Broker Check

Long Term Care Insurance

Table of Contents

  • Are You Prepared?
  • Important Statistics
  • What is Long Term Care?
  • Will I Need Long Term Care?
  • What to Look for in a Long Term Care Insurance Policy
  • How Much Do Long Term Care Services Cost?
  • Costs of Waiting
  • What are Some of the Health Qualification Standards?
  • Won't Medicare, Medicaid take care of my long term care expenses?
  • Consumer Protections and Tax Treatment
  • Frequently asked Questions About Deducting Long Term Care Expenses
  • Long term care links


Are You Prepared?

"More than half of women and a third of all men who survive to age 65 will spend time in a nursing home before they die." according to the The Wall Street Journal.
"Considering that the average cost of nursing home care is approximately $60,000 a year, and home care costs can range from $50 to more than $200 a day, long term care insurance makes a lot of sense for millions of Americans." according to the Chicago Tribune.
"Everyone is at risk not only of having a family member in need of long term care, but also of needing assistance themselves. About 45 percent of the long term care population is under the age of 65. Yet, although the need for health insurance to cover a patient's medical expenses in case of catastrophic illness is widely recognized, few people are insured against the costs of providing long term support services for that same person. This lack of insurance coverage jeopardizes the financial security of families and diminishes the economic security of the country."
David F. Durenberger
The Census Bureau projects a dramatic increase in the number of persons 65 and older:

Note: Data for the years 2000 to 2050 are middle-series projections of the population. US Census Bureau
Although baby boomers have a very positive view of aging, there is an overwhelming level of denial regarding the likelihood of needing long term care. For America's 77 million baby boomers, paying future long term care costs remains as their largest looming expense. According to the US Census Bureau, in 2020, one out of every six Americans will be age 65 or older - roughly 20 million more seniors than today. Furthermore, by 2020, the number of Americans 85 and older - those most likely to use long-term care - will double to seven million, and double again to 14 million by 2040.

Important Statistics

In Survey after survey,

  • 76% of those surveyed said they do not expect to need long term care in the future.
  • Recent statistics show that 40% (two out of every five) seniors require some form of long term care, and that the number increases every year.
  • 48.6% of people age 65 and older may spend some time in a nursing home and 71.8% of people age 65 and older may use some form of home health care.
  • Less than 2% of nursing home costs are paid by Medicare with the national average nursing home cost somewhere in the neighborhood of $50,000 per year.
  • Older people use the majority of long term care services; however, long term care can also be used by a younger person who has suffered a serious illness or been in an accident. Approximately 1/3 of long term care cases are people under 60
  • Unfortunately, most people do not plan for the possibility of long term care. What results is a tendency for families to crisis manage when a family member needs constant care.
  • Most people's savings plans cannot withstand 1 to 2 years of long term care costs.
  • 70% of seniors have nursing home fees paid for by Medicaid
  • Once on Medicaid, choices for care are limited to facilities that have chosen to participate in the program.

What is Long Term Care?

Long term care can address a wide range of health and supportive services for people who may have a chronic illness or a disability that leaves you unable to care for yourself for a prolonged period of time, cognitive impairment or who are unable to accomplish certain "activities of daily living" over an extended period of time. These include activities such as dressing, bathing or eating. Typical reasons for extended care include afflictions such as Alzheimer's Disease, senile dementia, Parkinson's Disease, arthritis, cancer, heart disease, emphysema, strokes, diabetes, and depression. Keep in mind that these are only some of the causes which necessitate extended care - in fact, accidents at home count for than 30% of unplanned extended care needs.
In many cases the family is no longer able to provide such care around the clock. Family members may not live nearby, they may have other pressing family commitments, or simply cannot get the time off work or away from the home. Long term care can also include short term rehabilitation; for example, a three-month rehabilitation after a knee replacement.
A long term care insurance policy is a contract between you and an insurance company. In exchange for premium payments you make, the company promises to pay you benefits for the covered cost of long term care when you need it. A long term care insurance plan can protect your independence and your dignity by giving you the freedom of choice to receive care:

  • In your own home, (if medically appropriate)
  • At a Long term care facility (e.g. a nursing home) you select
  • At an assisted Living Facility you select

Long Term Care means Custodial Care that can be provided in:

Nursing Home$54,000 Annual Average, 2.5 years average stay
Assisted Living$40,000 Annual Average, 2.8 years average stay
Home Care2 hours a day- $12,000 Annual Average, 8 hours a day- $60,000 Annual Average, 3-5 years average stay

In addition to nursing homes and home health care, there are a variety of services that fall under long term care needs. Some of these services include respite services for caregivers who need a break, adult day care centers, visiting nurses, and homemaker companion services. Long term care insurance offers long term peace of mind.

