Long-Term Care Insurance

Included in the link is a video supplement for most of the long-term care topics that I cover. https://asknoahk.com/long-term-care-video-supplement/

What is the process for applying for a quote?

If you are interested in applying for a quote, contact me.

What are long-term care services?

Long-term care services provide assistance to patients who need help with the basic activities of daily living. These activities include eating, bathing, getting out of bed, getting dressed, toileting, including incontinence. These activities seem simple in nature, but the effects of getting older are unpredictable. Dependency on others rises as the body ages. There are two types of long-term care: custodial care and skilled care.

Custodial care refers to services ordinarily provided by personnel like nurses’ aides. The care consists of non-medical care that can reasonably and safely be provided by non-licensed caregivers. The care can take place at home or in a facility. The care involves help with basic daily activities required to live. The care can also include help with household duties such as cooking and cleaning.

Skilled care refers to skilled nursing or rehabilitation services provided by licensed health professionals like nurses and physical therapists and ordered by a doctor. The care is medically necessary and can only be provided under the supervision of skilled or licensed medical professionals. This care can be provided at home or in a facility based on how complex the patient’s circumstances are and can include physical therapy, wound care, injections, and catheter care.

What is Long-Term Care Insurance?

Long-Term Care Insurance provides a monthly or daily reimbursement or benefit for long-term care services. Long-Term Care Insurance generally provides benefits to assist with home care or facility care. The location of care is based on the needs of the individual. When the needs of the policy holder are not complex, and the policy holder does not need around-the-clock medical care or supervision, then home care is ideal.

Facility care includes adult day care, assisted living facilities, and skilled nursing facilities (e.g., nursing homes). Generally, facility care is needed for policy holders who require more supervision and may have more complex medical needs. The benefit amount and benefit period are chosen by the policy holder during the application process. Long-term care benefits are generally provided by the insurance company to the policy holder when they are unable to perform at least 2 activities of daily living. Long-term care benefits are generally provided to policy holders in their later years in life. Claims are usually filed after the policy holder has reached 70 years old.

What is generally covered under a Long-Term Care Insurance policy?

• Home Health Care—This refers to care within your home setting. Home health care can be provided by skilled nurses, home health aides, and other medical professionals. Therapy, including occupational therapy, speech therapy, physical therapy, and rehabilitation therapy, is included as well. 
• Homemaker Services—These are services that help with general household activities, such as meal preparation, routine household care, and heavy household chores.
• Adult Day Care—These are services provided during the day at a community-based center. Programs address the individual needs of functionally or cognitively impaired adults. These structured, comprehensive programs provide social and support services in a protective setting during any part of a day but are not 24-hour care programs. Many adult day service programs include health-related services. This care is ideal for you in the event that you have parents who you care for, but you have to work during the day.
• Assisted Living Facilities—These are residential living arrangements that provide individualized personal care, assistance with daily living activities, help with medications, and services such as laundry and housekeeping. Facilities may also provide health and medical care, but care is not as intensive as care offered at a nursing home. Types and sizes of facilities vary, ranging from small homes to large apartment-style complexes. Levels of care and services also vary. Assisted living facilities allow people to remain relatively independent.
• Nursing Home—This is a licensed facility that provides general nursing care to those who are chronically ill or unable to take care of daily living needs. Care is generally provided 24/7.

What are some options for paying for long-term care services?

Listed below are common options for paying for long-term care services:

