Long-term care insurance, or LTC, is an issue that many aging, retirees, and families are concerned about. Often the cost of nursing homes or home aids creates a financial strain on families. A private room in a nursing home costs $219 a day ($79,935 a year). Assisted living facilities cost $37,572 a year (AARP). Long-term care insurance is a relatively new program that seems to be a valuable option for some.
Medicare doesn’t cover LTC. Medicaid does cover LTC, but is only for individuals who have little money left.
A longitudinal study of policyholders who were receiving services found that most satisfied with their providers, and “nearly all reported having no disagreements with their insurance company.” (KFF).
The Kaiser Foundation, a non-partisan source, says “Middle-income individuals are among those who could most benefit” from long-term care insurance policies, since they are most at risk for having to rely on Medicaid if significant care is needed, and are more able to purchase policies than lower-income individuals. However, most policyholders are currently above middle-income.
Purchasing a Policy
The Kaiser Commission on Medicaid and the Uninsured provides the following factors to consider when purchasing a policy.
- Daily Maximum Benefit Amount: This amount represents the most amount of money insurance will pay for services on any day, and usually ranges from $100 to $200 a day.
- Benefit Period/lifetime Maximum Benefit: This time represents the length of time benefits will be paid, or the total amount of money available for benefits. Thus, if an individual receives services at $100 a day, their coverage may last fewer years than an individual receiving $80 a day. Most purchasers choose a benefit period of 3 to 5 years.
- Covered Services: Most policies cover a nursing homes, assisted living facilities, home care aids, and adult day care. Most individuals choose a policy with a comprehensive set of benefits.
- Elimination Period: Most policies require a specific amount of time elapse after the individual starts qualifying for long-term care before benefits are paid. Most policies have elimination periods of 90 days. Premiums are lower with longer elimination periods, however out-of-pocket expenses are higher when care is required.
- Inflation Protection: There are many options for inflation protection. A table explaining the options is found here. Half of individuals choose 5 percent compound inflation protection.
The AARP also recommends that each policy:
- Does not require hospital stays before receiving benefits.
- Cannot be cancelled if premiums are continually being paid.
- Allows you to stop paying premiums once you begin receiving benefits.
- Has one deductible only.
- Covers pre-existing conditions if you disclosed them during application.
- Allows a downgrade in coverage if you cannot afford the premium.
- Covers dementia.
- Provides at least one year of nursing care and home health care coverage.
LTC insurance is difficult for individuals who are 70 and older to obtain. They are deemed high risk and may be denied or charged a very high premium.
A table of 2008 Annual Premiums for $150 per day, 3 years comprehensive coverage, 5 percent compound inflation protection, and a 90-day elimination period is found here. The table compares costs for married and single people, the age (40, 50, 60, and 70), as well as the three most popular carriers (Genworth, Metlife, J.Hancock). Premiums range from $1350-1700 for 40-year old singles, $1900-$2100 for 40-year old married couples, $1600-$1900 for 50-year old couples, $2200-$2500 for 50-year couples, $2,150- $2,500 for 60-year old singles, and $3,000- $3,300 for 60-year old married couples.
States regulate long-term care insurance. Most states have some consumer protection for purchasers. For example, North Carolina requires that policies cover all pre-existing conditions after six months, offer a meaningful inflation period, and must be guaranteed renewable.
The National Association of Insurance Commissioners (NAIC) established the Long Term Care Model Act and Regulation. In 2000 it drastically changed the model, adding rules that “place greater responsibility on insurers to make initial premiums adequate, rather than relying on experience after policies are sold to make corrections to the premiums. A qualified actuary must certify that proposed premiums are sufficient to cover anticipated costs” (KFF).
In 2006, the NAIC added amendments to the Act, to “ensure that long-term care insurance policies would pay for services in facilities in other states, even if the facilities are licensed or registered in a different way from those in the state in which the policy was sold.”
The Patient Protection and Affordable Care Act establishes a Federal insurance program for long-term care for individuals having difficulty with two or three activities of daily living, or for people with severe cognitive impairments. The name of this program is the Community Living Assistance Services and Support (CLASS), and was originally sponsored by the late Senator Edward M. Kennedy. There is no Federal subsidy for the program, but rather individuals pay premiums to finance the program. Participants must meet specific work requirements for 5 years before being eligible to receive benefits, which can be used to purchase long-term care assistance. Premiums vary by year of enrollment and age at the time of enrollment. The Secretary has set the premiums to ensure the program is solvent for 75 years.
Centers for Medicare & Medicaid Services
Robert Foster, Chief Actuary of the Medicare program estimates that the CLASS Act will provide Federal savings of $38 billion in the first 9 years. This is attributed to the premiums paid by participants. However, in 2015 when the five-year window allows some participants to start receiving benefits, “the net savings will decline.” Furthermore, “In 2025 and later, projected benefits exceed premium revenues, resulting in a net Federal cost in the longer term.” Expenditures will exceed premiums, making the program “unsustainable.”
Foster attributes the following factors as adversely affecting the CLASS program: “the program’s voluntary nature, the lack of a Federal subsidy, a minimal premium for students and individuals with incomes under 100 percent of the FPL (initially $5 per month), a relatively high premium for all other participants as a result of adverse selection and the effect of subsidizing participants paying the $5 premium, a new and unfamiliar benefit, and the availability of lower-priced private long-term care insurance for many.”
Additionally, the premiums are a reflection of the costs necessary to take care of individuals with health problems and functional limitations. This high rate may discourage the average healthy person from participating, which will further increase premiums. Foster calls this “adverse selection by participants.” Furthermore, participants are required to subsidize the $5 premiums for students and low-income participants. Foster says “there is a very serious risk that the problem of adverse selection will make the CLASS program unstable.”
The Heritage Foundation
According to The Heritage Foundation, a think tank for conservative public policies, the CLASS Act insurance program is a “gimmick.” The CBO is estimating payments by participants to be about $70 billion over 10 years, which health law proponents are claiming as deficit reduction. The Heritage Foundation cites the Chief Actuary, Foster’s, data and concern of adverse selection, saying, “The program will either need to dramatically cut benefits or get a major federal bailout. Thus, not only is it inappropriate to claim the $70 billion in premiums as savings, but this program will almost certainly become a huge new unfinanced burden on future taxpayers.