTCI premiums, qualifying for Medicaid may be your best bet. With proper planning, you may be able to qualify for Medicaid, protect your healthy spouse (if you have one), and even leave some assets to your loved ones after you’re gone.

You must satisfy several requirements to qualify for Medicaid

Medicaid is a joint federal-state program that provides medical assistance to various low-income people, including those who are aged (i.e., 65 or older), disabled, or blind. It can pay for a number of costs, including hospital bills, physician services, and long-term care. Medicaid is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Although the eligibility rules vary from state to state, federal minimum standards and guidelines must be observed.

In addition to you meeting your state’s medical and functional criteria for nursing home care, your assets and monthly income must each fall below certain limits if you are to qualify for Medicaid. However, several assets (which may include your family home) and a certain amount of income may be exempt or not counted.

Although many people are ineligible for Medicaid when they first enter a nursing home, several states allow elders to enter and then spend down their income and assets on nursing home bills to become eligible. This can be a great advantage. On the downside, though, you may have to kiss your life savings good-bye.

That’s where Medicaid planning comes in. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying bills. You can make assets unavailable by giving them away or by holding them in certain trusts. However, in some cases, such transfers may create a period of ineligibility before you can collect Medicaid. So, to engage in proper Medicaid planning, you should consult an experienced elder law attorney.

Choosing the right nursing home takes research

Because nursing homes have long waiting lists, you should research the nursing homes in your area before an emergency arises. If you plan on using Medicaid to pay for your nursing home care, make sure that the facility you select accepts Medicaid–not all nursing homes do. Many others restrict the number of Medicaid “beds” in the nursing home (some states, however, prohibit this). Also, be aware that if Medicaid will be paying for your nursing home care, you will not be entitled to a private room.

You should consider several factors when choosing a nursing home. These include:

• Level of medical care: Some homes provide mainly custodial care. If you think that you may need skilled nursing care in the future, don’t choose a home that offers only custodial care.
• Cost of care: You will pay less at some facilities than at others. Compare the cost of each facility with the quality of care and the services provided.
• Recreational opportunities: Consider whether the nursing home organizes outside or in-house recreational activities for its residents.
• Appearance of grounds and facilities: The nursing home should be clean and well maintained. A bad smell is one sign of a poor-quality nursing home.
• Resident/staff ratio and interaction: Determine if the resident/staff ratio meets or exceeds state and federal requirements. Also, notice how staff members treat residents.

When you find a nursing home that you like, you should find out if a bed will be available for you, or if you can add your name to a waiting list. And remember, Medicaid planning should be done well before the need for a nursing home arises.

For more information on how to evaluate a nursing home, contact your state department of elder services.

Understanding Long-Term Care Insurance

It’s a fact: People today are living longer. Although that’s good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you’re ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).

What is long-term care?

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)–such as bathing, dressing, or eating–due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

Why you need long-term care insurance (LTCI)

Even though you may never need long-term care, you’ll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements–you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don’t pay for most long-term care expenses, you’re going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.

However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

• You are between the ages of 40 and 84
• You have significant assets that you would like to protect
• You can afford to pay the premiums now and in the future
• You are in good health and are insurable

How does LTCI work?

Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you’re unable to perform a certain number of ADLs (e.g., two or three).

Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

Comparing LTCI policies

Before you buy LTCI, it’s important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody’s, and Standard & Poor’s to make sure that the company is financially stable.

When comparing policies, you’ll want to pay close attention to these common features and provisions:

• Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
• Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
• Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
• Optional inflation rider: Protection against inflation.
• Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
• Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
• Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer’s or Parkinson’s disease).
• Premium increases: Whether or not your premiums will increase during the policy period.
• Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
• Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
• Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
• Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.

When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

What’s it going to cost?

There’s no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

Long-Term Care Insurance: How Does It Work?

Whether you’ve had a long-term care insurance (LTCI) policy for years or you’re thinking of buying one, it’s critical to understand exactly what set of conditions will trigger coverage. This information is the bread and butter of any LTCI policy. In addition, you should know how to file a claim, preferably before you’re on the verge of needing care.

What determines if you’re entitled to benefits?

LTCI policies differ on how benefits are triggered, so it’s crucial to examine your individual policy. Here are some typical ways you can become eligible for benefits:

• You’re unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines “unable to perform” for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?).
• Your doctor has ordered specific care.
• Your care is medically necessary.
• Your mental or cognitive function is impaired.
• You’ve had a prior hospitalization of at least three days (this is rare with newer policies).

An LTCI policy may contain one or more of these provisions. The more specific the language in the provision, the less room for disagreements about coverage.

Who determines if you’re entitled to benefits?

Just as important as what triggers benefits is the question of who decides if you’ve triggered them. These gatekeepers are an integral part of any LTCI policy–after all, they’re the ones whom insurance companies rely on before paying out claims. In some cases, a policy may have more than one gatekeeper.

The best policies let you qualify for benefits if your own doctor orders specific care, rather than require that you be examined by an insurance company physician. Similarly, it’s insurance companies that define performance criteria for ADLs, as well as create and administer tests to see if you satisfy the mental impairment threshold. Make sure you know who the ultimate decision maker is under your policy.

When will benefits start?

Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you’re judged medically eligible. Common waiting periods are 20, 30, 60, 90, or 100 days. During any waiting period, you’re responsible for paying for your care, whether it’s in a nursing home, an assisted-living facility, or in your home.