1. Assistance from friends and family—Financial and emotional assistance may be required for an extended period of time. Assistance is not guaranteed, and it is not sustainable. Long-term care requires money and time. Family and friends can only help for a limited time before they have to focus on their lives and their needs. Do not become a financial and emotional burden to those around you.
2. Self-Insure—To self-insure means that you save money aside, in addition to retirement savings, for future long-term care services. Generally, the money saved is accumulated during your active working years and through your investments. The amount of money that should be saved depends on your unknown future health and the location where the care is received. The cost of care varies by state. From a general web search, a minimum of $100,000- $200,000 is a common range for how much should be saved for long-term care services.
3. Traditional Long-Term Care Insurance—This is a general insurance policy. The best age to purchase a policy would be from the early 50s to late 60s. The premiums are generally the lowest at the mentioned age ranges. Premiums for Long-Term Care Insurance purchased after 60 years old or later can be significant. The policy can be set up to have tax benefits and Medicaid eligibility benefits.
4. Hybrid Life Insurance with a long-term care option—The Hybrid Life Insurance policy has become a more common option. Generally, when a life insurance policy is set up, the long-term care option is included for an additional cost. The long-term care option allows the policy benefit to be used to pay for long-term care services. The life insurance benefit is reduced when the policy benefits are used for long-term care services. When the policy benefit has been fully used to cover long-term care services, the beneficiary listed in the life insurance policy will receive nothing.
5. Home Equity Line of Credit (HELOC)—A HELOC is an immediate loan against equity in a property, providing quick access to cash through a “line” of equity credit. Much like a mortgage, a HELOC requires a repayment schedule and is available from most banks and credit unions. The drawbacks of using a HELOC to pay for long-term care include taking on more debt in a time when most seniors live on a strict fixed income. 
6. Reverse Mortgage—A reverse mortgage is a loan that’s borrowed from your home’s equity. Home equity is the difference between the appraised value of your home and what you owe on any mortgage. While you are living in the home, you do not have to make payments on the loan. The loan is not due for repayment until the last borrower dies or moves away from the home for one full year. After the last borrower moves or passes away, generally the home is then sold for proceeds to repay the home equity amount borrowed plus interest. If both borrowers are moved to a facility for care for more than one year, then the home can be sold.
7. Medicaid—Insurance is generally provided to individuals who apply and meet state-level requirements, which include strict income and asset limitations.

What is the difference between Disability insurance and Long-Term Care Insurance?

Disability insurance provides monthly income to people who were recently actively working but are unable to work due to unforeseen illness or injury. The income provided by the insurance company is generally a percentage of the policy holder’s verifiable gross monthly income from the previous 2 years. As an example, let’s assume John’s gross annual income was $75,000 annually ($6,250 monthly) during the previous 24 months. If John were the owner of a disability insurance policy, and he suddenly became ill or injured, then insurance would potentially give John 40%-60% of his gross monthly income until he recovered.

Why should I obtain a Long-Term Care Insurance policy?

Long-term care is a financial problem in America. The elderly are the primary recipients of long-term care services. The main options for paying long-term care costs are to self-insure or have insurance (e.g., Long-Term Care Insurance or Hybrid Life Insurance with a long-term care option).

When you self-insure, you are saving money aside during your active working years as part of your retirement plan. The money saved is in addition to your retirement savings and is used to specifically cover long-term care costs when the care is needed later in life. The downside of self-insuring is that there is no real standard for how much should be saved. Long-term care costs can vary greatly based on the geographic location of the care provided and the severity of the policy holder’s condition that would determine the type of care required.

Based on the available information online, at minimum, $150,000-$200,000 should be saved in addition to retirement savings if the self-insure option is chosen. Long-term care costs on average are very expensive. An individual in retirement may spend their entire savings simply trying to survive. Based on the U.S. Department of Health and Human Services, in 2017 the average costs for long-term care are listed as follows:

• $225 per day or $6,844 per month for a semi-private room in a nursing home.
• $253 per day or $7,698 per month for a private room in a nursing home.
• $119 per day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit).
• $20.50 an hour for a home health aide.
• $20 an hour for homemaker services.
• $68 per day for services in an adult day care center.

The costs listed above are not adjusted for inflation. Costs are expected to rise as time passes. The value of the dollar is expected to decrease as time passes.

What is the process for obtaining Long-Term Care Insurance?

1. The applicant consults with a licensed insurance agent.
2. The applicant fills out a quote form that includes the basic policy requirements and any additional optional benefits.
3. The agent obtains quotes from insurance companies that they consider ideal. The options may include a traditional policy or Hybrid Life Insurance policy that includes a long-term care option.
4. The applicant goes through a medical evaluation that is sent directly from the physician to the insurance company.
5. The insurance company provides updated rates based on the medical evaluation.
6. The applicant contracts with an insurance company that provides ideal terms.
7. The applicant pays the insurance premium and now owns the policy.

