people living longer planning for the cost of long term care is a real concern. Long term care encompasses a continuum of
care options, from at home care, to assisted living, up to a residential
skilled nursing home. Long Term care Insurance (“LTCI”) is private
insurance that pays for some of these long term care costs; LTCI is suitable in
limited cases. Those LTCI policies that meet certain federal requirements
are called qualified LTCI plans, discussed here. Let’s consider issues
relevant to purchasing LTCI.
LTCI is very different from health insurance which pays the full cost of coved
health care services, less initial deductibles and co-pays. LTCI provides
funds to help cover the medical and personal services associated with the long
term care of persons with chronic debilitating medical conditions (e.g., severe
dementia). LTCI will typically pay a “per diem” (i.e., a daily dollar
amount) while the insured remains responsible to pay the balance of expenses.
LTCI is also very different from Medi-Cal which helps pay for long term skilled
nursing home care, and some in home supportive services, for persons with very
limited resources. Unlike LTCI, Medi-Cal does not pay for assisted
living. Importantly, Medi-Cal allows anyone with a
LTCI to shelter an additional amount of exempt assets equal to the amount of
the LTCI policy as an incentive to buy LTCI.
Basically, LTCI works as follows: Once the insured becomes eligible to
receive benefits, LTCI pays the per diem, either to the insured or service
provider. An “Expense Incurred” plan (the most common) pays the daily
long term care costs up to certain dollar limits (such as $150 day). An
“Indemnity” plan, however, pays a set amount once the insured receives “Covered
Services” regardless of costs. Lastly, a “Disability Based” plan pays a set amount
regardless of whether any services are used.
Eligibility typically commences once all of the following conditions, as
required under the LTCI contract, are met (as relevant): (1)
“Disability”; (2) “Waiting Period”; and (3) “Covered Services”.
Establishing Disability requires proof that one is unable to perform one (1) or
two (2), as the case may be of the “Activities of Daily Living” (ADL’s):
Bathing, Continence, Dressing, Eating, Toileting, and Transferring.
Restrictive LTCI policies require proof that the insured needs “Hands-On
Assistance” as opposed to only “Stand-By Assistance” in order to establish
inability to perform a required ADL. “Stand-By Assistance” requires only
that someone be on hand should the insured suffer an accident while performing
Those LTCI policies whose benefits do not commence on the first day of long
term care have a Waiting Period. Most LTCI’s provide for Waiting Periods
from 30 to 100 days. During the Waiting Period the insured bears 100% of
the costs of long term care.
The “Covered Services” requirement varies by policy. Some limit long term
care services to certain types of facilities (e.g., skilled nursing
facilities). Others may cover any state licensed facility but exclude
The LTCI premium costs vary depending on the following factors: (1) Age; (2)
Health; and (3) Benefits. Premiums are often increased across the board
with the effect that some are not able to continue.
First, premiums increase with age, greatly. After age 50 premiums become
very expensive. Second, premiums also vary with one’s health. An
applicant must undergo a physical and disclose all known health problems.
Lastly, the greater the benefits period the higher the premium. All else
being equal, a LTCI policy with an unlimited benefits period is more
expensive than one with a 5 year benefit period, and a LTCI with a 30 day
waiting period is more expensive than one with 90 day period. Importantly, around 70% of all persons
admitted to a skilled nursing facility are discharged within one year.
Anyone particularly concerned about long term care who prefers a broader range
of long term care options and can afford the LTCI premiums may wish to explore
LTCI, particularly if qualifying for Medi-Cal is problematic.