Some LTCI policies have no waiting period–you can start receiving benefits on the first day you need care. However, this type of policy is more expensive than a policy with a waiting period. Generally speaking, the longer the waiting period, the less expensive the policy.

Keep in mind that the calculation of the waiting period can vary from company to company. Some companies may count the days cumulatively (e.g., adding up the total number of days you spend in a nursing home, even with gaps), while others may count the days consecutively (e.g., adding the total number of days you spend in a nursing home without interruption). Also, some companies require only one waiting period for the life of the policy, while others require a waiting period every time you apply for benefits (unless you become eligible for benefits again within a certain period of time, such as six months or a year, in which case only one waiting period will need to be satisfied).

The mechanics of filing a claim

Ideally, you should know how to file a claim before you actually need benefits–you don’t want to lose coverage on a technicality. Typically, filing a claim means submitting a written notice to the insurance company, along with a proof-of-loss form (supplied by the insurance company) and relevant medical records.

Most policies require you to give written notice of a claim within a specific time after needing care (e.g., 30 or 60 days). In addition, you may need to verify your condition in writing every 30 to 90 days. The company may also require you to submit to an independent medical evaluation by a physician of its choosing to verify your claim.

Follow the instructions in your policy carefully. If you don’t, your insurance company can deny you benefits, in which case your only recourse will be to make a complaint with your state insurance department or file a lawsuit (and most companies limit the period of time in which you can file a lawsuit). Don’t let all those premium payments go to waste–take the time now to understand the claims-filing process for your policy.

What Do Long-Term Care Insurance Policies Cover?

Long-term care refers to a broad range of medical and personal services designed to assist people who’ve lost their ability to function independently. If you’re thinking of buying long-term care insurance (LTCI), you’ll want to make sure it covers the services you may need.

Types of long-term care

Because some LTCI policies subsidize only certain forms of care, it’s important to understand the terms. Long-term care may be divided into three levels:

• Skilled care may be continuous round-the-clock care designed to treat a medical condition; it’s ordered by a doctor and administered by skilled medical workers, such as registered nurses or professional therapists, as part of an established treatment plan
• Intermediate care is intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under a doctor’s supervision
• Custodial care helps the patient perform daily living activities (e.g., bathing, eating, and dressing); it can be provided by someone without professional medical skills, but it’s supervised by a doctor

Generally, LTCI policies will, for a specified period of time (called the benefit period), pay a selected dollar amount per day toward skilled, intermediate, or custodial care in nursing homes, assisted-living facilities, or the insured’s home. Typical benefit periods run from two to five years, and most policies pay $40 to $150 per day or more in daily benefits.

Where it’s happening

LTCI policies sometimes limit the facilities where you can choose to receive such care. Generally, though, LTCI will pay for care in nursing homes, assisted-living facilities, and at home.

Many nursing homes provide all three levels of long-term care. When a patient no longer needs skilled care, he or she can be transferred to an intermediate or custodial care section within the same facility, or perhaps released to an assisted-living facility or to home care. Assisted-living facilities generally provide rental rooms or apartments, housekeeping services, meals, social activities, and transportation; some, most notably continuing care retirement communities, also provide long-term nursing care and guaranteed lifetime services.

Home health care makes sense when you’re recovering from an injury or an illness and don’t need 24-hour care. If you have a medical condition that requires nursing care, daily monitoring, or therapy, you can hire a nurse or an aide to help you. You may also need custodial care and perhaps household help with cleaning, laundry, or shopping. In some instances, you might live with a relative who works and cannot care for you all day. Home health care might then be coupled with adult day care in centers that provide social interaction, therapeutic activities, preventive health services, and nutritious meals.

What long-term care insurance policies don’t cover

To know what a particular LTCI policy covers, be sure to check the details of the policy.

Do you have any medical conditions from which you experienced symptoms, or for which you sought medical advice or treatment, within one to five years before applying for LTCI? If so, check what the policy covers. Some ignore pre-existing conditions, while others refuse to pay for treatments related to them–it might all depend on how long ago the condition first appeared. Many companies impose a waiting period (up to six months) before coverage for pre-existing conditions goes into effect. In all cases, you should disclose your true medical history to the insurance company on your application. If you do not disclose a pre-existing condition and the company discovers this later on, it may not pay for treatment related to that condition or may even cancel your policy.

Check to see what, if anything, isn’t covered. Alzheimer’s disease, senility, and Parkinson’s disease are common reasons for needing long-term care; make sure your policy doesn’t exclude paying for care associated with these conditions. Also, most policies won’t pay benefits for a person with an alcohol or drug addiction, an injury caused by an act of war, or injuries that were self-inflicted or the result of an attempted suicide.

Should You Buy Long-Term Care Insurance?

The longer you live, the greater the chances you’ll need some form of long-term care. If you’re concerned about protecting your assets and maintaining your financial independence in your later years, long-term care insurance (LTCI) may be for you.

Who needs it?

As we age, the odds increase that we’ll need some form of long-term care at some point during our lives. And with life expectancies increasing at a steady rate, the likelihood of needing long-term care can be expected to grow in the years to come.

But won’t the government look out for me?

