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• What is Long-Term Care Insurance?
• Coverage and Benefit Choices
• Long-Term Care Insurance Costs and Receiving Benefits
• Buying Long-Term Care Insurance
• State Partnership Long-Term Care Insurance Programs
• New National Partnership Initiative

Long-term care insurance is a relatively new type of insurance developed specifically to cover the costs of long-term care services, many of which are not covered by traditional health insurance or Medicare. These include services in your home such as assistance with Activities of Daily Living as well as care in a variety of facility and community settings.

There is a great deal of choice and flexibility in long-term care insurance policies. You can select a range of care options and benefits that allow you to get the services you need in the settings that suit you best. The cost of your long-term care insurance policy is based on the type and amount of services you choose to have covered, how old you are when you buy the policy, and any optional benefits you choose, such as Inflation Protection. If you are in poor health or already receiving long-term care services, you may not qualify for long-term care insurance.

Long-term care insurance policies have a benefit period or lifetime benefit maximum, which is the total amount of time or total amount of dollars up to which benefits will be paid. Common benefit periods for long-term care policies are two, three, four, and five years, and lifetime or unlimited coverage. Other options between five years and lifetime/unlimited coverage are also available from many companies. Most policies translate these time periods into dollar amounts and do not actually limit the number of days for which they will pay for care – just the overall dollar amount that the policy will pay.

With long-term care insurance, you pay premiums in amounts you know in advance and can budget for, and the policy pays – up to its coverage limit – for the long-term care you need when you need it. Typically premiums are waived during the time you are receiving benefits.

Policy and Benefit Choices

The following is a summary of policy and benefit choices:

• You select a daily benefit amount (for example, $100/day), which represents how much of the expenses for care the policy will pay. Most policies let you choose from $50/day to as much as $500/day.
• Often you can choose whether you want the policy to pay the same daily benefit amount for care in all settings, or whether you want the policy to pay less for care in less costly settings (such as home care). Common choices include a home care benefit of 50 percent or 75 percent of the daily nursing home benefit amount.
• You choose a Maximum Lifetime Benefit or total lifetime amount you want the policy to provide. Policies typically offer a choice of lifetime dollar amounts – for example $100,000 or $300,000. The dollar amounts may correspond to a period of time. For example, a three-year policy at $100/day of benefits would provide you with $109,500 worth of care. Some insurers also sell “Lifetime” or “Unlimited” coverage that has no dollar limit; you receive benefits as long as you continue to need long-term care and receive covered services.
• You choose the type of coverage you prefer – “comprehensive” or “facility care only.”
• Most policies today are comprehensive, but some people prefer to buy facility-care-only policies. These pay for care in a nursing home or assisted living facility, but not for care at home or in the community. These policies may still include hospice or respite care. Facility-care-only policies cost less than comprehensive policies, and if people prefer and have family or friends to provide care at home, they may only have the policy to reimburse them for paid care in a facility if and when they need it.
• Many policies offer additional optional benefits or “riders” allowing you to customize the coverage. One important option is Inflation Protection, which helps protect you from the rising cost of care over time. It works the same way that an inflation clause on your homeowners' insurance works: As the cost of replacing your home increases, so does the amount of insurance coverage that you maintain on the home. There are many different types of Inflation Protection in long-term care insurance. Be sure to find out more about Inflation Protection options in any policy you are considering.
• Many policies offer benefits in a variety of settings, such as your home, an adult day care center, an assisted living community, or a nursing home.

Additional Costs Long-Term Care Insurance Sometimes Covers

Some policies may pay for services or devices to support people living at home:

• Equipment such as in-home electronic monitoring systems
• Home modification, such as grab rails and ramps
• Transportation to medical appointments
• Training for a friend or relative to learn to provide personal care safely and appropriately

Some policies provide some payment for family members or friends to help care for you, but may do so on a limited basis or only in relation to the costs that the family member incurs.

Many policies provide a care coordinator, usually a nurse or social worker in your community. The care coordinator can meet with you and discuss your specific personal situation. The care coordinator helps arrange for and monitors your care needs on an ongoing basis, if you want that kind of help.

What Is a Typical Comprehensive Long-Term Care Insurance Benefit?

