This chapter will explain what long term care insurance is, what types of care this kind of insurance covers, and what benefits are provided. By the end of this chapter, you should be able to explain how this type of insurance differs from the other plans that you have studied so far. You should also be able to explain in detail New York laws that apply specifically to long term care insurance.
A. Benefits
Long-term care policies, which can be marketed in the form of individual policies, group policies, or as riders to life insurance policies, provide coverage for individuals who are no longer able to live an independent lifestyle and require living assistance at home or in a nursing home facility. Long-term care policies can vary in the number of days of confinement covered, the number of home health visits covered, the amount paid for nursing home care, and other contract provisions. They also must provide coverage for at least 12 consecutive months in a setting other than an acute care unit of a hospital.
1. LTC, Medicare and Medicaid Compared
Although Medicare and Medigap policies provide elderly insureds with protection against the cost of medical care, these programs do not provide coverage for long-term custodial or nursing home care. Medicare will cover nursing home care if it is part of the treatment for a covered injury or illness; however, care needed because of aging is not covered by Medicare or Medicare supplements. Medicare and Medicare supplements pay for skilled nursing care, but the coverage is limited. Medicaiddoes pay for nursing home care, but it provides coverage only for those that qualify with low income and low assets.
2. Eligibility for Benefits
Normally to be eligible for benefits from a long-term care policy, the insured must be unable to perform some of the activities of daily living (ADLs). Activities of daily living include bathing, dressing, toileting, transferring positions (also called mobility), continence, and eating.
3. Levels of Care
Generally, long-term care policies will cover 3 levels of care: skilled nursing care, intermediate care, and custodial care. In addition to these levels of care, the long-term care policy may provide coverage for home health care, adult day care, hospice care or respite care, all of which can be received at home.
Skilled Care
Skilled care is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting. Examples of skilled care include changing sterile dressing and physical therapy given in a skilled nursing care facility. Care that can be given by nonprofessional staff is not considered skilled care.
Intermediate Care
Intermediate care is occasional nursing or rehabilitative care provided for stable conditions that require daily medical assistance on a less frequent basis than skilled nursing care. It is ordered by a physician, and skilled medical personnel would deliver or monitor this type of care. Intermediate care could be as simple as giving medication to a group in physical therapy once a day or changing a bandage. It may be carried out in a nursing home, an intermediate-care unit or in the patient’s home.
Custodial Care
Custodial care is care for meeting personal needs such as assistance in eating, dressing, or bathing, which can be provided by nonmedical personnel, such as relatives or home health care workers. Custodial care can be provided in an institutional setting or in the patient’s home. In other words, it involves caring for a person's activities of daily living, and not hospital or surgical needs.
4. Types of Care
Home Health Care
Home health care is care provided by a skilled nursing or other professional services in one’s home. Home health care includes occasional visits to the person’s home by registered nurses, licensed practical nurses, licensed vocational nurses, or community-based organizations like hospice. Home health care might include physical therapy, occupational therapy, speech therapy, and medical services by a social worker.
Adult Day Care
Adult day care is care provided for functionally impaired adults on less than a 24-hour basis. It could be provided by a neighborhood recreation center or a community center. Care includes transportation to and from the day care center, and a variety of health, social and related activities. Meals are usually included as a part of the service.
Respite Care
Respite Care is designed to provide relief to the family caregiver, and can include a service such as someone coming to the home while the caregiver takes a nap or goes out for a while. Adult day care centers also provide this type of relief for the caregiver.
Nursing Home Facility Care
Nursing home care coverage usually pays a specified amount for the time the insured spends in a nursing home, or for medical services received in a setting other than a hospital. Nursing home care is usually provided as one of the following:
- Skilled nursing care — the highest level of nursing care that requires the greatest expertise from the caretaker;
- Intermediate nursing care — similar to skilled nursing care, except for the patient does not require continuous attention;
- Custodial care — the most basic level of nursing care, which normally requires assistance with the activities of daily living.
Assisted Living
Assisted Living offers help with nonmedical aspects of daily activities in an atmosphere of separate, private living units. In addition to providing meals, transportation for medical appointments, activities, and pleasure trips, assisted living may provide:
- Linens and personal laundry service;
- Assistance with dressing and bathing;
- Reminders regarding medication; and
- Assistance with eating.
5. Benefit Periods
Long-term care policies usually include an elimination period similar to those found in disability income policies. This elimination period is usually 30 days or more in which the insured must be confined in a nursing home facility before benefits will begin. LTC policies also define the benefit period for how long coverage applies, after the elimination period. The benefit period is usually 2 to 5 years, with a few policies offering lifetime coverage. The longer the benefit period, the higher the premium will be.
6. Benefit Amounts
The benefit amount payable under most LTC policies is usually a specific fixed dollar amount per day, regardless of the actual cost of care. For example, if an insured has a fixed daily coverage of $100 and the care facility only charges $90 a day, the insurance company will pay the full amount of $100 a day. Some policies pay the actual charge incurred per day. Most LTC policies are also guaranteed renewable; however, insurers do have the right to increase the premiums.