Medicare pays nothing for nursing home care unless you’ve first been in the hospital for 3 consecutive days. After that, it will pay only if you enter a certified nursing home within 30 days of your discharge from the hospital. For the first 20 days, Medicare pays 100 percent of your nursing home care costs. After that, you’ll pay $167.50 in 2018 per day for your care through day 100, and Medicare will pick up the balance. Beyond day 100 in a nursing home, you’re on your own–Medicare doesn’t pay anything.

If you’re at home, Medicare provides minimal short-term coverage for intermediate care (e.g., intravenous feeding or the treatment of dressings), but only if you’re confined to your home and the treatments are ordered by a doctor. Medicare provides nothing for custodial care, such as help with feeding, bathing, or preparing meals.

Medicaid covers long-term nursing home costs (including both intermediate and custodial care costs) but only for individuals who have low income and few assets (eligibility guidelines vary from state to state). You will have to use up most of your savings before you qualify for Medicaid, and aside from a small personal needs allowance (typically $30 to $60 dollars a month), you will have to use all of your retirement income, including Social Security and pension payments, to pay for your care before Medicaid pays anything. And once you qualify for Medicaid, you’ll have little or no choice regarding where you receive care. Only facilities with Medicaid-approved beds can accept you, and your chances of staying in your own home are slimmer, because currently most states’ Medicaid programs only cover limited home health care services.

Looking out for yourself

If you want to retain your independence, protect your assets, and maintain your standard of living while at the same time guaranteeing your access to a range of long-term care options, you may want to purchase LTCI. This insurance might be right for you if you meet the following criteria:

• You’re between the ages of 40 and 84
• You have significant assets that you would want to preserve as an inheritance for others or gift to charity
• You have an income from employment or investments in addition to Social Security
• You can afford LTCI premiums (now and in the future) without changing your lifestyle

Once you purchase an LTCI policy, your premiums can go up over time, but the rates can only rise for an entire class of policyholders in your state (i.e., all policyholders who bought a particular policy series, or who were within certain age groups when they bought the policy). Any increase must be justified and approved by your state’s insurance division.

Several factors affect the cost of your long-term care policy. The most significant factors are your age, your health, the amount of benefit, and the benefit period. The younger and healthier you are when you buy LTCI, the less your premium rate will be each year. The greater your daily benefit (choices typically range from $50 to $350) and the longer the benefit period (generally 1 to 6 years, with some policies offering a lifetime benefit), the greater the premium.

Understanding Long-Term Care Riders and Options

There’s no such thing as a standard long-term care insurance (LTCI) policy. Some policies are comprehensive (including most group LTCI policies), building many important features into the base plan–while charging a higher premium. Other lower-priced policies provide only basic coverage but offer you the choice of buying greater benefits at an additional cost. That’s why it’s important when comparing policies to look at both the basic coverage an LTCI policy offers and the optional benefits you can add.

A quick look at long-term care insurance basics

Most LTCI policies today cover a full range of services, including full-time nursing home care (skilled care), part-time nursing home care (intermediate care), or assistance with daily living activities (custodial care). Coverage for mental incapacity (including Alzheimer’s disease) is now standard in most policies. Also, a good basic policy won’t require you to spend time in a hospital before receiving long-term care benefits. And nearly all LTCI policies are renewable, as long as premium payments continue. You should be able to find a basic LTCI package that includes many of these features. If not, find out how much it will cost to add these provisions.

Now that you have an idea of what a good basic LTCI policy should include, consider some of the following options and riders. But because they can significantly increase your LTCI premium, you’ll need to balance the cost of these options with their importance to you.

Home health care and other alternative care options

Most LTCI policies will cover care in alternative care settings, such as the home, adult day-care facilities, and assisted-living facilities. But this important option is not standard in every policy. Alternative care makes sense when you don’t require the constant skilled nursing care that a nursing home provides but still need the services of a health aide at least a few times a week. It can also help you transition from a hospital or nursing home and become self-sufficient. So what’s the price tag? Home care and other alternative care coverage that provides half the benefit of full nursing home care can increase your premium by 30 percent. Coverage that equals the nursing home benefit could raise the premium by 50 percent.

Inflation protection

When you buy an LTCI policy, you choose a daily benefit level–the amount the policy will pay for your daily care if you need it. But how do you know this will be enough to adequately cover your costs? An inflation rider automatically increases your benefit amount by a specific percentage each year, either by simple interest or compound interest to help your benefit amount keep pace with rising costs. Five percent is a typical inflation factor. The younger you are when you buy an LTCI policy, the more important inflation protection may be. Keep in mind, though, that a simple-interest inflation rider can increase your premium by 20 to 30 percent or more, while a compound-interest inflation rider could more than double your premium. A possible alternative is to buy a policy with a larger benefit amount today in anticipation of rising nursing home costs in the future.

Nonforfeiture of premium feature

Should you decide you no longer need LTCI or if you are unable to keep up the premium payments, you may be able to salvage a portion of the policy’s benefits. Some contracts contain a return-of-premium option whereby the insurer returns all of the premiums you have paid beyond a certain date, minus any benefits used up to that point. Others may pay a stipulated percentage of the paid premiums, depending on the number of years you’ve held the contract. Aside from the cash option, another method of preserving the benefits of your LTCI policy is through a nonforfeiture conversion. This involves changing your policy to one with a lower coverage amount or coverage for a shorter period of time compared with your original policy. These reduced benefits will be available when needed, and no further premium payments are necessary.