Does Medicare cover long-term care?

One of the largest costs involved in long-term care services is custodial care, which includes assistance with personal care or supervision. MEDICARE DOES NOT COVER LONG-TERM CARE. Medicare assistance is available for short-term stays in a skilled nursing facility, for hospice care, and for home health care when two of the following conditions are met:

1. The insured has recently been in the hospital at least three days
2. The insured has been admitted to a Medicare-certified nursing facility within 30 days after the hospital stay and skilled nursing, physical therapy, or other skilled care is needed

Costs for skilled care in a nursing home are covered for up to 100 days. The first 20 days are covered 100% by Medicare. However, the insured is responsible for a daily copayment for days 21-100, and there is no Medicare coverage after 100 days.

Hospice care, other than grief counseling, is covered if the insured has a terminal illness and is not expected to live more than 6 months. Medicare also provides some home and other care services if they are medically necessary to treat an injury or illness. As long as a doctor, every 60 days, determines this care is medically necessary. Medicare supplement insurance plans also do not cover long-term care needs such as custodial care, adult day care, care for those with Alzheimer’s disease, or assisted living.

Does Medicaid cover long-term care?

Medicaid covers the type of long-term care most people need but only if they are impoverished. This is in keeping with Medicaid’s purpose of providing a safety net for the poor. Many Americans whose long-term care costs are paid by Medicaid did not start out poor. They spent themselves into poverty paying for their own long-term care. Once they are on Medicaid, all their income except for a small monthly allowance must go to help pay for their care. 

Also, there is a Medicaid asset limit that is specific to each state. An applicant can only apply for Medicaid if their dollar value of assets is below the limit, and if the applicant meets other state-specific criteria. Each state has a lookback period to determine if an applicant transferred their assets to qualify for Medicaid. Generally, the lookback period can be 5 years or more. If the state determines that the applicant transferred assets to qualify for Medicaid, then the application approval process can be delayed. The time it takes to get through the entire application and approval process can last for several months.

After a Medicaid beneficiary dies, Medicaid has the right to recover the amount of benefits it paid on that person’s behalf from assets in the deceased beneficiary’s estate.

Medicaid is not guaranteed even if the applicant meets all the required criteria. The approval process can last for months. There is also no guarantee that the Medicaid program will be available forever.

What are Activities of Daily Living (ADL)?

The activities of daily living are basic activities performed in every day life. The ADL’s are used by the insurance companies to determine a policy holder’s lack of independence. There are 6 general ADLs. The rule of thumb is that if a policy holder is unable to perform at least 2 ADLs, then they would qualify to receive benefits from their insurance policy if a claim was filed. The activities are listed as follows:

• Eating—The ability to feed yourself.
• Bathing—The ability to clean yourself in a bath or shower.
• Dressing—The ability to clothe yourself.
• Transferring—The ability to get out of bed yourself and into a chair.
• Continence—The ability to control your bladder and bowel movements.
• Toileting—The ability to use the toilet yourself.

How expensive are long-term care services?

I’ve provided a breakdown of the general long-term care costs by state as of 2019. Please keep in mind that costs continue to rise as time passes. Refer to the following link: https://asknoahk.com/long-term-care-cost/.

How expensive is Long-Term Care Insurance?

Based on the latest publicly available information, the average Long-Term Care Insurance policy costs around $226 per month or $2,727 per year, and it provides a daily benefit of $161 per day for an average of 4 years. The premium is based on the following factors:

• Your age when the policy is purchased (the average age range people obtain policies are between 50-65).
• The elimination period you select, also known as the time deductible.
• The maximum amount a policy will pay per day, also known as the benefit amount.
• The maximum number of days or years that a policy will pay, also known as the benefit period.
• The lifetime maximum, which is based on the maximum amount that a policy will pay per day multiplied by the maximum number of days in the benefit period.
• Additional optional benefits chosen, which are called riders.
• Single versus married, where married couples generally get better rates.
• The medical assessment performed by a physician. The assessment is generally required.