Will I Need Long Term Care?

The majority of people are not aware of the likelihood of needing long term care. The following questions can help you determine whether you may need the protection provided by long term care insurance.

  • Are you in good health?
  • Has anyone in your family ever needed long term care?
  • Would taking care of you be an emotional or physical hardship for your spouse/partner?
  • If your spouse/partner needed care, would you be able to provide it?
  • Would the people caring for you be able to maintain the quality of their own lives?
  • Are you concerned with being able to afford long term care services?
  • Do you have more than $30,000 in assets (excluding your home?)

If you answered "yes" to three or more of these questions, you should get more information about long term care insurance. Long Term Care Insurance is an insurance product that has been brought about by recent advances in medicine which enable people to live much longer lives. With today's longer life spans, the question of extended care and how it will be paid for is an extremely serious issue for many families.

Chances Of A Disability

What is the chance of having at least one long term disability which lasts for three months or longer before reaching age 65?

AgeProbability
2544%
3541%
4536%
5527%

If the disability has lasted one year, what is the probability the disability will last:

Age25354555
1 More Year67%76%79%81%
2 More Years57%67%72%73%
5 More Years47%57%62%62%

What is the chance of being disabled for life if the disability has lasted at least three months?

AgeLifetime Disability
2525%
3528%
4533%
5540%

Long Term Care Insurance has become a necessary expense in the 21st Century. A few of the reasons for this include:

  • High Risk Of Extended Care - An estimated 40% of all elderly persons will require home health care or spend some time in a nursing home or assisted living facility.
  • High Cost Of Care: Health care costs are high and continue to grow annually. According to recent industry studies, 10 years from now, costs could well double from current rates of $40-80 thousand per year.

Survey after survey of seniors who purchased long term care insurance indicated five main reasons why.

  • Peace Of Mind - The peace of mind offered by quality long-term care insurance is immeasurable. Long Term Care Insurance offers truly affordable protection and alleviates a large degree of worry for many seniors.
  • Wealth and Asset Protection - Life savings are easily wiped out by rising nursing home costs. Most people would rather their home, life savings, and other assets go to their family or charity, instead of going to a nursing home. More than half of those who require long term care will pay out their life savings within one year.
  • Burden - Most Americans don't want to be a burden on their spouse or relatives. And because the burden is frequently both financial and emotional, it is incredible harmful.
  • Quality Care - The quality of care under welfare or Medicaid plans is often far substandard to private facilities. As well, high quality nursing homes tend to favor private pay patients for admissions. Private pay coverage can give a family freedom of choice.
  • Choice - Americans are used to making choices for themselves. With Medicaid, that freedom of choice is lost along with personal assets.

What to Look for in a Long Term Care Insurance Policy

A long term care insurance policy helps put you in control when you need it most - by helping to protect your assets and to ensure that you receive quality care in the setting you want. That's why it's so important to select a policy that's right for you. A good plan design when judging policies is the National Association of Insurance Commissioners' (NAIC) model laws and regulations, which recommends:

  • At least one year of nursing home or home health care coverage, including intermediate and custodial care. Nursing home or home health care benefits shouldn't be limited primarily to skilled care.
  • Coverage for Alzheimer's disease.
  • An inflation protection option.
  • An "outline of coverage" that systematically describes the policy's benefits, limitations and exclusions, and lets you compare it with other policies.
  • A guarantee that the policy cannot be cancelled, non-renewed or otherwise terminated because you get older or suffer deterioration in your physical or mental health.
  • The right to return the policy for a full premium refund within 30 days, if after having received the policy, you decide you don't want it.

There should be NO requirements that policyholders first:

  • Be hospitalized in order to receive nursing home benefits or home health care benefits.
  • Receive skilled nursing home care before receiving intermediate or custodial nursing home care.
  • Receive nursing home care before receiving benefits for home health care.