Waiver of premium

This provision allows you to stop paying premiums once you are in a nursing home and the insurance company has started paying benefits to you. Depending on the provisions of your contract, the insurance company may waive the premium as soon as it makes your first benefit payment, or you may have to wait 60 to 100 days after the onset of your nursing care. Note that the waiver of premium might not apply if you are receiving home care.

Guaranteed insurability

With this rider, you may increase your level of coverage without submitting to further health questions. This may be important to you if you’re concerned that your health condition may change after you purchase your LTCI policy and you may want to purchase more insurance in the future. This option is particularly attractive if you’re buying your LTCI policy when you’re young.

Third-party notification

This benefit allows you to name a third party who would be notified by the insurance company if your policy is about to lapse because of your nonpayment of the premium due to mental or cognitive impairment. Many states require that insurance companies offer this option at no additional cost to you.

Comparing Long-Term Care Insurance Policies

Because long-term care insurance (LTCI) is a relatively new product, policies are not standardized. This can make it especially difficult to compare policies when you’re shopping for this type of insurance. However, comparing LTCI policies is a lot easier when you know what to look for and follow a few simple guidelines.

Compare insurance companies

One of your first steps should be to compare and evaluate insurance companies. But since there are many companies that sell LTCI, how do you narrow the field down to a few good ones? You can start by talking to friends, family members, or anyone else you know who’s bought LTCI. How satisfied have these people been with their companies’ handling of claims and overall customer service? To learn more about company reputations, check out consumer websites and publications. You can also contact your state’s insurance department for information about different companies, such as customer complaints lodged within the last year.

In addition, there are private firms that make a business of rating insurance companies, usually on a letter-grade scale. Some of the well-known rating service firms are A. M. Best, Moody’s, The Street.com (formerly Weiss), Fitch, and Standard& Poor’s. You can contact one of these firms directly, though their ratings may be available at your local public library. The ratings are typically based on a company’s financial strength and other factors. Financial strength is particularly important because it tells you whether a company is likely to meet its future claims payments and other obligations.

Compare policy ins and outs

As mentioned, there is no standard LTCI policy or contract–specific benefits and features often vary widely from one policy to another. That’s why detailed policy comparisons are more important with LTCI than with any other type of insurance. Once you’ve narrowed your list of insurance companies down to a few (e.g., three or four), ask each company for some sample policies to review. Each sample should include an Outline of Coverage section at the beginning of the policy. This section briefly summarizes the policy’s benefits and highlights the major features. After you read this section, read through the entire policy to make sure you understand all of the provisions. Here are some key items to look for:

• Waiting period: This is the period of time that must pass before the insurance company will begin to pay benefits. It can be anywhere from 0 to 365 days. You’ll be asked to select a waiting period–the shorter the period, the more the policy will cost.
• Duration of benefits (known as the benefit period): You’ll also be asked to select a benefit period (e.g., two years or a lifetime)–the longer the period, the more costly the policy. Watch out for caps placed on the total lifetime benefits you can receive if the policy lets you carry over unused daily benefits beyond the scheduled benefit period.
• Nursing home and home health-care daily benefit: This is the amount of coverage you select as your daily benefit limit (e.g., $50, $200).
• Cost-of-living rider: This feature provides protection against loss of purchasing power due to inflation. It increases your coverage every year to keep pace with inflation (either based on the Consumer Price Index or at a fixed percentage rate).
• Range of care: A policy may provide coverage for different levels of care, such as skilled, intermediate, and/or custodial. A good policy should cover all levels of care.
• Pre-existing conditions: A waiting period (e.g., six months) may be imposed before you can receive coverage for any pre-existing conditions you might have.
• Other exclusions: Some policies may not cover certain medical conditions (e.g., Alzheimer’s or Parkinson’s disease). Others may specify that you have to be in certain types of facilities.
• Premium increases: Some policies may have a level premium for the period that the policy is in effect. In other cases, the premium may increase during the policy period.
• Waiver of premium: Most policies waive your premium after you’ve received benefits for a certain number of days, but sometimes only if you’re receiving care in certain types of facilities.
• Guaranteed renewability: Most policies give you the option to renew the policy and maintain your coverage, despite any changes in your health.
• Grace period: Most policies give you a grace period if you’re late with a premium payment (usually 30 days). This means that the policy will remain in effect during that period.
• Restoration of benefits: This is a feature that restores your benefits if you recover from your condition and do not require care for a consecutive period (e.g., 180 or 365 days).
• Return of premium: You may be entitled to a return of premiums paid (or a nonforfeiture of benefits or a continuation of benefits for a limited period of time) if you cancel your policy after paying premiums for a number of years.
• Prior hospitalization: Some policies require a hospital stay before you can qualify for benefits under the policy. This requirement is less common than it used to be, and you should probably avoid policies that include this provision.

How do the policies you’re considering stack up against each other? Which benefits and features mean the most to you? How much can you customize each policy to your needs? These are very important questions. Knowing how to evaluate LTCI coverage in light of your own needs is the key to comparing and weeding out policies. Your final list of policies should include only ones that can offer exactly what you’re looking for.