What criteria must be met for a policy holder to receive benefits from a Long-Term Care Insurance policy?

A policy holder is eligible to receive long-term care benefits from a tax-qualified insurance policy when either of the following two criteria are met:

1. The policy holder is unable to perform at least two activities of daily living without substantial help for at least 90 days due to a loss of functional capacity. As a reminder, activities of daily living (ADLs) are eating, toileting, transferring, bathing, dressing, and continence.
2. The policy holder requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Both situations must be documented by a medical doctor, and there must be a plan for care. Also, please note that the criteria are for Long-Term Care Insurance policies that are tax qualified, which are more strict compared to non-tax qualified policies.

What is cognitive impairment? How does it come into play with Long-Term Care Insurance?

• Cognitive impairment is when a person has trouble remembering, learning new things, concentrating, or making decisions that affect their every day life.
• An individual may be eligible for Long-Term Care Insurance benefits if they are cognitively impaired. Tests administered by medical practitioners or social workers can measure an individual’s ability to perceive, reason, or remember. Benefits are triggered when the cognitive impairment requires someone to be supervised for their own safety and the safety of others.

What is the elimination period?

Before you can qualify to receive benefits from a claim, you have to pay a deductible. Unlike most insurance where you pay a deductible with money, with Long-Term Care Insurance your deductible is satisfied by time.

The elimination period (i.e., a deductible period or benefit waiting period) is also known as the time deductible. You select the elimination period you want when you apply for the insurance. The length of the elimination period will affect the premium you pay. A shorter elimination period will increase the cost of the insurance premium.

The deductible period is a specified amount of time when you start receiving long-term care services, but you are paying out of pocket. Generally, there are two kinds of deductible periods. The first is a service day deductible period, which is satisfied by each day of the period on which you receive covered long-term care services. The second kind of deductible period is a calendar day deductible period, which doesn’t require that you receive covered services during the entire deductible period but only requires that you meet the policy’s benefit requirements during that time period.

Are there optional benefits in a Long-Term Care policy?

Generally, Long-Term Care Insurance applicants have the option of adding additional benefits to their policy known as riders. Three common optional benefits, which would be in the best interest of the policy holder to have, are:

• Guaranteed insurability—This allows the insured to buy additional coverage at specified future times using their current age and without providing evidence of insurability.
• Nonforfeiture benefits—This allows for a guaranteed return of some percentage of premium paid, minus any benefits received, if the policy is lapsed or surrendered.
• Inflation protection—This provides for automatic annual benefit increases based on a Cost-of-Living Adjustment (COLA).

What is the difference between a tax-qualified policy and a non-tax qualified policy? (Tax treatment may change. Always confirm with your tax accountant.)

A tax-qualified policy has tax advantages that a non-tax qualified policy does not generally have. A Long-Term Care Insurance policy has to meet specific requirements to be considered tax qualified. A Long-Term Care Insurance policy that is tax qualified also has strict requirements to qualify for benefits when filing claims.

What are the tax advantages that a tax-qualified policy has?
(Tax treatment may change. Always confirm with your tax accountant.)

1. If you itemize your medical deductions, you may be able to deduct the annual premium for a tax-qualified long-term care insurance policy up to a specified limit based on your age. However, your total itemized medical expenses, including the Long-Term Care Insurance premium, have to exceed 10% of your adjusted gross income.
2. Long-term care benefits received from a tax-qualified long-term care insurance policy are generally nontaxable as income.
3. If you are self-employed or a sole proprietor, you can deduct the entire Long-Term Care Insurance premium paid, up to an age-based limit, for yourself, your spouse, and your unmarried dependents as long as you had a net profit for the year. The 10% adjusted gross income threshold does not apply to sole proprietors.
4. If you have a tax-qualified long-term care insurance policy and you also have a Health Savings Account (HSA), you can use your HSA account to pay for the Long-Term Care Insurance premium up to a specified limit based on your age. Included is a link from the 2019 publication stating how much of the premium can be paid by an HSA: https://www.irs.gov/pub/irs-drop/rp-19-44.pdf.

