Appendix P:
Private Long-Term Care Insurance
The primary methods to pay for long-term care services are: (1) use of personal resources (income and/or savings), (2) qualification for government assistance (Medicaid or limited Medicare coverage), (3) purchase of a long-term care insurance policy before assistance is needed, (4) use of personal resources combined with benefits paid by a long-term care insurance policy, or (5) use of an accelerated death benefit or viatical settlement.
Available Topics:
What Is Private Long-Term Care Insurance?
Am I at Risk of Needing Long-Term Care Services?
Can I Afford Long-Term Care Services?
What Are the Different Types of Policies?
Are There Other Features I Can Add to the Policy?
What Are Accelerated Death Benefits?
What Are Viatical Settlements?
What Is Private Long-Term Care Insurance?
Long-term care insurance is an insurance contract which, in exchange for a premium, covers some or all of your expenses when you need assistance in a nursing facility, in a community-based setting, or at home after a predetermined waiting period (an "elimination period"). Long-term care insurance does not cover acute care in a hospital.
Am I at Risk of Needing Long-Term Care Services?
Because the probability of needing nursing home care increases with age and because more people are expected to live longer lives in the coming decades, people who live to be age 85 and over will face an increasingly higher chance of needing nursing home care. Women are especially likely to need nursing home care.
The chance of anyone needing home health care is even greater than needing nursing home care. Three out of five people over the age of 65 will need some type of long-term care services.
Can I Afford Long-Term Care Services?
Average
costs for long-term care services in 1996 are as shown in Table
P.1. Costs vary depending on location in the U.S., problems in
performing Activities of Daily Living ("ADLs"), or the
presence of a cognitive impairment. These costs are increasing
faster than inflation.
Table P.1
Average Costs
for Long-Term Care Services in 1996
| nursing home costs | $38,000 |
| in-home skilled nursing care, visited for the entire year | $12,300 |
| in-home personal care from a home health aide three times a week for a year, with each visit lasting two hours | $ 8,400 |
Source: National Association of Insurance Commissioners. 1996. A Shopper's Guide to Long-term Care Insurance. Kansas City, MO. p. 6.
What Are the Different Types of Policies?
There are three types of long-term care policies sold in Texas:
Are There Other Features I Can Add to the Policy?
1. Renewable. All policies in Texas must be guaranteed renewable. That means that the insurance company generally cannot refuse to renew the policy or change policy provisions as long as the premiums are paid on time, subject to policy maximums. This does not mean that the premium rate is locked in for a lifetime because Texas permits premiums to be raised for an entire class of policyholders.
2. Waiver of Premium. Waiver of premium may allow the policyholder to stop paying premiums once he or she becomes eligible for benefits.
3. Return of Premium Option. This option permits a refund to the policyholder or the policyholder's estate of any premiums paid minus any benefits the company paid on the policyholder's behalf. For benefits to become payable the insured must have paid premiums for a predetermined number of years or die before attaining a certain age. Be sure to check with an accountant or attorney regarding potential tax consequences. (It is anticipated that in 1997 the Texas Department of Insurance will adopt new rules which impose disclosure and other requirements on long-term care policies that contain this option. [21 Tex. Reg. 11727])
4. Nonforfeiture of Benefits. The Nonforfeiture Option provides benefit credit to the insured if the insured discontinues premium payments. Nonforfeiture credits may be used for all care and services qualifying for benefits under the terms of the policy up to the policy limits (21 Tex. Reg. 11740). (In 1997 the Texas Department of Insurance will adopt new rules which will require all companies to offer at least one type of nonforfeiture option [21 Tex. Reg. 11727].)
5. Inflation Protection Option. A 65-year old who contracts today for a $100 per day benefit will see the purchasing power of that benefit cut in half over the next 20 years even if inflation remains low (3 percent per year). A purchaser who may not need policy coverage for many years may need to carefully consider inflation protection even though it can be expensive, adding as much as 40 percent to the premium. On the other hand, a 75-year-old purchaser may experience only a few years of inflation and thereby opt to self-fund for this risk.
Figure
P.1
Projected Long-term Care Cost Increases Versus
Policy Without Inflation Protection (Dollars in Thousands)
Source: California Department of Aging. 1996. Taking Care of Tomorrow: A Consumer's Guide to Long-Term Care. Sacramento, CA (July) p. 30.
The Texas Department of Insurance requires companies to offer one of three methods of adjusting the daily benefit amount to offset the effects of inflation:
3. The policy
covers a specific percentage of actual or reasonable charges so
inflation does not affect benefits paid (Tex. Dept. of Insurance,
Minimum Standards for Benefits for Long-term Care Coverage Under
Individual and Group Policies).
There is a substantial difference between simple or compound inflation protection. For example, a 1996 benefit of $80, based on 5 percent increases in 20 years, would become $160 using a simple interest calculation, but would become $212 using a compound interest calculation.
Tips
Affordability of Long-term Care Insurance
Do you have trouble stretching your income to meet the necessities, such as paying for utilities, food or medicine? If so, you should probably not purchase a long-term care insurance policy.