7. Optional Benefits
For an additional premium, optional benefits are available with long-term care policies.
Indemnity vs. Reimbursement
Indemnity is a method of paying benefits to insureds based on a predetermined, fixed rate set for the service provided, regardless of the actual expenses incurred.
Reimbursement is a method of paying benefits to insureds based on the actual expenses incurred.
Inflation Protection
All long-term care insurance policies must offer policyholders the option of purchasing coverage that raises benefit levels to account for reasonably anticipated increases in the costs of long-term care services covered by the policy.
In the state of New York, insurers must offer each policyholder an inflation protection feature that provides, as a minimum, one of the following benefits:
- Increase of 5% for the annual benefit level;
- The right of the insured to periodically increase benefit levels without providing evidence of insurability or health status (as long as the option has not been declined for 3 consecutive times);
- Coverage for a specified percentage of actual or reasonable charges.
Nonforfeiture Benefit
Long-term care policies or certificates issued or delivered in this state must offer to the applicant nonforfeiture (default or lapse) benefits. These nonforfeiture values, such as reduced paid-up insurance, may apply to the nursing home benefits or to all benefits provided by the policy. The offer of a nonforfeiture benefit may be in the form of a rider that is attached to the policy.
Guarantee of Insurability
Guarantee of insurability option allows the insured to periodically increase benefit levels without providing evidence of insurability. The amount is usually limited to allowing a 5% compounded annual increase.
Return of Premium
This optional nonforfeiture type benefit is offered by most insurers writing long-term care policies. In the event the insured dies or the policy is lapsed, the insurer will return a certain percentage of the premiums paid.
8. Shared Care
A shared care policy is a type of long-term care insurance policy in which a couple pools the benefits of 2 LTC policies and splits them.
For example, rather than each person buying a 5-year LTC policy, they have 10 years total to use between them. If the husband uses 3 years of LTC, the wife has 7 years left. If the husband uses 6, however, the wife is left with 4.
9. Individual, Group and Association Plans
Long term care insurance is one of the newer forms of insurance. The manner in which coverage is structured and priced is still evolving. Some of the features in the earliest LTC policies were disputed by consumer groups, which led to specific regulations for this form of insurance.
The National Association of Insurance Commissioners (NAIC) has adopted a model law for consideration by the states, specifying minimum standards for LTC policies. Most states follow this model law.
One of the changes in LTC is the way the product is marketed. In its beginning LTC care was sold only as an individual policy requiring a minimum age of 50 and a maximum age of 69 in order to purchase the policy.
Today LTC coverage is marketed in the following formats:
- Individual policies;
- Group policies at the insured's place of employment. Some groups cover employees who are as young as age 18; and
- Associations formed for a reason other than to purchase LTC insurance.
Hybrid Plans
Long-Term Care (LTC) coverage, which is often purchased as a separate policy, can also be marketed as a rider to a life insurance policy. These riders provide for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured’s health care expenses, which are incurred in a nursing or convalescent home. As with the living needs rider, payment of LTC benefits will reduce the amount payable to the beneficiary upon the insured’s death.
Some insurance companies offer hybrid policies, which combine whole life insurance and some long-term-care coverage into a single policy. The long-term care insurance component protects financial assets from being drained by long-term care expenses, while the whole life insurance component adds an important retirement asset and funds for the beneficiaries. Hybrid plans may also combine long-term care coverage with an annuity, which allows the insured to receive a guaranteed payment sometime in the future while still living.
10. Exclusions
Long-term care policies may have the following exclusions:
- Pre-existing conditions or diseases;
- Mental and nervous disorders or disease (except for organic cognitive disorders such as Alzheimer's disease, senile dementia and Parkinson's disease);
- Alcoholism and drug addiction;
- Treatment or illness caused by war, participation in criminal activities, or attempted suicide;
- Treatment payable by the government, Medicare, workers compensation or similar coverage.
11. Underwriting Considerations
All applications for long-term care insurance policies, except those that cannot be denied based on answers in the application, must contain clear and unambiguous questions designed to ascertain the health condition of the applicant.
Before a long-term care policy will be issued to an applicant age 80 or older, the insurer must obtain the following:
- A report of a physical examination;
- An assessment of functional capacity;
- An attending physician's statement;
- Copies of medical records.
12. Suitability
In recommending the purchase or replacement of a long-term care insurance policy, an agent must make reasonable efforts to determine the appropriateness of a recommended purchase or replacement.
All insurers that market long-term care insurance must develop and abide by suitability standards to determine whether the purchase or replacement of LTC insurance is appropriate for the applicant’s needs. It is the insurer’s responsibility to train its agents in the use of the suitability standards.
B. New York Regulations and Required Provisions
1. Renewability
A long-term care policy issued to an individual must contain a renewability provision that prominently appears on the first page of the policy. Renewal provisions may not be less favorable than guaranteed renewable or noncancellable. The insurers who issue LTC policies may not cancel, nonrenew or otherwise terminate coverage solely on the grounds of the age or deterioration in mental or physical health of the insured.
