Model of Ethical Decision Making in Long Term Care

Whether you're caring for a parent, a spouse, another family member, or a close friend, there may come a time when you must consider long-term care. In 2016, about 19.7 million Americans over 65 required daily care. Long-term care may include an assisted living community, a nursing home, at-home care or other types of paid long-term services. All of these options can be expensive and may not be affordable for those on a fixed budget. According to the 2021 Long-Term Care Trend poll, most older adults do not feel financially prepared to pay the high costs of long-term care. Of the American adults polled, fewer than 1 in 5 feel very confident that they have the financial resources they need to pay for care as they age.

This low number highlights the need for more adults to familiarize themselves with the cost of long-term care and their options to pay for aging care, including long-term care insurance. Long-term care insurance has its pros and cons, but when you plan right, it can be exactly what your loved one needs later in life. There are many variations on a long-term care insurance policy, so it's important you know exactly what you're getting at what cost. While it can be an effective way to minimize expenses for aging adults, no policy pays for the full cost of any long-term care option.

Below, we explain the basics of long-term care insurance, the cost of long-term care insurance and cost of senior care, tax benefits for long-term care insurance, and more. At the end of the guide, you can see answers to some frequently asked questions about long-term care insurance for seniors.

What Is Long-Term Care Insurance?

Long-term care insurance, also called LTC insurance or LTCi, is insurance that provides daily or monthly assistance with the costs of a broad range of long-term care services. Long-term care insurance policies can be traditional or hybrid, though traditional policies are becoming increasingly rare. Either policy type can be a good choice, though it may be easier to obtain a hybrid policy due to their wider availability.

Hybrids vs. Traditional Long-Term Care Insurance Policies

A hybrid policy potentially serves two different purposes, but a traditional policy serves just one. Traditional policies cover some or all of your costs if you need long-term care. Hybrid policies serve that same purpose, but they also have a built-in death benefit (life insurance benefit) for your heirs. With hybrid policies, using the long-term care coverage will either reduce or eliminate the death benefit, but if you never use the LTC benefits and never take out any loans on the policy, then the death benefit will be paid in full upon your death. In other words, a hybrid is designed to provide some form of benefit no matter what, whereas a traditional policy only benefits you if you become ill enough to require long-term care.

Seniors should keep in mind that hybrid policies are sold with "fixed" or level premiums, but traditional policies have premiums that may increase over time. Insurance companies have to petition government agencies for permission to increase premium rates, but in the past, they have gained approval to more than double premiums in some cases.

The Basic Features of All Long-Term Care Insurance Policies

Hybrid and traditional long-term care insurance policies can both be sold as indemnity or as reimbursement policies. Indemnity policies provide a cash benefit that you can spend as you see fit, while reimbursement policies require you to submit receipts for your care and then reimburse the exact amounts that you spent on approved long-term care services.

Typical long-term care insurance policies put a cap called the daily or monthly maximum on how much you can be paid for a day or a month of long-term care. Polices also specify either the benefit period (the number of years you can receive this daily or monthly maximum) and/or the benefit pool/lifetime maximum (the maximum amount of money you can be paid in benefits for the entire time you own the policy). The daily/monthly benefit is paid out until the benefit pool is exhausted and/or until the end of the benefit period is reached.

Many policies will impose an elimination period before it will begin paying for your long-term care. You'll pay for your own long-term care during the elimination period, and the insurance company will step in after that. In many ways, the elimination period mirrors the way deductibles work in health care plans. Elimination period lengths can vary, but 90 days is the most common length.

The Pros and Cons of Long-Term Care Insurance

Like any insurance, long-term care insurance is somewhat of a financial gamble. Your loved one is betting years of premiums against the likelihood of a long stretch of expensive long-term care. Should they decide to obtain a long-term care policy, make sure they fully understand the pros and cons.

For instance, if your loved one never needs or qualifies for their long-term care insurance benefits or they collect benefits for only a short time, the years of paying premiums may seem like a wasted investment. However, if they end up needing care for an extended amount of time, the money was obviously well spent.

In many cases, a long-term care policy is more of a "peace of mind" investment than a sound financial one. That's why it's so important to weigh the pros and cons of investing in this type of insurance to help determine whether it's right for them.