Does a non-tax qualified policy have any tax advantages?
(Tax treatment may change. Always confirm with your tax accountant.)

As of 2020, benefits received from non-tax qualified policies are generally nontaxable. However, IRS rules may change in time, and the taxable nature of the benefits may change as well. Also, non-tax qualified policies are not allowed any itemized deductions. Lastly, non-tax qualified policies may have more perks than tax-qualified policies, and policy holders can be eligible for benefits much easier compared to tax-qualified policies.

What criteria must be met for a Long-Term Care Insurance policy to be considered tax qualified?
(Tax treatment may change. Always confirm with your tax accountant.)

1. The policy must be guaranteed renewable, meaning the insurance company has to renew the policy. This is generally an optional rider or addition to a standard policy that you would pay extra for. Without this additional rider, insurance companies are not required to renew a policy. 
2. The policy cannot provide a cash surrender value or any other kind of money that can be paid, assigned, pledged, or borrowed.
3. The policy must provide that any refunds from the policy, including any dividends, must be used only to reduce future premiums or increase future benefits.
4. The policy may not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer.

Are long-term care services deductible when filing your taxes?
(Tax treatment may change. Always confirm with your tax accountant.)

You can include in medical expenses amounts paid for qualified long-term care services. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitation services, and maintenance and personal care services that are:

1. Required by a chronically ill individual AND
2. Provided in accordance with a plan of care prescribed by a licensed health care practitioner.

Included in the adjacent link is the 2019 IRS publication detailing long-term care medical expenses and the related criteria for deductions. https://www.irs.gov/pub/irs-pdf/p502.pdf

What criteria must be met for an individual to be considered chronically ill?

An individual is considered chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions:

1. They are unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days due to a loss of functional capacity.
2. They require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

What is inflation protection?

Inflation protection is a feature in which the value of benefits increases by a predefined percentage at specific time periods to keep up with inflation. Insurance inflation protection is designed to allow policy holders to make sure that the benefits they receive can keep up with general price levels. Long-term care costs 20 years later may be greater than the benefit today. Long-Term Care Insurance policies provide two types of inflation protection:

• Simple rate protection—The benefit increases by the same amount each period.
• Compound rate protection—The benefit increases based on an accumulated amount each period.

For more information regarding inflation protection, refer to the adjacent link: https://asknoahk.com/long-term-care-video-supplement/.

What is the Partnership Program?

Many middle class families have too much money to qualify for Medicaid but can’t afford to self insure the potential catastrophic costs of long term care services. In an effort to encourage more people to purchase long term Care insurance, the Deficit Reduction Act of 2005 (DFA) created the Qualified State Long Term Care Partnership Program. The Partnership program is a joint program between the private insurance companies, the State Insurance department, and the State Medicaid Agency. The partnership program allows the policy holder to not have to spend down all of their assets to qualify for Medicaid. The asset protection is called Dollar for Dollar asset disregard protection.

How does the Partnership Program work?

1. You purchase long term care insurance that qualifies as a partnership policy from an insurance company.
   • Please keep in mind that the qualification requirements vary by state.
2. If and when you use all of the benefits under the insurance policy, you are allowed to keep a certain amount of assets and still be able to qualify for Medicaid, instead of having to spend down all of your assets. The asset protection is called Dollar for Dollar asset disregard protection.
   • As an example, John owns a partnership qualified long term care insurance policy with a $100,000 maximum benefit. John gets older and uses the entire $100,000 in benefits. Since John has a partnership qualified long term care insurance policy, John can keep an additional $100,000 over the Medicaid asset limit and still be able to qualify for Medicaid. If an individual can only have 15,000 in assets to qualify for Medicaid, John can have $115,000 ($15,000 Medicaid limit + $100,000 Insurance Benefit) in assets and still be eligible to qualify for Medicaid.
3. In addition, $100,000 of John’s estate is exempt from Medicaid recovery efforts after John passes away.
4. Please keep in mind, John also has to meet all other Medicaid requirements to qualify