What Is Long-Term Care Insurance?

Definition of Long-Term Care Insurance

Long-term care insurance is a type of insurance that is, not surprisingly, designed to cover long-term care needs, services, and support. In other words, it pays for needs for assistance arising from a chronic illness. It is private insurance, meaning that you purchase it for yourself, much like individual life or health insurance. However, there are some varieties of long-term care insurance that are designed and sold as group policies.

• Acronym: LTC insurance, LTCI

How Does Long-Term Care Insurance Work?

Long-term care insurance pays benefits toward the cost of “custodial care” rather than acute care and surgery, for example. If you can’t perform “activities of daily living (ADLs),” it helps pay for the care you require. ADLs are basic living activities you once could do on your own, but because of a long-term illness or injury, such as arthritis, a broken hip, or just advancing age, you can no longer do without help. ADLs are usually identified as:

• Bathing
• Personal hygiene activities like bladder control or caring for a catheter
• Dressing
• Feeding yourself, for example, with a fork or spoon or by a feeding tube
• Bathroom functions
• Getting into or out of a bed, chair, or wheelchair by yourself
• Cognitive impairment that affects short- or long-term memory, reasoning, judgment, or related factors

Depending on state law and the policy terms, you only must be unable to perform a maximum of three ADLs to obtain benefits from the policy.  Some insurers require fewer. Therefore, one factor you should consider in shopping for a long-term-care policy is the number of ADLs a plan requires to trigger benefits. 

The Elimination Period

An elimination period is the amount of time you have to wait once you’ve qualified for benefits and before the insurance company has an obligation to start paying benefits. The elimination period is similar to a deductible in an automobile or homeowners policy. But instead of paying a certain amount of money before you receive benefits, you need to wait a specified period of time—usually 30 to 100 days. During this time, you pay for your LTC expenses, though you may be able to use Medicare to help.

Be sure to check with the insurance company as some may offer the opportunity to reduce the elimination period from 90 days to 20 days by using an affiliated care coordinator.

Eligible Facilities

As long as the services are custodial in nature, the services can be given in various places. Those include at home, a nursing home, a hospice, an adult day care facility, or an assisted living facility.

Does Social Security Pay LTC Benefits?

No. The purpose of Social Security is to ensure some level of monthly income to elderly or disabled Americans. It is funded by payroll taxes. The amount of benefits you receive are based on your earnings.

The closest approximation to long-term care insurance within Social Security is the disability benefit, called Social Security Disability Benefits (SSDB). But it does not provide for the kind of custodial care that long-term-care insurance covers.  You may be entitled to SSDI if you worked in jobs covered by Social Security and have a medical condition that meets Social Security's definition of disability.

Does Medicare Pay LTC Benefits?

No. Medicare is a government health insurance program for individuals over 65 and others with specific disabilities. It isn’t designed to pay benefits for care that is required long term. That said, it can cover some of your care during your policy’s elimination period. 

Under Medicare Part A, skilled nursing facility care may be fully covered for the first 20 days. From day 21 through day 100, you must pay coinsurance in the amount of $185.50 per day. After the 100th day, you’re responsible for all costs. 

Does Medicaid Pay LTC Benefits?

Under certain circumstances Medicaid can pay for long-term care.

Since each state administers its own Medicaid system, different states have different parameters, such as rules and eligibility requirements, for the provision of long-term-care services. Often, long-term care is provided in a nursing home, but some states extend the provision of it to community-based care facilities, adult day care, and even to home care, including homemaker services. 

Does a Long-Term-Care Policy Pay All of the Expenses for Custodial Care?

No insurance policy pays all expenses or losses. Instead, they have “policy limits” that are maximums that can be paid for specific expense categories or types of services. In the case of long-term care insurance, some of the categories include nursing home care, home care (for example, for a home health aide), adult day care, or services in an assisted living facility. 

The dollar maximums on benefits are often considered a negative factor because it seems like all the benefits can be quickly used up. But while that sometimes does happen, there is a brighter side. The brighter side is that the beneficiary of the policy (the person for whose care benefits are paid) may not always need the same level of care. 

For example, there may be a period when the person does not require adult day care but instead can use a home health aide, which usually costs less, for assistance. If so, benefits can be saved for other, more costly needs. The insurance policy will specify how and if benefits can be used in this alternating way, so be sure to familiarize yourself with it. Better yet, get help from the insurance agent or broker from whom you bought the policy.

Another factor to consider in evaluating the expense of a long-term care policy is the “elimination period.” Just like a higher deductible for property insurance can result in a lower premium, a more extended elimination period for long-term care insurance may result in a lower premium. 

How Do I Buy Long-Term Care Insurance?

Since long-term care insurance is medically underwritten, some people with certain underlying health conditions, unfortunately, cannot buy it. This is one way it differs from health insurance.

It is critical that you deal only with an insurance agent or broker who is licensed in your state to sell life and health insurance. If you want to confirm licensure, contact your state insurance department. Many states require those agents and brokers who sell long-term care insurance to take special courses to be able to do so. Therefore, ask if the agent or broker you hope to use is current on their continuing education requirements, including those concerning long-term care insurance.

Long-term care is underwritten based on morbidity, which is the likelihood of suffering from a debilitating disease or medical condition. It differs from life insurance, which is underwritten based on mortality, or the likelihood of dying. It is possible to be approved for life insurance and still be declined for long-term care insurance and vice versa.

Long-term care insurance is complex and can be expensive. You may need expert advice. So don’t be afraid to “interview” a few sellers of the product and judge who seems most knowledgeable. Don’t just settle for whoever appears to be “nicest.”