The Pros

People insure their lives, homes, and vehicles to prevent getting slammed by financial hardship should something unexpected happen. Shouldn't the same precautions be made with a person's future health? Deciding whether to purchase long-term care insurance is a tough decision, but here are a few powerful positives people may overlook:

Prevents emotional, physical, and financial stress to families: Having a long-term care policy in place helps alleviate or even prevent all types of stress on caregivers, so aging adults needn't fear becoming a burden to their families.
Helps ensure loved ones get the care they need: If you have aging parents or other loved ones who don't live nearby, you may worry about who will provide care for them should they no longer be able to care for themselves. You may also worry about the quality of care they'll receive and how they'll get this assistance without spending all their life's savings. Long-term care insurance can alleviate these concerns by providing the necessary resources to put them in control of the location, type, and quality of care they receive.
Preserves financial security for spouse and other family members: The high cost of long-term health care can quickly deplete even a healthy nest egg. It could even require the liquidation of assets, such as a home. This places a financial hardship on a healthy spouse and the children. Long-term care insurance provides the means to get medical assistance without tapping into savings, which protects family members from financial distress.

The Cons

The ever-increasing cost of long-term care insurance policies and uncertainty over the qualification process makes many Americans leery of investing in a product they often know little about. Despite the many pros of these policies, there are still numerous drawbacks you must equally weigh:

Long-term care insurance is expensive: The most obvious drawback of purchasing a long-term care insurance policy is the cost because they are expensive and not everyone can afford them. If your loved one has a limited income or under $200,000 in assets, it's not advisable to purchase long-term care insurance. If they decide to purchase a policy anyway and then later can't afford to keep paying the premiums, they risk losing coverage when they need it most — not to mention all the money they've already invested in the policy.
Premium hikes could be frequent and/or substantial: Because the policyholder will likely pay premiums for 10, 20, or even 30 years, they must be prepared for rate hikes over the years.
The industry is volatile: You could successfully help your loved one find an ideal policy offered by a major insurance company today, and that company could be gone tomorrow. Many insurance companies that previously offered long-term care policies have dropped out of the market due to significant losses honoring claims. While 137 companies offered policies in 2001, an actuarial firm reported that only 17 carriers sold traditional long-term care policies in 2016. Always research an insurance company's financial health through Moody's Investors Services or Standard & Poor's insurance rating services before signing on for a policy.

How Much Does Long-Term Care and Insurance Cost?

The reason some people are willing to risk buying long-term care insurance is the staggering cost of long-term care when it's not provided by unpaid caregivers. The national average long-term care costs in 2020 were:

Type of Senior Care	Annual Cost
Semi-private room in a nursing home	$93,075
Private room in a nursing home	$105,850
One-bedroom unit in an assisted living facility	$51,600
Home health aide	$54,912

Health insurance rarely covers extended care expenses, and both Medicare and Medicaid have limitations.

Medicare only pays for long-term care in a nursing home for up to 100 days if your loved one requires skilled services or rehabilitative care. Medicare may pay for short periods of care at home if they're also receiving skilled home health or other in-home services. Medicaid will pay for long-term care services, but your loved one must meet strict income and asset limits.

If your loved one doesn't qualify for Medicaid and they don't have long-term care insurance, they'll either be paying the entire cost of their care out of their own pocket or be dependent on you to help cover the cost. While the need for long-term care may be as short as a year, there's a chance the need could continue well past that. Long-term care insurance could help defray this cost.

How Much Does a Long-Term Care Insurance Policy Cost?

The cost of a long-term care insurance policy is determined by several factors, including:

Age of the applicant
Benefit amount paid per day
Benefit duration
Waiting period before benefits begin
Types of care covered
Health status of the applicant when they're signing up for the policy
The amount of inflation protection desired
Cost of long-term care in the state/region where the applicant lives
Miscellaneous provisions

According to the AALTCI's 2020 Price Index, the average annual cost for a policy with a daily benefit of $150 and benefit duration of three years for a single, 55-year-old policyholder was $1,700-per-year for a male and $2,675-per-year for a female. However, rates vary between insurance providers, so the exact same policy could have vastly different premiums. There are numerous ways to make a policy more affordable and flexible. Start by shopping around to compare prices for the various types of policies available.

Tax Benefits for Long-Term Care Insurance

If affordability is one of the concerns keeping your parents or other loved ones from investing in a long-term care insurance policy, consider the tax benefits that go along with them.