The majority of policies sold today are comprehensive policies. They typically cover care and services in a variety of long-term care settings:

• Your home, including skilled nursing care, occupational, speech, physical and rehabilitation therapy, as well as help with personal care, such as bathing and dressing. Many policies also cover some homemaker services, such as meal preparation or housekeeping, in conjunction with personal care services.
• Adult day health care centers;
• Hospice care;
• Respite care;
• Assisted living facilities (also called residential care facilities or alternate care facilities);
• Alzheimer's special care facilities; and
• Nursing homes

What Does Long-Term Care Insurance not Cover?

Like all insurance, long-term care policies have exclusions. These are listed in the policy and often follow state regulations on what exclusions are allowed. Long-term care policies typically exclude the following (even if you meet all the other requirements of the policy):

• Care or services provided by family member unless the family member is a regular employee of an organization that is providing the treatment, service or care; and the organization they work for receives the payment for the treatment, service or care; and the family members receives no compensation other than the normal compensation for employees in his or her job category;
• Care or services for which no charge is made in the absence of insurance;
• Care or services provided outside the United States of America, its territories or possessions. However, a growing number of policies now have an international care benefit that can provide care outside of the United States;
• Care or services that result from war or act of war, whether declared or not;
• Care or services that result from an attempt at suicide (while sane or insane) or an intentionally self-inflicted injury;
• Care or services for alcoholism or drug addiction (except for an addiction to a prescription medication when administered in accordance with the advice of Your Physician);
• Treatment provided in a government facility (unless otherwise required by law);
• Services for which benefits are available under Medicare or other governmental program (except Medicaid), any state or federal workers' compensation, employer's liability or occupational disease law, or any motor vehicle no-fault law

Also, most policies do not pay for care you receive from a family member, friend, or other individual who is not paid to provide your care, although some do have benefits that to allow you to receive a cash payment for each day that you receive care from anyone, even if it is a family member or friend. Most policies provide training and support for these informal caregivers, but do not pay benefits to you when you receive care from someone who is not a paid caregiver.

Most policies require that the facility, agency or individual providing your care meet certain minimum standards with respect to quality, safety, and training. For example, a nursing home that is not licensed but operates in a state that requires licensure, would not be covered.

Long-term care policies focus on paying for the types of services and providers that someone needs when they cannot perform their Activities of Daily Living or when they have a Cognitive Impairment, so they do not pay for care or services unrelated to these needs, such as hospital stays or prescription medications.

Some policies pay for prescription drugs provided while you are in a care facility (but not at home), and some policies pay for transportation costs to help you get to medical appointments when you are physically or cognitively impaired.

Some policies provide coverage for care related to everyday household needs such as housekeeping, laundry, meals, and managing medications, so-called “instrumental activities of daily living,” but only when you receive that help as part of the help you get from a formal care provider assisting with Activities of Daily Living. So most policies do not pay for in-home help if all you need is help with housekeeping, meals, laundry, transportation and the like.

Finally, long-term care policies do not pay for items provided solely for your comfort or convenience, for example a television in your nursing home room or a visit to the facility's hair care salon.

What Does Long-Term Care Insurance Cost?

Policy costs vary greatly based on your age at the time of purchase, the policy, and the coverage you select. The average annual premium cost for a policy purchased in 2005, across all ages of buyers and all types of policies was just over $1,900. This represents a comprehensive policy (covering both facility and at-home care) that provides an average of 5.5 years worth of benefits, with a daily benefit amount of $143. Most policies purchased in 2005 also included some form of automatic Inflation Protection. When you buy at a younger age, premiums are lower. The chart below shows long-term care insurance average premium by age group in 2005.

How Do You Pay Long-Term Care Insurance Premiums?

Different policies offer different payment options. With most policies, you pay premiums according to a schedule you select (monthly, quarterly, semi-annually or annually). You may be able to have the premium automatically withdrawn from your bank account, pension check, or paycheck (if you obtain coverage through your employer). Typically you pay premiums until you begin to receive benefits. Then premiums are waived as long as you continue to receive benefits.

With most policies, you pay premiums as long as you are not receiving benefits. However, with some policies you pay premiums only for a specified period – most often 10, 15, or 20 years. For example, with the 20-year option, you pay a monthly premium for 20 years and then your coverage is fully paid up. If you begin to receive benefits before the 20-year pay period is over, you stop paying premiums while you are receiving benefits. If you recover and have not yet paid in for all 20 years, you resume payments. With some policies you only pay premiums until age 65.