Also, be sure to consider the company behind the plan. Look at its track record in terms of experience in long term care insurance, as well as its ratings and financial stability. Ask these questions:

How Much Do Long Term Care Services Cost?

Long term care services - whether received in a facility or at home - can be very expensive. And that isn't likely to change, especially when you consider the impact of inflation.

2000 Average NursingHome Costs 2010 Estimated Costs based
on 5% inflation x 10 years
$153 per day$230 per day
$4,667 per month$7000 per month
$56,000 per year$84,000 per year
For Major Metropolitan Areas the cost is even higher
2000 Nursing Home Costs
for Major Metropolitan Area
2010 Estimated Costs based
on 5% inflation x 10 years
$274 per day$411 per day
$8,333 per month$12,500 per month
$100,000 per year$150,000 per year

Costs of Waiting


If you're thinking about waiting to purchase coverage, consider the impact that time has on the cost of this insurance. Each year you wait can cost you more money. Premiums are based on risk. As you age your risk of needing long term care becomes greater, as do the premium rates. The longer you wait to insure yourself for long term care, the greater the total cost can be - even though you would be covered for fewer years. Here's an example of the costs of waiting:

Age5560Cost of Waiting
5 years
Plan $125/day1460 Lifetime Maximum
100 Day Elimination Period
5% Compound Inflation
$160/day
(reflects 5% annual compound
inflation protection)
1460 Lifetime Maximum
100 Day Elimination Period
5% Compound Inflation
.
Annual
Premium
$1,500$2,560.
Total Premiums
if Paid to Age 70
$22,500
($1,500 x 15 years)
$25,600
($2,560 x 10 years)
+$3,100
Total Premiums
if Paid to Age 75
$30,000
($1,500 x 20 years)
$38,400
($2,560 x 15 years)
+$8,400
Total Premiums
if Paid to Age 80
$37,500
($1,500 x 25 years)
$51,200
($2,560 x 20 years)
+$13,700

In this example, the plan options used are:

  • $125 Daily Benefit Amount
  • 1460 day (4 year) Length of Benefit Period
  • 100 day Elimination Period
  • 5% Compounded Inflation Protection Benefit

If you purchase the policy shown in this example at age 55, your premium would be $1,500 per year. If you paid premiums on that policy for 25 years to age 80, your total premium outlay would be $37,500. If you wait just five years and buy the same policy at age 60 - your annual premium would be $2,560. Even though you would pay for five fewer years, by the time you reach age 80, you will have paid $51,200 in premiums - an additional $13,700 over what you would have paid from age 55. Plus you would have gone five years without coverage.
If you delay, you might miss receiving preferred health discounts, or even worse, you could become uninsurable.

What are Some of the Health Qualification Standards?


The guidelines listed below are provided to help you determine if you might qualify for long term care insurance:

  • An applicant should be able to perform "activities of daily living" such as bathing, dressing, eating and walking.
  • An applicant should have the ability to handle daily activities such as finances, housework, laundry and meal preparation, shopping, taking medications and transportation.
  • An applicant should have the ability to function without assistance from another individual or mechanical device (e.g. a walker, wheelchair, oxygen or dialysis.)
  • An applicant should have clarity of thought with no signs of memory loss, confusion or forgetfulness.
  • All acceptable medical conditions must be stable and well controlled. (Medical conditions should not be severe or deteriorating, e.g. anticipating surgery, medical work-up in progress or undergoing physical therapy.)

A health Discount may apply for eligible applicants.

Won't Medicare, Medicaid take care of my long term care expenses?

While many people think the federal government pays for long term care expenses, nationally, nearly 30% of all nursing home expenses are paid out-of-pocket by individuals and their families. Long Term Care Insurance is necessary because few people qualify for long term help from Medicare. In fact, of the $60 billion Medicare spends annually, less than 2% of that is spent on nursing home costs and a limited amount of skilled nursing care in a home care situation. As well, Medicare and Medicare Supplemental Insurance is not meant to protect people from spending their life savings on long term care expenses. Instead, Medicare Supplement Insurance only pays for Medicare deductibles and co-payments.
What Does Medicare actually cover?
Generally, Medicare, Medicare Supplement Insurance and the "major medical" health insurance provided by employers are not designed to pay for long term care expenses.