Compare premiums

Because LTCI policies vary so much, simple premium comparisons usually don’t provide useful results. You run the risk of comparing premiums for policies that don’t provide comparable coverage. For example, suppose you’re comparing two LTCI policies with different premiums. If the more expensive policy has a larger daily benefit and longer benefit period, it may be difficult to tell which policy is the better buy. Variations in the length of the elimination period and other features may further muddy the waters. The point is that you want a policy that gives you the best total value, and the premium is only one part of the equation.

Still, the premium is important because you don’t want to pay more for coverage than you have to. And you want to be sure you can afford the premiums as time goes on. Once you know your coverage needs and find a few policies that offer a good fit, you should then compare premiums. The price of an LTCI policy typically depends on the specifics of the coverage, your age at the time you buy the policy (most companies won’t sell you a policy if you’re under 40 or over 84), your medical history, the cost of long-term care where you live, and other factors. Note that premiums may vary widely between companies, even for policies that provide comparable coverage. The more similar the policies you’re comparing, the more the premium will tell you about a policy’s true value.

Consider getting help

Because LTCI is complicated, comparing and evaluating policies is no easy task. You can do it alone if you choose, but you’re probably better off getting professional help. A qualified insurance professional, or financial professional can assist you with this entire process. To find the right person to help you, seek word-of-mouth references and be very selective.

Five Things to Watch Out for When Buying Long-Term Care Insurance

You’ve researched long-term care insurance (LTCI) and are seriously thinking of buying a policy. Just make sure you’re doing it for the right reasons–don’t be swayed by unsubstantiated sales pitches. Here are some claims you’ll want to think twice about. A long-term care policy is a great tax write-offThough it’s true that premiums paid on a tax-qualified LTCI policy can reduce your tax burden, you must itemize deductions to be eligible. When you’re older, perhaps you’ll no longer itemize deductions. And even if you do, LTCI premiums fall under the write-off for medical and dental expenses, which is limited to expenses that exceed 10 percent of your adjusted gross income. So, for example, if your adjusted gross income is $60,000, you are able to deduct only that portion of your unreimbursed medical and dental expenses (including LTCI premiums) that exceeds $6,000. And there’s another caveat. Even if your LTCI premiums exceed 10 percent of your adjusted gross income, you can’t include all of the premiums in your deduction for medical and dental expenses. Instead, your premiums are deductible according to a sliding scale that depends on your age. So what might look like a great tax write-off at first glance may not be so great after all. Note: The threshold is 7.5 percent for those age 65 and older until 2017, at which time it increases to 10 percent. You should buy a policy now so you can lock in the price foreverWith most LTCI policies, your age at the time you purchase the policy is a factor in determining your premiums. However, this doesn’t mean that your premiums will stay the same as long as you own the policy. In fact, your premiums can increase if your insurance company establishes a rate increase for everyone in your class, and that increase is approved by the state insurance commissioner. As a relatively new type of insurance, LTCI may be particularly susceptible to rate increases, because insurance companies lack a sufficient amount of underwriting data to predict the number and size of claims they can expect in the future. And unfortunately for you, if your insurance company does raise your premium, it may not be so simple to take your business elsewhere. Any premium on a new LTCI policy will still be based on your age, which will be higher, and your health, which may be worse. So no matter when you buy your policy, make sure you can afford the premiums both now and in the future. It doesn’t matter how the policy defines “facility”Currently, there are no national standards on what constitutes a long-term care facility. This means that an “assisted-living facility” or “adult day-care facility” may mean one thing in a particular policy or state and another thing in a different policy or state. This can pose a problem if you buy the policy in one state and then retire to another state–there may be no facilities in your new state that match the definitions in your policy. To protect yourself, make sure you understand exactly what types of facilities the LTCI policy covers before you buy it. It’s not necessary to check the financial rating of the insurance companyA large number of unexpected long-term care claims could potentially devastate an insurance company that isn’t financially strong. So before you buy an LTCI policy, it’s always a good idea to check the company’s financial rating by using a rating service like Standard & Poor’s, Moody’s, A. M. Best, or Fitch. You can also check with your state’s insurance department for more specific financial information on particular companies. You should get rid of the policy you have now and buy a new oneAlthough in some cases a new LTCI policy might have an attractive added benefit that your old policy doesn’t, red flags should go up if an insurance agent encourages you to ditch your old policy for a new one without providing a clear explanation of the added benefits. For one thing, your premiums are based on your age and your health at the time you purchase the policy, so all other things being equal, your new policy will be more expensive. For another, you run the risk that a pre-existing condition won’t be covered under the new policy. If you’re unhappy with your current policy, an alternative may be to upgrade it rather than replace it (though the agent earns a larger commission if you replace it). Unfortunately, there are unethical agents who make misleading comparisons of LTCI policies in an attempt to get you to switch policies for no reason other than their commission. If you’re considering switching policies, make sure you understand exactly what the new policy offers, whether this additional coverage is important to you, and what you’re giving up.