If your loved one gets a tax-qualified policy, they can itemize the premiums, along with their other medical expenses. However, the maximum deductible limit for long-term care insurance premiums is capped by age, and only the portion of total medical expenses that exceed 7.5 percent of the policyholder's adjusted gross income can be used as a deduction.

Tax benefits increase sharply for self-employed individuals. Instead of itemizing premiums, they claim the entire amount as a self-employed health insurance deduction, which comes off the top of their income. They don't even have to be self-employed full-time to take advantage of this deduction. If your loved one owns or belongs to a C corporation, they can declare the entire premium as tax-deductible.

The amount of money saved depends to a large degree on the policyholder's tax bracket. For example, many self-employed persons in the 30 percent tax bracket may be able to save 20 percent or more of their premiums in tax benefits. Always consult with an accountant or tax attorney to learn which tax benefits specifically apply to your loved one's situation.

What Does Long-Term Care Insurance Cover?

A long-term insurance policy can cover one or several types of care based on the types of coverage the policyholder thinks they'll need and the premium amount they can afford. Most policies are comprehensive, allowing benefits to be used in a variety of settings, but you'll need to make sure you know which facilities are specifically covered. If your loved one is in the wrong type of facility, the insurance provider may refuse benefit payments.

Some policies only cover certain state-licensed facilities or only cover nursing home care, but many also cover assisted living facilities, which is important since this type of care is rapidly expanding. Many policies also cover in-home care, including nursing care, physical therapy, and medical equipment. Policies may cover community care, which usually means adult day care, and respite care to give you, the caregiver, a break. Some policies may even pay benefits to family members who act as caregivers or cover home modifications, such as adding wheelchair ramps or installing safety devices. Most policies cover care related to Alzheimer's or other forms of dementia, but there are exceptions. Because this is a common condition, double-check that it's included in your loved one's policy.

What Isn't Covered by Long-Term Care Insurance?

Besides what's covered, you should also be aware of hidden coverage exclusions that might prevent benefits from being paid. While modern policies have fewer exclusions than their predecessors, they still exist, so watch out for them.

Most long-term care insurance policies permanently exclude benefits being paid for certain conditions. Watch out for common conditions excluded, such as certain forms of heart disease, cancer or diabetes. Other exclusions include:

Mental or nervous disorders, not counting Alzheimer's or other dementia
Alcohol or drug abuse
Attempted suicide or intentional self-harm
Treatment in a government facility or already paid for by the government
Illness or injury caused by an act of war

Policies issued to policyholders with pre-existing conditions usually include a temporary exclusion. Pre-existing conditions typically won't be covered for a set period of time. This exclusion is usually six months but could be shorter, longer or nonexistent, and may vary by state. Avoid policies with exclusion periods longer than six months.

How to Get the Best Daily Benefit from Your Policy

The daily benefit is how much the policy pays out in benefits for every day the policyholder needs care. Some policies pay out benefits based on a daily limit, and others multiply that daily amount by 30 to establish a monthly benefit amount.

You can easily help your loved one determine a reasonable daily benefit amount by calling local nursing facilities and home health care agencies to learn the average cost for these services in your area.

When calling local facilities, be sure to ask what the costs are for long-term care rates and not short-term rehabilitation. Also, ask for rates for both private and semi-private rooms because there's often a considerable cost difference. It's important the daily benefit adequately covers facility care costs, which is sometimes the greatest expense.

Once you have a good idea of the daily expenses involved in local long-term care, decide how much of that daily amount you feel your loved one could reasonably co-insure out of their own funds. When making this calculation, keep in mind that whatever funds they'll provide for their own care must be kept in a readily accessible investment vehicle so they can access these funds easily if and when they need to.

Some people think they must over-inflate the daily benefit amount to ensure they keep pace with the rising costs of care. It's true that long-term care costs are rising so rapidly that a suitable daily benefit today may be only half of what is needed in just 15 years or so. However, keeping the daily benefit current with rising costs is usually the function of the inflation protection benefit.

Who Qualifies for Long-Term Care Insurance?

Unfortunately, not all people qualify for long-term care insurance. Those who wait until the need for care is imminent usually find that it's too late to purchase a policy because eligibility is based more on health than age. If your loved one is in poor health or already receiving long-term care services, the policy will be cost-prohibitive.

However, those who have sufficient finances to cover ongoing premiums and who apply while they're in good health and do not yet need long-term care are likely to qualify. Insurance companies may recommend purchasing a policy as young as 40, but buying that young may not be necessary. Most people sign up for a policy during their 50s or early 60s.