A few companies offer a “Single Pay” option, in which you pay for the insurance in one lump sum payment. While they are more expensive than traditional long-term care insurance, the advantage is that the single lump sum payment is the only premium required. These policies typically pay for long-term care expenses and also offer you the option to include a death benefit for your heirs. Some states do not allow single-pay policies.

When Are Long-Term Care Benefits Paid?

Policies use objective measures to determine when you need long-term care. These are called “benefit triggers.” Most policies use Activities of Daily Living and Cognitive Impairment as triggers for benefits. The policy pays benefits when you need help with two or more of the six Activities of Daily Living or when you have a Cognitive Impairment. Most policies reimburse the costs you incur for covered services up to a pre-set limit. Some policies simply pay you a pre-set cash amount for each day that you meet the “benefit trigger” whether you receive paid long-term care services or not.

Benefits are paid after an elimination period has elapsed. This is the amount of time that must pass after a benefit trigger occurs but before you begin to receive payment for services. An elimination period is like the deductible you have on your car insurance, except it is usually specified as a period of time rather than a dollar amount. During the elimination period, you may have to pay for services yourself or you may find that other insurance, such as Medicare, will pay for some of your care. Some policies only require a benefit trigger and may not require you to receive paid care or pay for services to satisfy an elimination period.

Can Everyone Buy Long-Term Care Insurance?

No, some conditions mean you won't qualify for long-term care insurance. However, insurance companies have different standards, so while you may be denied coverage by one company, another might accept you. You will probably not be approved to purchase a policy if:

• You currently use long-term care services.
• You already need help with Activities of Daily Living.
• You have AIDS or AIDS Related Complex (ARC).
• You have Alzheimer's disease or any form of dementia or cognitive dysfunction.
• You have a progressive neurological condition such as Multiple Sclerosis or Parkinson's Disease.
• You have had a stroke within the past 12 to 24 months or a history of strokes or multiple Transient Ischemic Attacks (TIAs).
• You have metastatic cancer (cancer that has spread beyond its original site).

Other health conditions are evaluated in deciding whether or not you can obtain the insurance, but these are the primary conditions that would disqualify you.

Once you are accepted for coverage, your coverage cannot be cancelled for any reason other than non-payment of premium as due or if you have received the policy's maximum benefits. If you develop one of these health conditions after obtaining coverage, you would be covered for the care you need for that condition.

Consumer Protections

The following rules apply to all long-term care insurance policies:

• Coverage cannot be cancelled or not renewed as long as you continue to pay premiums as they are due and you have not used up the maximum policy benefits.
• You have 30 days after receiving the policy to return it for a full refund.
• You have the right to designate another person to receive notice of premiums due and payments missed so you won't accidentally miss a payment.
• You have up to 65 days after the date a premium payment is due to make payment. Coverage cannot be cancelled for non-payment until after the grace period and until the “third party designee” has also been notified.
• If coverage lapses for non-payment because you were “disabled” at the time, you can restore your coverage within five months of the missed premium due date.
• If you have a group policy through your employer or other association, you can continue that coverage, unchanged, if you leave the group but want to maintain the policy.
• A spouse insured through an employer group plan may maintain coverage even after a divorce.
• Your premiums are designed to remain level over the lifetime of your coverage, and are based on your age when you first buy the policy. The insurer can change rates on a group (or class) basis, but has only a limited right to do so, and the change must apply to an entire group or class. You cannot be singled out for a rate increase.
• In most states, rate increases must be filed with and approved by the State Department of Insurance. Many states have adopted regulations that make it very difficult for an insurer to obtain approval for a rate increase.

Things to Consider Before Buying Long-Term Care Insurance

• Don't buy out of fear or emotion.
• Don't buy more insurance than you think you may need. You may have enough income to pay a portion of your care costs and may need only a small policy for the remainder. You may have family willing and able to supplement your care needs.
• Don't buy too little insurance. That will only delay the use of your own assets or income to pay for care. Think about how you feel about having care costs that won't be covered. While you can usually decrease how much coverage you have, it is more difficult to increase coverage, especially if your health has declined.
• Look carefully at the policy you are considering. There is no “one-size-fits-all” policy.
• Does the policy pay only for room and board in a facility? If so, plan for other expenses, such as supplies, medications, linens, and other things that may not be covered.
• It costs less to buy coverage when you are younger. The average age of someone buying long-term care insurance today is about 60. For those who purchase policies offered at work, the average age at which they buy is about 50.
• Make sure that buying the long-term care insurance policy is a sound financial decision and affordable for you.
• Look at different options and talk with a professional before making a decision.