Tax Tips: Long-Term Care Insurance

Your chances of requiring some sort of long-term care increase as you age, and long-term care insurance (LTCI) can help you cover your long-term care expenses. Although tax issues are probably not foremost in your mind when you buy LTCI, it still pays to consider them. In particular, you should explore whether your premiums will be deductible and your benefits taxable. You may be eligible for an income tax deductionYou may be able to deduct all or part of the LTCI premiums you pay for yourself, your spouse, or a dependent, but only if your policy meets the IRS criteria for a qualified policy. If you bought the policy before January 1, 1997, and it met the requirements of the state where it was issued, it is automatically considered a qualified policy. If you bought the policy later, it must satisfy several requirements to be considered qualified. First of all, the policy must provide coverage only for qualified long-term care services. These include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, as well as maintenance or personal care services that are required by a chronically ill individual, in connection with a plan of care prescribed by a licensed health-care practitioner. Also, your policy must satisfy the following conditions: It must be guaranteed renewable, meaning that you can renew your policy as needed without undergoing additional medical exams It must not have a cash surrender value or any provision that allows you to cash in, pledge, assign, or borrow against the policy, or receive anything more than a refund of premiums paid if you cancel the policy It must provide that any refunds and dividends (other than refunds upon termination of the policy) can be used only to reduce future premiums or increase future benefits It must not pay for (or reimburse) expenses that are reimbursable under Medicare, unless Medicare is a secondary payer, or unless the policy pays a specified amount per day regardless of actual expenses It must meet certain consumer protection requirements set out in the Internal Revenue Code The amount of your deduction depends on a few factorsIf your LTCI policy meets the conditions listed above, or if it was issued before January 1, 1997, at least part of your premium may be tax deductible as a medical expense. To qualify for a medical expense deduction, your unreimbursed medical expenses (including LTCI premiums) must exceed 10 percent of your adjusted gross income. Also, you must itemize your deductions. The maximum amount of LTCI premiums that you can deduct in a year depends on your age at the end of the year. In 2018, deduction limits (which are indexed each year for inflation) are as follows: Age Limit on Deduction 40 or younger $420 41 to 50 $780 51 to 60 $1,560 61 to 70 $4,160 71 or older $5,200 Watch out — your long-term care insurance benefits may be taxableA qualified LTCI contract is treated as an accident and health insurance contract, and the benefits are typically treated as tax free. However, if your contract pays a set dollar amount per day (per diem), the tax-free treatment is subject to a certain limit, indexed annually for inflation. Benefits over and above this limit are generally considered taxable income. Under this limit, the amount of your LTCI benefits that is excluded from taxation in a given period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts: The actual cost of qualified long-term care services during the period The dollar limit for the period ($360 per day for any period in 2018) It’s a different story if you have a nonqualified LTCI policy, though. Such benefits may be subject to income tax.

If Long-Term Care Insurance Isn’t for You: Other Options

Long-term care insurance (LTCI) isn’t for everyone. Not only is it expensive and sometimes hard to qualify for, but there’s no guarantee you’ll ever use the benefits. But if you decide not to buy LTCI, what are your alternatives?

You saved for a rainy day–it’s here

Should the need arise, you could use your personal savings to pay for long-term care (self-insurance). If you choose this option, you’ll have to estimate how much money you might need to cover long-term care expenses and start an appropriate savings plan. And though there’s a good chance that the amount you’ll have to put aside each month to cover future medical expenses will equal (or exceed) what you’d pay in LTCI premiums, buying LTCI is not an option in some cases (e.g., if a pre-existing condition prevents you from qualifying for coverage). Keep in mind, however, that if you do choose to self-insure, there’s always the chance that your savings won’t be enough to cover your actual long-term care expenses.

Did you hear? Medicaid pays for long-term care

Medicaid is a government-sponsored program that pays for medical treatment. People with low incomes who are elderly, disabled, or blind may be eligible if they meet the financial and medical requirements. These eligibility decisions are primarily based on:

• Income
• Net worth
• Need for nursing or custodial care

In most states, Medicaid subsidizes care in nursing facilities and at home (for those who meet Medicaid guidelines). Unfortunately, meeting Medicaid’s financial requirements is difficult. Many people are forced to exhaust their life savings to qualify for Medicaid. A comprehensive LTCI policy may prevent this from happening.

Life insurance–it’s not just for estate planning anymore

If you have a cash value life insurance policy, familiarize yourself with the rules on policy loans and cash withdrawals. Most policies allow you to access your cash value in one of these ways, but the amounts may be limited, and there may be interest and tax consequences. Also, find out if your policy allows you to use part of the death benefit for medical expenses or long-term care while you are alive. (Policies with an accelerated benefits rider typically allow this.) Should you become terminally ill, you may also have the option to sell your life insurance policy to a viatical settlement funding company and use the money to pay for your care. You will typically get 40 to 85 percent of the policy’s face value from a viatical settlement.

Get paid to live in your home

If you own your home outright or have a lot of equity in your home, you could consider a reverse mortgage. Basically, a reverse mortgage gives the lender a lien (or mortgage) on your home, and you receive either a lump sum or prearranged monthly payments. You typically don’t have to repay the loan as long as you live in the home. However, if you move or if the house is sold, the loan must be repaid out of the proceeds of the sale. A reverse mortgage can be an easy source of cash, but it could also complicate matters if you plan on leaving your home to your heirs.