Medicare does not pay long term care expenses, but will cover some forms of limited convalescent skilled nursing care and some forms of limited home health care under restrictive, short-term conditions. Short-term care is typically defined as no more than 100 days. Medicare doesn't cover custodial care for personal needs or care that doesn't require professional medical skills or training. Medicare requirements:

  • Admission to a skilled nursing facility must be within 30 days of a three-day hospital stay, and admission can only be for the condition that was treated during that hospital stay. (This condition effectively eliminates most Alzheimer's and Parkinson's cases.)
  • A physician must certify the need for daily skilled care.
  • The patient must be showing reasonable progress. Once provided care does not show additional progress, Medicare will cease additional payments.
  • Medicare covers only skilled nursing care. Intermediate or custodial care are not eligible.

Medicare will only pay for hospice care if you are terminally ill and have a life expectancy of six months or less and choose to receive hospice care rather than regular Medicare benefits for management of your illness either in your home or in a Medicare-approved hospice.
Medicare Supplemental Insurance:

  • These plans usually only cover the co-payments and deductibles of the limited skilled nursing benefits covered by Medicare. (see your policy if you have one)

Will Medicaid Help Me?
Medicaid is a form of welfare intended only for those with extremely low incomes. In order to receive Medicaid assistance, income and assets must be either non-existent, or extremely low. To qualify, you are required by Medicaid to spend down most of their savings and income before becoming eligible, depleting your assets to be at or below your state's poverty level. Medicaid also imposes many restrictions, and your choice of facilities and locales is limited to those that accept Medicaid-eligible patients. The spouse of a Medicaid recipient is allowed to keep a low level of income and certain assets in order to avoid poverty, but must pay amounts above these levels for the institutionalized spouse's care. The Insurance Portability and Accountability Act of 1996 makes it a federal crime to "knowingly and willfully" transfer financial assets in order to qualify for Medicaid coverage of nursing home and other long term care services.
Of course, these are but a few of Medicare and Medicare Supplement Insurance limitations.

Consumer Protections and Tax Treatment

State Long Term Care Tax Incentives

California - Statute: Insurance Department Bulletin 96-11
Tax deduction for the purchase of qualified long term care insurance premiums, covering an individual, with certain limitations.
Oregon - Chapter 1005
Establishes an income tax credit of 15 percent or $500 of premiums paid by individuals for long term care insurance covering the individual or a dependent or parent. Allows employers a credit of $500 per employee for which long term care insurance was purchased.
State statute Information courtesy of the Health Insurance Association of America (HIAA), which is solely responsible for its accuracy.

Health Insurance Portability and Accountability Act - Kennedy/Kassebaum

When Congress passed the Health Insurance Portability and Accountability Act in 1996 (HIPAA, also known as Kennedy/Kassebaum), they had two important ways to encourage tax payers to take responsibility for their own long term care needs:

Consumer Protections

In order to be tax-qualified, the long term care policy must contain certain required provisions. Many of these provisions pertain to the manner in which future benefit payments can be triggered. If the policy contains all of the required language, it can generally be considered a Qualified Long-Term Care Insurance contract for tax purposes. The following are just a few of the safeguards required of a qualified plan:

  • The policy must be guaranteed renewable.
  • Must have unintentional lapse protection
  • Must include a Required 30-day free look
  • In order for benefits to be paid, there must be the expectation that the disability will be long-term.
  • The individual must be certified by a licensed health care practitioner within the last 12 months as "chronically ill."
  • The certification must be based on one or both of the following events. First is the inability to perform, without human help, at least two of six Activities of Daily Living for at least 90 days. The Activities of Daily Living are eating, toileting, transferring, bathing, dressing, and continence. The policy must use at least five of these to measure ADL dependency. Second is the need for substantial supervision due to severe cognitive impairment in order to protect the individual from threats to health and safety.
  • Non-forfeiture benefits and benefit increase options (inflation protection) must be offered to the insured, but are not required as part of the policy.
  • Benefits under a Qualified Long-Term Care Insurance policy cannot duplicate Medicare benefits.

When shopping for long term care insurance, be sure to inquire if a plan is "qualified," not only because of the tax benefits but also for the protections for consumers legislated by Congress.