Where to Buy Long-Term Care Insurance

Most people buy long-term care insurance directly from an insurance agent, financial planner or broker. States regulate which companies can sell long-term care insurance and the products that they can sell. There are over 100 companies offering long-term care insurance. The best way to find out which insurance companies offer this type of coverage in your state is to contact your state's Department of Insurance [offsite].

Another option for some people is to buy long-term care insurance offered through their employer. Many private and public employers, including the Federal government, offer group long-term care programs as a voluntary benefit. Employers do not typically contribute to the premium cost (as they do with health insurance), but they often negotiate a favorable group rate.

If you are currently employed, it may be easier to qualify for long-term care insurance through your employer than purchasing a policy on your own. Check with your benefit or pensions office to see if your employer offers long-term care insurance.

The U.S. Office of Personnel Management has additional information about the Federal Long Term Care Insurance Program [offsite]. Check the map below to see if your state has a program to offer long-term care insurance to public employees and their families.

Residents in five states are eligible to participate in a special public/private program that joins private long-term care insurance with Medicaid. The purpose of the program is to make the purchase of shorter term more comprehensive long-term care insurance meaningful by linking special policies (Partnership policies) with Medicaid. Partnership policies must meet special requirements that differ somewhat from state to state. Most states require that Partnership policies offer comprehensive benefits (cover institutional and home services), are Tax Qualified, and include an annual 5 percent compound Inflation Protection feature. Other aspects of the program are different from state to state.

Purchasers of these Partnership policies are allowed to retain a greater share of their assets should they need to apply for Medicaid after using their long-term care insurance benefits. States use different methods for determining the amount of assets participants can keep. If participants need to apply for Medicaid they will not be required to “spend down” to the same asset levels as those who did not purchase and use a Partnership policy. The following information is a general overview of the program. Check with your state Partnership office or SHIP program to get complete information.

The following is a short summary of the program in each state.

California
The California Partnership Program markets its product to individuals through agents, as well as to state employees and retirees as a benefit option via the California Public Employee Retirement System (CalPERS). Partnership policies sold in California must be Tax Qualified and meet a host of other regulatory requirements including an annual 5 percent compound inflation feature. Policies sold under this program must provide at least one year of long-term care coverage and must provide comprehensive benefits (institutional and home-based). California allows Partnership participants to keep one dollar for every dollar of insurance benefits payments made on their behalf.

Connecticut
Connecticut Partnership policies are offered to individuals through insurance agents and to state employees through group insurance. Connecticut allows Partnership participants to keep one dollar for every dollar of insurance benefits payments made on their behalf. Partnership policies sold in Connecticut must be Tax Qualified and must include an annual 5 percent compound inflation feature. Policies must also provide at least one year of comprehensive benefits (institutional and home based). The Connecticut Partnership also offers a variety of Internet resources for long-term care planning in general and for the Partnership in particular.

Indiana
The Indiana Partnership uses two methods for determining the amount of assets that participants are allowed to keep. It uses a Dollar-for-Dollar approach in which participants are allowed to keep one dollar of assets for every dollar of insurance benefits payment and a Total Assets approach in which participants buying a policy that meets or exceeds a specified minimum level are allowed to keep all their assets. Partnership policies sold in Indiana must be Tax Qualified. Indiana Partnership policies must cover at least one year of benefits for those selecting the Dollar-for-Dollar approach and at least four years for those selecting the Total Assets approach. Participants selecting either approach must purchase policies that provide comprehensive benefits (institutional and home-based) and with a 5 percent annual compound inflation feature.

Iowa
The Iowa Partnership program is in a period of transition. The state recently passed legislation that changes the requirements for Partnership policies. No further information is available at this time.

New York
The New York Partnership uses a Total Assets approach to determine how much of their assets participants are allowed keep and qualify for Medicaid. Participants must purchase a minimum of three years of institutional coverage (six years home care) to qualify as a Partnership policy. The policy must be Tax Qualified and must also include a 5percent compound inflation protection feature.