What to Avoid When Buying a Long-Term Care Insurance Policy

Avoid these Here’s why Non-tax-qualified policies Tax-qualified policies provide tax benefits. Moreover, certain minimum standards are required of tax-qualified policies. Gatekeepers (e.g., a hospital admission) prior to a claim for benefits Gatekeepers make it more difficult to claim benefits. Claims-made policies A policy is issued now, but your application is evaluated at claim time–when you can be denied coverage. Care facility restrictions These provisions limit care to home care or nursing home care, rather than including all types of facilities. Pre-existing condition exclusions These exclusions limit care for a specified period of time for medical conditions that exist before the purchase of the policy. Mental or emotional disorder exclusions These exclusions deny claims for illness without an organic disease, except for Alzheimer’s disease. Requirement that more than two activities of daily living (ADLs) can’t be performed before you qualify for benefits Inability to perform just two ADLs means that benefits from the policy are probably needed. Insurance companies that are poorly rated, or companies that generate excessive consumer complaints. When the benefits of the policy are needed, you want to make sure that they are available. Research ratings services and call your state’s insurance division before you buy your policy.

Comparing Long-Term Care Insurance Policies

Long-term care insurance (LTCI) policies come in many shapes and sizes. The number of options available can make it difficult to compare policies. Print this list of features and benefits, and refer to it as you compare LTCI policies. To find the right policy for you, make sure that you compare similar policies that combine the benefits and features you want. Features and benefits to compare Explanation Financial rating of insurance company Is the insurance company financially stable? To determine this, review ratings published by A. M. Best, Standard & Poor’s, Fitch, and others. If you have questions about the ratings, ask your insurance professional for assistance. Tax-qualified or nonqualified policy Is part of your premium payment tax deductible? Most policies are eligible for favorable tax treatment, which can lower your cost. Availability of multiple facilities for care Does the policy cover nursing homes, assisted-living facilities, and home health care? Many policies will cover care in all three settings. Benefit period How long will benefits be paid? Common options are 2, 3, 4, 5, 6, 8, 10 years, or lifetime benefits. The longer the benefit period, the more you will pay. Benefit amount How much will the policy pay per day if you need care? The most common maximum benefit amounts are $50 to $350 per day. Benefit method How are benefits paid? If the reimbursement method is used, only actual expenses are covered and the provider is reimbursed directly. If the indemnity method is used, the daily benefit amount specified in the contract is paid directly to the insured. Pooled benefit If the policy uses the reimbursement method of claims payment, does it include a pooled benefit feature? Under the reimbursement method, only your actual expenses are covered. If your actual expenses are less than your coverage amount, the pooled benefit feature allows you to save unused daily benefits for later. Without it, you forfeit any unused benefits. Elimination (waiting) period How long will you have to wait before benefits begin once you become medically eligible? Common options are 0, 30, 60, 90, 100, 180, or 365 days. The shorter the elimination period, the more you will pay. Recurrent claims What happens if you recover but then need care again? Some policies require only one waiting period during the life of the policy, while others require a new waiting period when no benefit has been received for a period of time, usually 180 days. Waiver of premium Will you need to keep paying your LTCI premiums once you’re receiving care? A waiver of premium option provides that no premium payments will be due while you are receiving benefits. Activities of daily living (ADLs) requirement What will trigger your eligibility for benefits? Find out how many ADLs (e.g., eating, bathing, and dressing) you must be unable to perform without assistance before a claim can be made. The fewer required the better. Available options range from two or three ADLs out of five or six. Gatekeepers What conditions must be satisfied in order to qualify for benefits? For example, you may need to be hospitalized for three days, receive paid professional services during the elimination period, and use caregivers who have certain credentials. Inflation options Will your benefit keep pace with the cost of living? A variety of options are available. No inflation protection means that your benefit amount will not increase, regardless of the increases in the cost of care. If you do not purchase inflation protection, you may be offered the opportunity to purchase increased benefits for an additional premium based on the increase in the cost of living at periodic intervals, such as every year or every three years. Other typical options include 5% simple or 5% compounded annual increases in benefit amounts. These options may allow for unlimited increases or an increase capped at two or three times the original benefit. Reduced paid-up option Does the policy include a reduced paid-up option? If so, the policy will pay some benefits even if you decide to stop paying the premiums. Return of premium at death option Does the policy include a return of premium at death option? This refunds premiums if you die prematurely, but it generally applies only for deaths that occur before age 70. Bed reservation benefit Does the policy include a bed reservation benefit? This option will hold your place at the nursing home if you a have a hospital stay. Other benefits Does the policy offer any nonstandard benefits? These include respite care and care advisory services. Exclusions to the contract What coverage exclusions apply? Examples include pre-existing conditions excluded for a period of time after your policy is issued, and mental or emotional disorders without an organic disease. Premium per $10/day of benefit What premium will you pay? The biggest factor in determining premiums is age, but the options you choose count, too. Compare the cost of each option for each policy, and not just the total premium that includes all of the options you want. Spousal discounts Will you receive a discount if both you and your spouse buy a policy? Discounts of 10% to 20% are sometimes available to one or both spouses if both buy a policy.

Inflation Protection Options

When you buy a long-term care insurance policy, you choose a daily benefit level (the amount that the policy will pay for your daily care if you need it), but it’s hard to know today what the future cost of care will be. Although the national average daily cost of a semi-private room in a nursing home is approximately $205, the cost may be much higher in your area, and may rise substantially in the future.*

An inflation rider automatically increases your benefit amount by a specific percentage each year, by either simple interest or compound interest. Cost-of-living inflation protection, usually pegged to the Consumer Price Index, is also available.