2. Required Disclosure Provisions
All long-term care policies must disclose and explain the renewability provisions. Any riders or endorsements must also be disclosed in the policy. If the terms usual and customary or reasonable and customary are used, the meaning of those terms must be fully disclosed. Any other limitations or conditions of eligibility for long-term care benefits must be fully disclosed. With regard to life insurance policies that provide an accelerated benefit for long-term care, the policy must include a statement to the effect that receipt of the accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor.
3. Prohibited Practices
State law prohibits any unfair or deceptive trade practices. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies for the purpose of inducing any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurance company is prohibited.
High-pressure tactics and cold lead advertising, in which one fails to disclose in a conspicuous manner that solicitations of an insurance contract are a purpose of the marketing method, are prohibited.
4. Replacement
If a long-term care insurance policy or certificate replaces another, the replacing insurance company must waive any time periods applicable to pre-existing conditions, waiting periods and probationary periods in the new long-term care policy or certificate for similar benefits to the extent that similar exclusions have been satisfied under the original policy or certificate.
5. New York State Partnership for Long-term Care
The New York State Partnership for Long-Term Care is a program that combines private long-term care insurance and Medicaid to help New Yorkers prepare financially for the possibility of needing nursing home or home care. The program allows New Yorkers to protect their assets while remaining eligible for Medicaid if their long-term care needs exceed the period covered by their private insurance policy.
If a resident buys a long-term care insurance policy under the Partnership program, and uses 3 years of nursing home care, or 6 years of home care, or some combination, the resident may apply for New York State Medicaid benefits and still retain all assets.The person will, however, have to contribute any income to the cost of long-term care.
The Partnership was created to help New Yorkers finance long-term care without impoverishing themselves or signing over their life's savings, with the accompanying loss of dignity. In the long run, the program will help reduce New York's massive Medicaid tax expenditure.
All participating insurance companies are required to offer a basic (core) policy which contains the following minimum benefits:
- Nursing home care, home care or a combination of the two (where 2 home care days equal one nursing home day);
- Coverage for nursing home care and for home care (up to a specified limit per day);
- Inflation protection equal to 3.5% or 5% compounded annually;
- Care management: information, referrals, consultation on service needs and benefits;
- 14 days of respite care, renewable annually, to give the at-home caregiver some needed rest;
- Nursing home bed reservation (20 days per year);
- 60-day grace period to ensure the premium is paid if the insured has designated someone to be notified when the insured fails to pay the premium on time;
- Hospice care;
- Alternate level of care;
- Portability - coverage under the private insurance can be used outside of this state.
The minimum policy duration depends on the type of policy selected. See Total Asset Protection Plans vs. Dollar for Dollar Asset Protection Plans later in this chapter.
The cost of premiums will depend on the person's age, and the policy and coverage options chosen. Whatever the cost, the premiums will not change based on changes in health status or aging.
Total Asset Protection Plans vs. Dollar for Dollar Asset Protection Plans
The New York State Partnership for Long-Term Care offers New York residents 2 different plans:
- Total Asset Protection Plans: All assets are protected. These plans are recommended for those with substantial wealth accumulation and/or for those who purchase policies at a younger age; or
- Dollar for Dollar Asset Protection Plans: Asset protection is equal to the amount of benefits paid from the policy. These plans are recommended for those with fewer assets since policies may be more affordable.
6. Medicaid Estate Recovery Act
The Medicaid Estate Recovery Act, part of the Omnibus Budget Reconciliation Act (OBRA) of 1993, requires states to try to recover Medicaid benefits that were correctly paid to the Medicaid recipients. Recovery procedures are initiated after the recipient's death. People with Medicare are notified of the program during their initial application for Medicaid eligibility and annual redetermination process.
At the very least, states must seek recovery for services provided to the following:
- All recipients of Medicaid services age 55 or older, after the death of the recipient; and
- People of any age in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution.
Estate recovery cannot take place if at the time of death, the Medicaid recipient has a surviving spouse, a child under the age of 21, or a child who is blind or permanently and totally disabled.
States are required to establish procedures for waiving estate recovery when recovery would cause an undue hardship.
After OBRA '93 was put into effect, states that had plans approved that disregarded the assets of people who had long-term care insurance policies, must recover all Medicaid costs for nursing facility and other long-term care services from the estates of those people.
New York is among the states that had a plan approved by the time OBRA '93 was enacted and is therefore exempt from seeking recovery from individuals with long-term care insurance policies. For individuals who do not have long-term care insurance, however, the state is required to comply with the estate recovery provisions.
7. New York Tax Credit
To encourage businesses and individuals to buy long-term care insurance policies, New York established tax credits for these policies. Currently, the allowable credit is 20% of the premiums paid during the tax year for the purchase of, or for continuing coverage under a qualifying long-term care insurance policy.
C. Chapter Recap
This chapter explained long-term care insurance, including types of care, required benefits, and state-specific regulations pertaining to LTC policies. Let's recap some of the key points:
LONG-TERM CARE
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Policies
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Levels of Care
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| Coverage and Benefits |
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| Required Provisions |
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Chapter Complete