Medicare Does Not Cover Long-term Care
Many people believe that their long-term care services will be paid for by the government, but Medicare pays only for skilled, recuperative care an average of less than a month. Medicare supplemental insurance policies offer little added assistance because they are contingent on Medicare's severely restrictive eligibility criteria.
Tax Laws Have Changed So Benefits Are Not Taxable
Beginning in 1997, the Health Insurance Portability and Accountability Act of 1996 allows companies to offer "tax-qualified" policies in addition to the nonqualified products that have been offered in the past. Consumers should evaluate the differences in these policies carefully. For example, an accountant or attorney may help. Generally, "tax-qualified" policies provide for tax-free benefits and deductible premiums if the premiums exceed 7.5 percent of adjusted gross income. Policies issued before December 31, 1996 will be considered tax-qualified whether or not they meet federal requirements.
Check on Financial Security of the Insurance Company
Check into the rating of your insurance company's financial condition and "claims-paying ability." These companies include AM Best, Duff & Phelps, Moody's and Standard & Poor. (See page Table P.1 on page 124) AM Best Reports are usually available at public libraries. The other three companies will give ratings over the telephone. However, buying from a company with an "A" or "A+" rating does not guarantee the purchaser will receive benefits in 15 or 20 years. One safeguard is to buy from a carrier that has reinsured its long-term care policies.
Keep Your Policy
If you already own a policy, keep it and buy additional coverage from your insurer if you feel your current policy is inadequate. If you own a policy that is very restrictive, you'll have to weigh the likelihood of collecting benefits against the higher premiums you will probably have to pay for a new, less restrictive policy, as well as the loss of any equity you may have built up.
Dealing with Agents
Texas Consumer Protections
Long-term care policies must meet all of the standards set by the Texas Department of Insurance. Policies advertised or marketed as long-term care and nursing home policies which were issued after September 1, 1992 must offer benefits for at least twelve consecutive months.
Definitions. Each policy must include in its definitions of care (1) the level of skill required, (2) the nature of the care and, (3) the setting in which the care must be delivered. If the services or the facilities providing the care do not meet policy benefit definitions, you may not be covered for services received.
Inflation Protection. The Texas Department of Insurance rules require companies to offer inflation protection. You may reject or accept the offer. If the policy holder rejects the protection, it must be in writing.
"Free Look." All long-term care policies must provide a "free look" period of at least 30 days. Be sure your policy says what you think it does. For a full refund, return the policy before the 30 days is up. Using certified mail is a good idea but not required.
Renewable. Long-term care insurance policies sold in Texas must be "guaranteed renewable" - allowed to continue in force as long as the premiums are paid, subject to the policy maximum. The company by itself may not change policy provisions or refuse to renew.
Mental or Nervous Disorders. Long-term care policies may limit or exclude coverage of some mental or nervous disorders. However, they may not exclude coverage of Alzheimer's disease and related disorders or biologically-caused brain diseases and serious mental illness, including schizophrenia, paranoid and other psychotic disorders and various manic and depressive disorders.
Pre-existing Conditions. A pre-existing condition is a condition for which medical advice was given or treatment was recommended by, or received from, a physician within six months before the effective date of coverage. In Texas, companies may not deny a claim for losses incurred more than six months from the effective date of coverage.
What Are Accelerated Death Benefits?
"Accelerated benefits" are life insurance benefits rather than long-term care insurance benefits. The benefits are also called "living benefits" because the proceeds are paid to the insured to provide care before he or she dies but after some triggering event as specified by the insurance contract. Some companies charge an extra premium for the option to accelerate, and some charge only if this option is exercised.
Even though there are many people who own life insurance policies, the face value of the policy must be sufficiently large to cover long-term care costs in order for the accelerated benefits option to make sense as the sole funding source for long-term care services. This is especially true if the benefits will not be paid out for many years.
In Texas, there are three types of Accelerated Death Benefit products:
1. Accelerated Death Benefits triggered by the diagnosis of terminal illness or permanent disability;
2. Accelerated Death Benefits triggered by the diagnosis of terminal illness or permanent disability with the added contingency that the benefit must be used for specific long-term services (i.e., nursing home care);
3. A long-term care insurance rider or attachment added to an existing life insurance policy. (These are subject to long-term care insurance regulations.)
What Are Viatical Settlements?
Viatical companies buy life insurance policies from terminally ill policyholders. For example, in exchange for being named the beneficiary on the policy, the company assumes the premium payments and pays the insured a lump sum settlement. The proceeds of the sale may pay for the health care costs and living expenses of the policyholder.