Kennedy/Kassebaum: Tax Benefits

Qualified Long-Term Care Insurance plans must meet standards set by the Health Insurance Portability and Accountability Act of 1996 (Kennedy/Kassebaum). When they do, the benefits received from a Qualified Long-Term Care Insurance plan up to the cost of care or $200 per day, whichever is greater, are not taxable. Congress has implemented tax deductions for long term care insurance premiums paid by both individual taxpayers and small business owners.
Individual taxpayers: As a result of Kennedy/Kassebaum, the PREMIUMS paid for a Qualified Long-Term Care Insurance plan are treated the same as medical expenses for tax purposes. Taxpayers who itemize may deduct the cost of eligible Qualified Long-Term Care Insurance PREMIUMS as a medical expense on IRS Form 1040, Schedule A. The deductibility of premiums by self-employed individuals discussed above is also limited to eligible Qualified Long-Term Care Insurance premiums. The eligible long-term care premium limits are adjusted annually for inflation. When allowable medical expenses listed on Schedule A, including eligible Qualified Long-Term Care Insurance premiums, exceed 7.5% of the taxpayer's adjusted gross income, the excess over 7.5% can be deductible as "un-reimbursed medical expenses. You can only benefit from this if you itemize deductions.

The amount of premiums per person that may be added to un-reimbursed medical expenses depends upon age. The age-based limits are (2005):

AgeIndividual Couples (both the same age)
40 or less$270$540
41-50$510$1,020
51-60$1,020$2,040
61-70$2,720$5,440
71 or more$3,400$6,800

All BENEFITS paid from Qualified Long-Term Care Insurance reimbursement policies are, of course, non-taxable. For Qualified Long-Term Care Insurance contracts which pay a fixed daily benefit independent of actual expenses incurred (indemnity- or disability-based Long-term care insurance policies) the tax-free benefit has increased to $240 a day.
If an employer contributes to the premium cost of Qualified Long-Term Care Insurance for eligible employees and dependents pursuant to a plan, the contributions will generally be excludable from the employee's income and generally deductible for the business.

Small business owners.
The 1998 Omnibus Appropriations Conference Agreement signed by President Clinton accelerates the phase-in of a 100 percent deduction for small business owners and increases the percentage of premiums that may be deducted. A person who is self-employed as defined by Section 162(1) of the IRC may apply the following percentages to any premium he or she pays on long term care insurance for: self, spouse, dependents and employees. Self-employed means sole proprietorships, partnerships, "greater than 2% shareholders" of S-corporations or Limited Liability Corporations.
Example: Jack a 67 year old male and owns a tax Qualified Long-Term Care Insurance policy with an annual premium of $2600. He has an adjusted gross income of $50,000 with $5000 of medical expenses ($2800 non-insurance expenses plus $2200 eligible portion of QLTCI premium).

  • 7.5% of AGI=$3750 ($50,000 X 7.5%)
  • Allowable deduction for medical expenses=$1250 ($5000 - $3750)

Corporations: The officers and owners of a C corporation may be employees, and therefore 100% of the corporation's contributions to the premium cost of Qualified Long-Term Care Insurance policies for its employees, employee-officers, owners and spouses of employees and owners may be deductible by the corporation and not taxable to the employees if the contributions are made pursuant to an employee benefit plan. If the Qualified Long-Term Care Insurance employee benefit plan is insured, it need not conform to any non-discrimination rules and may be available only to a select group of employees. But, the corporation must be able to show, if challenged by the IRS, that the plan covers owner-employees as employees and not as owners. Qualified Long-Term Care Insurance coverage may not be included in a Section 125 plan or a flexible spending account. This means that the employer may not use salary reduction dollars to pay its premium contribution and the employee's premium contribution, if any, must be paid with after-tax dollars. The Qualified Long-Term Care Insurance plan may be offered to retired employees, eligible dependents of employees and retirees, including dependent parents, and surviving eligible dependents after an employee's death. COBRA does not apply.

The premiums paid by the corporation are not included in the employee's gross income.
The benefits paid on a tax qualified long term care insurance policy will generally not be taxable as income.
There are additional tax incentives for C-Corporations.

Frequently asked Questions About Deducting Long Term Care Expenses

Can anyone deduct long-term care expenses?