A significant new law affecting long-term care is the federal Deficit Reduction Act of 2005 (DRA). There are many important provisions of this new law. In one of them, the DRA allows for expansion of Long-Term Care Partnerships to all states. As in the existing state Partnership Programs, purchasers of private Long-Term Care Partnership policies (so called PQ or Partnership-Qualified Policies) may qualify for Medicaid while retaining a greater amount of their assets than would have been possible under the usual state Medicaid “spend down” rules. The ability to retain additional assets, yet still use Medicaid as a “safety net” if private coverage does not suffice, is an incentive for more people to purchase at least a moderate amount of private coverage.

Partnership programs help both individuals and the state.  For individuals, it allows them to get and pay for services they need without having to spend all of their assets.  For the state, it can decrease the amount of Medicaid dollars used for long-term care services.

A Closer Look  at the New Partnership Program 

A  Partnership Program is a collaboration or “partnership” among a state government, the private insurance companies selling long-term care insurance in that state, and state residents who buy long-term care partnership policies. 

Each state determines if and when it wants to implement a Long Term Care Partnership Program.  Under the requirements of the DRA, Partnership policies must be certified by the State as meeting specific requirements for the Partnership Program.  These requirements include inflation protection, with levels set by the state for purchasers up to the age of 76, and specific consumer protections.  In addition, State insurance departments are responsible for ensuring that individuals who sell Partnership policies are trained and understand how these policies relate to public and private coverage options.

How Does it Work? 

A Partnership policy offers a special feature known as an ‘asset disregard’.  This allows you to protect some of your assets after you apply to Medicaid for additional long term care services.  The amount of assets you can disregard, or keep, is equal to the amount of the benefits you receive under your long term care Partnership policy. If you purchase and use a Partnership-qualified long term care insurance policy that pays you $100,000 in benefits, you can apply for Medicaid and retain $100,000 worth of assets over and above the State’s Medicaid asset threshold.  In most states the asset threshold is $2,000 for a single person.

The following is an example of how a Partnership Qualified policy works. Let's say John, a single man, purchases a Partnership policy with a lifetime maximum of $150,000. John eventually requires long-term care, becomes eligible for and receives benefits under his Partnership policy, but later needs to apply for Medicaid for additional services. If John's policy was not a Partnership policy, in order to qualify for Medicaid, he would be entitled to keep only $2,000 in assets, which the state would also recover from his estate after his death. However, because John bought a Partnership policy, if he needs to apply for Medicaid, he can keep $152,000 in assets and the State will not recover those funds after his death. Any assets John has over and above the $152,000 would have to be spent in order for him to be eligible for Medicaid.

Keep in mind that you still need to satisfy other Medicaid eligibility requirements pertaining to your health status, income, home value and other criteria, so even with a Partnership policy, eligibility for Medicaid is not automatic.

Some Important Considerations for Consumers

•  It is important to be sure that the long-term care insurance policy you buy is a Partnership qualified policy since they can be the same as non-Partnership policies.  A Partnership Qualified policy will be certified by the State, and it must include the level of inflation protection coverage set by the State.
• Policies issued prior to a state’s Partnership Program effective date will not be considered Partnership-qualified; however there are circumstances under which you may be able to exchange a policy you previously purchased for one that is Partnership-qualified.
• It is important to buy your Partnership qualified policy from an agent who is specially trained to sell that type of coverage.  States with Partnership Programs have additional educational requirements for agents who wish to sell Partnership policies.  Many insurers are requiring this additional training for all their agents, whether they intend to sell Partnership qualified policies or not.
• It is important to note that eligibility for Medicaid is not automatic. You must still apply and meet the income, functional and general eligibility requirements of the Medicaid program in your state.  The long-term care services provided by Medicaid vary by state and may not be the same as the services you are eligible to receive under your private Partnership long-term care insurance policy (for example, many state Medicaid programs do not pay for room and board costs in an Assisted Living Facility even if you are also receiving personal care). 
• States that have Partnership programs are automatically considered to have “reciprocity” with each other and to honor the asset disregard you earned under a Partnership policy you purchased in a different state.  However, States can “opt out” of this requirement at any time.  Check with your insurance company or State Department of Insurance to find out if they offer reciprocity.  This is important if you are, or might consider, retiring in or relocating to another state.  

Which States Have Partnership Programs?