There was a time in the not-too-distant past when choosing a long-term care insurance plan was simple - because there was only one option: a nursing-home-only plan modeled after Medicare LTC coverage. Today, you can choose your coverage and its terms from a plethora of options. But, with all of these choices, careful evaluation of LTC policies is more critical than ever.
Long-Term Care Then
To give you an idea of how dramatically LTC plans have evolved, let's look at the some the older features.
1. Qualifying for Benefits
Most LTCI plans had qualification requirements that mirrored Medicare LTC: you needed a three-day/three-night hospital stay to be eligible for benefits. It covered custodial care rather than skilled, medically necessary care. (For further reading, see Medicare: Defining The Lines.)
Until the mid 1990s, the benefits under LTC plans were not guaranteed to be free of taxes. If you received benefits there was always a chance the federal or state government would tax your benefits.
3. Coverage Options
Most plans provided nursing-home coverage only. A few included an option to extend the coverage to in-home care and maybe assisted-living benefits. But you couldn't buy just in-home care or just assisted-living care and so on. (For further reading, see: Long-Term Care: More Than Just A Nursing Home.)
4. Benefit-Payment Options
Many older LTCI plans only offered a daily benefit, which means that upon purchasing your policy, you chose an amount - which was maybe adjusted for inflation - and that's what you got per day, regardless of the actual nursing-home cost. Since nursing-home and custodial-care costs are rising far faster than inflation, this sort of benefit structure posed a problem. (For further reading, see Taking The Surprise Out Of Long-Term Care.)
Long-Term Care Today
Things have certainly changed for the better. Today's LTC plans are far more flexible and complex. They go well beyond anything available through Medicaid, are no longer structured to mirror Medicare, and offer a wide range of choices and cost-saving options. (For further reading, see Medicaid versus LTC Insurance.) Here are the some of the current LTC features. Keep in mind that each LTC company has different rules, but most are very flexible in their plan options.
1. Qualifying for Benefits
Now the qualifying factor that starts your benefits is your ability to perform the activities of daily living (ADL). Each policy is somewhat different, but the general trigger is an inability to perform two of six ADLs without assistance. The tax-qualified (TQ) plans also require a doctor's certification that the LTC need will last beyond 90 days. No hospital stay is required.
All LTC plans sold today should have tax-qualified certification to meet federal TQ standards and requirements. Tax-qualified plans have at least a 90-day wait for benefits to begin. Policies with shorter waiting periods are probably not TQ, so benefits for these may be taxable.
3. Coverage Options
The range of LTC plan coverage options is amazing. You can choose one, some or all of the following types of care and coverage in almost any combination (we explore the details of some of these options below):
- Nursing-home care
- In-home care
- Group-home (dementia/Alzheimer's) care
- Adult day care
- Respite care
- Home modification
- Assisted living
- Shared benefits (among family members)
- Pool of money or daily benefit
- Family discounts
- Integration with disability income and/or life-insurance policies
- Lifetime benefits
In-Home Care/Home Modification
Many people want to stay at home for as long as possible, and won't even consider going to a nursing home. Standalone LTC policies that cover just that possibility are available. You can also integrate in-home and nursing-home options, often saving money since it is usually less expensive to keep you in your home.
Home modification is a simple yet very effective solution and an important option to consider since several of the ADLs involve getting around without help. Sometimes a few wheelchair ramps and some door-widening can keep you at home, and save you money.
Many people don't need all the services of a nursing home, just a few of them. They may need someone to look in on them, help with the cleaning and laundry, assist with bathing or showering or ensure they take their medication on time and/or eat regular, healthy meals. Assisted living can provide these outside of a nursing home, and you can chose it as a stand-alone option with some newer LTC plans.
The continuing-care facility is also a newer innovation. It combines many of the commonly used LTC services and facilities in a single living complex. You find free-standing apartments, condos or patio homes (often on a golf course) that are designed as part of a retirement community (maybe offering assisted-living services in your home). Adjacent to these facilities you might find assisted-living apartments. There is usually an on-site nursing home, and often a group home and even an adult day-care center. With the right LTC plan, you can make a seamless transition between facilities as needed.
Now, instead of only the daily-benefit structure (discussed above), there are pool-of-money options. This allows you to take as much money as is needed to pay the actual cost of care. When the money is gone, that's it, so it's hard to get your benefits to last a lifetime.
Spousal Discounts, Multi-Generational Discounts and Tailored Plans
Usually each spouse in a married couple will make every effort to keep their partner at home, and spousal discounts accommodate this by allowing a couple to be covered at a reduced cost. The savings range from 15-40%. Some LTC companies even allow each spouse to choose different coverage options and benefits. For example, the younger spouse of a couple may want to look after the older spouse at home, but, once alone, the younger spouse may prefer to go to a nursing home. This couple might get a spousal plan that gives only in-home care for the older spouse, in-home and nursing home for the younger spouse, and assisted living for both.
Some LTCI companies allow several generations of a family (children, parents and grandparents) to buy a family plan, which gives them a pool of money to be used by whomever needs it. The pool can be replenished in various ways for later generations. But these are complex policies, so consult your insurance professional.
Another option you may want to consider is an LTC plan that can be tied to disability-income (DI) insurance, life insurance or annuities. For those plans integrated with DI insurance, the premiums are probably going to be a bit higher during your working years, and you continue to pay premiums after you retire (unless you have chosen an option by which you are paid-up). The life-insurance and annuity options are a bit simpler - the net effect is often a reduction in the life-insurance cash value or the annuity benefit amount if the LTCI benefit is used. Again, consult your insurance professional for more details.
Tips for Evaluating Plans
Besides the right benefits and coverage, there are some other important factors to consider when analyzing plans.
For one, look closely at the rate-increase history of the LTC plans you are considering. Some companies have a history of few or no rate increases (so far) and others seem to raise rates almost every year.
The safety rating of the insurance company is also paramount. Choose a company with an 'A' ratings or better according to at least two ratings services.
Finally, choose your policy wisely. The language of a policy is often confusing, and adding options only makes the issues more complicated. Working with a professional LTC specialist is almost always the best course of action.
The Bottom Line
If you own an LTC policy from the mid-1990s or earlier, it's time to update it - you may not have what you need and you may be liable for taxes if you ever collect benefits. If you are thinking about buying a policy, the options are almost overwhelming, but you can tailor your plan so it's affordable too.
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