A taxpayer can deduct expenses for him or herself, a spouse, or a dependent, if the individual has been certified as chronically ill and the services are prescribed. A dependent could be a parent, grandparent, or other relative, or a non-relative living in the taxpayer's home, if the taxpayer provided over half the person's support for the year.

Can my siblings and I deduct the money we spend on care for our mother?

In some cases, if several persons jointly provide more than half of an individual's support, one of them could claim a deduction if they have a multiple support agreement.

Is there a limit on the deduction?

Only medical expenses in excess of 7.5% of adjusted gross income are deductible. In addition to long-term care expenses, taxpayers can deduct most medical expenses that are not reimbursed by insurance, such as prescription drugs, health insurance premiums, eyeglasses, hearing aids, wheelchairs, medical transportation, and home modifications for a person with disabilities. There is a limit on itemized deductions for high-income taxpayers.

Who can qualify as "chronically ill"?

A licensed heath professional must certify that a person:

  • Is unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for at least 90 days, without substantial assistance from another individual; or
  • Has severe cognitive impairment that requires substantial supervision to protect the individual from threats to health and safety.
  • Persons residing in a nursing home, automatically qualify and no further documentation is necessary.

How should I document eligibility and expenses?

  • Certification by a doctor, registered nurse, or licensed social worker that the person receiving care is chronically ill, and a signed care plan prescribing the services to be deducted. Agencies providing care usually have assessments and care plans that can be used to show eligibility.
  • Documentation of all expenses, including receipts and the name, address, and federal tax number or Social Security number for the care provider(s).
  • Notes from family and care providers about the behavior of the chronically ill person that might help document the need for care or supervision.
  • If a person resides in a nursing home, no other documentation is necessary.

What if I didn't get certification and a care plan last year?

Ask your home care agency, nursing home, or doctor if they have an assessment and care plan in their files that you could use to justify deducting last year's expenses. Make sure you start collecting documentation for this year's expenses now.

What long-term care expenses can be deducted?

The law now allows maintenance and personal care services to be deducted as medical expenses, if they have not been reimbursed by insurance. Maintenance and personal care services refer to help with six activities of daily living listed in the law (eating, toileting, transferring, bathing, dressing, and continence), and supervision of persons with severe cognitive impairment. The entire cost of nursing home care, including room and board is deductible. Only extra items, such as beauty parlor charges, are not deductible.

Can any long-term care expense be deducted?

The health professional writing the care plan must decide what services a person needs, considering their living conditions and family support, as well as their disabilities. For example, a doctor might approve housekeeping for a chronically ill person living alone, but not for an equally disabled person living with her adult daughter.

Downloadable publications

Long Term Care Links

For information on legislation pending see: (Click on each below)
the rubins.com
The National Committee to Preserve Social Security and Medicare.
The American Health Care Association
Association of Health Insurance Advisors
National Association of Health Underwriters
National Association of Insurance and Financial Advisors

Other Long Term Care Insurance Links

The American Health Care Association LTC News
American Assisted Living Nurses Association
American Association of Homes and Services for the Aging
Assisted Living Federation of America
Americans for LTC Security
Center for LTC Financing
Continuing Care Accreditation Commission
Institute for Caregiver Education, Inc.
Long-Term Care Provider
National Association for the Support of Long Term Care
National Center for Assisted Living
Office of Disability, Aging, LTC
Policy Center on Rural LTC
State LTC Profiles

Some Final Words

Long Term Care Insurance is truly affordable. Purchasing it does not deplete your life savings, nor affect your lifestyle - unlike the alternative. Rates depend on age, health, and the amount of insurance you wish to purchase, and are often tax deductible. In America, we rarely hesitate to purchase insurance that covers our home, automobile, or general medical expenses. Yet only now are seniors beginning to see the importance of Long Term Care Insurance. If you are interested in Long Term Care Insurance, contact your financial advisor - In the Portland Oregon and Vancouver Washington area see us at Advanced Corporate Planning.

The websites listed are being provided for information purposes only. Although we assume the information is factually accurate, we are not responsible for the content as we are not affiliated with and do not endorse, authorize or sponsor any of the listed websites or their respective sponsors. First Allied Securities, Inc. is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. First Allied Securities, Inc. is not responsible for the content of any website or the collection or use of information regarding website's users and/or members.