Five percent is a typical inflation factor. The chart above shows the effect of several different types of inflation riders:

No Inflation Option

The straight blue line illustrates the daily benefit of a policy with a 5 percent compound inflation rider, which in later years will provide a significantly higher daily benefit than the percent simple option.

5 Percent Simple

The green line shows the effect of 5 percent simple interest inflation protection. With this option, the daily benefit amount increases 5 percent per year.

5 Percent Compound

The yellow line illustrates the daily benefit of a policy with a 5 percent compound inflation rider, which in later years will provide a significantly higher daily benefit than the percent simple option.

Cost of Living

Finally, the red line shows the effect of a cost-of-living rider. For this illustration, it is assumed that the daily benefit amount increases at an annual rate of 3 percent for the first 10 years and 4 percent during years 11 through 20.

*The National Clearinghouse for Long-Term Care Information, 2011

Is there such a thing as nursing home insurance?

Insurance that pays for expenses related to long-term (custodial) care comes in many shapes and sizes. Some insurance policies only pay for care provided in a nursing home or assisted living facility, and does not pay for care provided at adult day care centers or in your home. These types of plans are called facilities-only plans or nursing home insurance.

Comprehensive plans, on the other hand, not only cover long-term care provided in nursing homes or assisted living facilities, but these policies also pay for services rendered in a hospice facility, adult day care center, and even at home. Generally, facilities-only plans usually cost less than comprehensive policies.

What types of nursing care does long-term care insurance cover?

It depends on the policy. Long-term care insurance (LTCI) policies define three levels of long-term care. Because some LTCI policies pay for only certain forms of care, it’s important to understand these definitions:

• Skilled care: Continuous round-the-clock care designed to treat a medical condition; it’s ordered by a doctor and administered by skilled medical workers (e.g., registered nurses, professional therapists) as part of an established treatment plan
• Intermediate care: Intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under a doctor’s supervision
• Custodial care: Care designed to help the patient perform activities of daily living, such as bathing, dressing, or eating; it can be provided by someone without professional medical skills, but it’s supervised by a doctor

Most LTCI policies cover skilled, intermediate, and custodial care in licensed nursing homes. Some of these policies may limit or exclude additional settings for long-term care (e.g., home health care, assisted-living facilities). To find out what type of care your LTCI policy covers and what facilities are approved to provide the care, be sure to read your policy carefully.

Should I buy long-term care insurance?

As we get older and our health declines, the greater the chances are that we will require home care, nursing home care, or other assisted-living arrangements. This care is quite expensive, and Medicare, HMOs, and Medigap don’t pay for it. You might want to look into purchasing long-term care insurance (LTCI) to protect your assets in case you need long-term care. Whether or not you should purchase LTCI depends on your age, medical history, assets, and income. Ask a financial professional about whether LTCI is right for you. If you meet some of the following criteria, you might want to seriously consider it: You are between the ages of 40 and 84 (generally, LTCI is not available to those over 84) You have a family history of Alzheimer’s disease You own substantial assets that you’d like to protect You have family members to whom you wish to leave your assets You can afford the cost of LTCI premiums now and will be able to afford them in the future You are in good health and are insurable

What is long-term care insurance?

Long-term care insurance is designed to pay for the cost of your care in a variety of settings, including a nursing home if you can no longer care for yourself independently. Long-term care policies vary widely in their coverages, limitations, and exclusions.

A comprehensive policy generally covers the costs of round-the-clock nursing home care, including that given at custodial, intermediate, and skilled levels. The policy may also cover any expenses associated with assisted-living residences provided that the facility is state certified. Adult day-care centers are often covered as well, as is respite care, which is the temporary professional care you’ll need if your regular caregiver is on vacation. Policies may also pay for at-home care provided by registered nurses; respiratory therapists; physical, occupational, or speech therapists; registered dietitians; or licensed social workers.

Policies may also cover the cost of caregiver training for a family member or friend. Finally, the insurance may cover the cost of an independent health-care professional, such as a registered nurse, who will act as your personal care consultant. Such a benefit gives you an objective person with whom you can discuss the quality of your care.

Insurance companies will require that you meet certain conditions before they issue the benefits. For example, they usually require that you be unable to perform certain regular daily activities by yourself, such as normal bathroom functions, bathing, dressing, and eating. Companies will also issue benefits because of cognitive loss as a result of Alzheimer’s disease, senility, and other forms of dementia. All of these requirements are explained in the policies. Make sure you speak with a trusted insurance professional before you purchase this coverage.

 Can I deduct premiums paid for long-term care insurance (LTCI)?

It depends on several factors. Your LTCI contract must be a qualified one, you must itemize deductions on Schedule A of IRS Form 1040, and the total of your medical expenses (including your LTCI deduction) must exceed 7.5 percent of your adjusted gross income (AGI). Qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within certain limits, based on your age.

Note: The threshold to deduct medical expenses is 7.5 percent of AGI for 2017 and 2018 (10 percent of AGI for 2019).

If you bought your policy before January 1, 1997, and it met the requirements of the state in which it was issued, it is automatically considered a qualified policy. LTCI contracts issued subsequently are only considered qualified for a tax deduction if they meet certain federal standards. In 2018, qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within the following limits, based on your age at the end of the tax year:

For more information, consult a tax professional.