For Additional Information Contact
For general information or counseling:
The Texas Department of Insurance Department on Aging
333 Guadalupe Street (78701) P. O. Box 12786 (78711)
P. O. Box 149091 1949 IH 35 South
Austin, TX 78714-9091 Austin, TX 78741
1-800-252-3439 1-800-252-9240
(512) 463-6515 (512) 444-2727
Servicio en espanol
Hearing or speech impaired persons call:
Relay Texas
1-800-735-2989
To report a complaint, contact:
The Texas Department of Insurance
Complaints Resolutions Office
1-800-252-3439 or (512) 463-6515
For publications about long-term care insurance:
The Texas Department of Insurance
1-800-599-7467 or (512) 305-7211
To check on the financial stability or the claims-paying ability of your insurance company:
The Texas Department of Insurance
Consumer Helpline 1-800-252-3439
A. M. Best Moody's Investor Service
1-900-420-0400 (212) 553-0377
Duff & Phelps Standard & Poor's
(312) 368-3157 (212) 208-1527
The American Association of Retired Persons is developing a long-term care insurance program. Call 1-800-523-5800 to find out the status of that project.
Questions to Ask When Deciding to Purchase Long-term Care Insurance
CHECK LIST
Check
Yes No
1) What types of care are covered and in what setting (eligible facility)?
Some facilities might be:
Nursing home only?
Home and Community Based informal caregivers?
Home and Community Based adult day care services?
Home and Community Based therapeutic devices?
Assisted Living Facility?
Other?
2) How much is the daily benefit?
Less than $50 per day?
Between $51 and $60 per day?
Between $61 and $75 per day?
Between $76 and $100 per day?
More than $101 per day?
3) Does the policy have maximum benefits for each illness
or per person, including maximum periods of confinement?
Some examples include:
Nursing home maximum daily benefit?
Nursing home lifetime maximum?
Home and Community-based daily maximum?
Home and Community-based lifetime maximum?
Other?
4) How long is the elimination period?
30 days?
60 days?
90 days?
120 days?
180 days? (This is the Texas maximum.)
5) How long is the waiting period before pre-existing conditions
are covered?)
Less than 6 months?
More than 6 months?
Check
Yes No
6) Does the policy exclude coverage for certain mental and
nervous disorders?
7) What inflation protection is offered?
Annual benefit increases?
Optional benefit increases every 2 to 5 years?
Simple increases?
Compound increases?
8) How much will the premium increase in the future? ________________
Is this an "attained-age" policy?
9) Is there a grace period for late payment?
10) Does the policy have a premium waiver feature, or
will I have to pay the premium while I am receiving long-term care?
11) Can the policy be upgraded?
At the premium I would have paid when I first purchased the policy?
At my current age?
12) Are there age limits or specific health conditions that would prohibit
me from purchasing this policy?
13) Do I have a life insurance policy with a cash surrender value?
Texas Department
of Insurance, 1993, p. 5 and California Department of Aging,
1996, p. 33
References
Angel, Jacqueline L. and Frances Pelley. 1996. "Options for Independent Living Committee." Texas Department on Aging. Austin, Tex. (July 12) (Unpublished notes.)
California Department of Aging. 1996. Taking Care of Tomorrow: A Consumer's Guide to Long-term Care. Sacramento, Cal. (July)
Cutler, Stephen J. and Jon Hendricks. 1990. "Leisure and Time Use Across the Life Course." In Handbook of Aging and the Social Sciences, ed. Robert H. Binstock and Linda K. George. San Diego, Cal.: Academic Press, Inc.
Farrell, H. Clyde. 1996. Resources for Payment: Finding Funds for Long-term Care. Austin, Tex.: The State Bar of Texas.
"Gotcha! The Traps in Long-term Care Insurance: An Empty Promise to the Elderly?" 1991. Consumer Reports, (June).
Health Insurance Association of America. N.d. "Private long-term Care Insurance Fact Sheet."
Health Insurance Association of America. 1995. Who Buys Long-term Care Insurance? 1994-95 Profiles and Innovations in a Dynamic Market. Washington, D.C.
Moses, Stephen A. 1993. "Planning for Long-term Care without Public Assistance: It Pays to Avoid the Medicaid Trap." Journal of Accountancy, vol. 175 (February).
Murtaugh, Christopher M., Peter Kemper, and Brenda C. Spillman. 1990. "The Risk of Nursing Home Use in Later Life." Medical Care, vol. 28, no. 10 (October).
National Association of Insurance Commissioners. 1996. A Shopper's Guide to Long-term Care Insurance. Kansas City, MO.
New York Life Insurance Company. N.d. Long-term Care Insurance: There When You Need Care. New York, NY (Promotional brochure.)
Polacheck, Laura. 1996. Accelerated Life Insurance Benefits. Washington, D.C.: American Association of Retired Persons.
28 Tex. Admin.
Code § 3.3824 (West 1996) (Tex. Dept. of Insurance) (January)
21 Tex. Reg. 11727
(1996) (prop. amend. to 28 Tex. Admin. Code § 3.3824) (Tex.
Dep't of Insurance) (December 6)
Texas Department of Insurance. 1993. What You Should Know Before Buying Long-term Care Insurance. Austin, Tex. (January).
Wiener, Joshua M., Raymond J. Janley, and Laurel Hixon Illston. 1992. "Financing Long-term Care: How Much Public? How Much Private?" Journal of Health Politics, Policy, and Law, vol. 17 (Fall).
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