Who Doesn't Qualify for Long-Term Care Insurance?

A 2020 AALTCI report showed that for traditional long-term care policies, 21.9 percent of people in their 50s had their applications declined, and the decline rate increased sharply in five-year increments between ages 60 and 75. Those between 60-65 had a 28.7 percent decline rate, whereas those 75+ had a 53.6 percent decline rate. Your loved one likely will not qualify for LTC insurance if they currently:

Use oxygen
Use a wheelchair
Use a walking aid, such as crutches, a walker or a multi-pronged cane
Require assistance with any ADLs
Require assistance with shopping
Require assistance managing transportation, finances or communication
Use or imminently need home health, nursing home or assisted living care

There's also a long list of pre-existing medical conditions that also typically disqualify a person for insurance. Some of these conditions include:

AIDS/HIV
Alzheimer's
Dementia
Kidney failure
Liver cirrhosis
Muscular dystrophy
Paralysis
Parkinson's disease
Schizophrenia
Sickle cell anemia

However, even with a pre-existing health condition, your loved one may still qualify for long-term care insurance. Health underwriting standards occasionally change and vary from one insurer to another, which could allow them to find a provider. Once your loved one qualifies for insurance and the policy takes effect, the NAIC's Long-Term Model Care Act states that insurance providers can't cancel, refuse to renew or otherwise terminate a long-term care policy based on the age, gender or deterioration of the mental or physical health of the policyholder.

Frequently Asked Questions

Can you be turned down for long-term care insurance?

Yes, you can be turned down for long-term care insurance. Insurance companies consider your age and your current health when determining whether or not they want to sell you a policy. Covering long-term is extremely expensive, so companies will turn down seniors who already have severe conditions such as Alzheimer's. Each company has its own age and health restrictions, so if you are denied at one company you may still be accepted at another.

Is long-term care insurance the same as life insurance?

Long-term care insurance is not the same as life insurance, but it is often a special form of life insurance. Some whole life or universal life policies are built as "hybrids," combining the death benefit features of life insurance with the provisions for long-term care found in more traditional long-term care insurance policies. Hybrid policies can be quite complex, but they are often an excellent way to get coverage for potential long-term care costs.

What are the 6 ADLs for long-term care?

The 6 ADLs (Activities of Daily Living) are toileting/continence, bathing/hygiene, dressing, grooming, mobility, and eating. Losing the ability to perform any of these functions can lead to a profound decline in health and quality of life over time. Professional long-term care services are often needed when a senior needs help with two or more of these ADLs.

Are long-term care policies tax deductible?

It depends on the policy, but many long-term care policies are "qualified" as tax-deductible items. This means that you may be able to write off the premiums that you pay for these policies, counting them as unreimbursed medical expenses. Additionally, plans that are part of state partnership programs can help you qualify for Medicaid by, in effect, lowering your countable income for your state's Medicaid eligibility. Always look at the specifics of your policy and consult a tax expert or Medicaid planner.

Citations

https://www.hcaoa.org/uploads/1/3/3/0/133041104/value_of_home_care___secured.pdf
https://www.longtermcarepoll.org/wp-content/uploads/2021/05/APNORC_LTC_Topline_May2021_final.pdf
http://www.caregiverslibrary.org/Portals/0/LTC%20Insurance%20ExecutiveStudy.pdf
https://www.forbes.com/sites/howardgleckman/2017/09/08/the-traditional-long-term-care-insurance-market-crumbles/
https://www.moodys.com/
https://www.spglobal.com/ratings/en/
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
https://acl.gov/ltc/medicare-medicaid-and-more/medicare
https://www.aarp.org/caregiving/financial-legal/info-2017/long-term-care-calculator.html
http://www.aaltci.org/long-term-care-insurance-rates/
https://www.bankrate.com/finance/taxes/tax-advantages-long-term-care-insurance-1.aspx
https://content.naic.org/consumer/long-term-care-insurance.htm
https://www.aarp.org/caregiving/financial-legal/info-2017/long-term-care-calculator.html
https://www.aaltci.org/news/long-term-care-insurance-association-news/long-term-care-insurance-decline-rates-reported
https://www.naic.org/store/free/MDL-640.pdf

Model of Ethical Decision Making in Long Term Care

Source: https://www.caring.com/caregivers/long-term-care-insurance/

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