Private Long-Term Care Insurance

Background

Long-term care insurance (LTCI) can be purchased privately. Many policies cover a range of services in several settings, including homes, adult day service centers, assisted living, and nursing facilities. However, some people may not be able to buy a policy because they have a preexisting condition or because they cannot afford one. For others, such as people who would become quickly eligible for MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. if they needed long-term services and supportsLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. , such insurance is not appropriate. A variety of factors have made the business model for LTCI more problematic over the years.

Insurance carrier profitability is suffering due to extremely low-interest rates on investments and the failure of policyholders to drop coverage as often as the industry predicted. These trends are putting pressure on insurance carriers to address profitability by raising rates and reducing policy incentives and product features. These actions, in turn, make LTCI less attractive to new purchasers.

As a result, many insurance carriers have decided to stop selling LTCI. Others are raising premiums, tightening medical underwritingA process in which a health insurer uses an applicant's medical history to decide whether to offer a policy and whether the policy will include pre-existing condition exclusions and/or a premium that's higher than the standard rate. , and eliminating or reducing policy discounts.

LTCI provisions can be very difficult to understand. Potential buyers need to understand many new terms—such as non-forfeiture protection and benefit triggers—and the importance of optional features such as inflation protection. Some companies offer LTCI policies with special benefits, including reimbursement of family caregivers People who provide long-term services and supports to family members, relatives, friends, and neighbors. Some family caregivers are unpaid; others are paid through government programs, private funds, or long-term care insurance policies. , payments for caregiver training, and the option to receive a cash benefit that consumers can use for any purpose. Consumers need to be educated about the importance of these benefits.

New insurance product options may be available in some states to purchase more affordable short-term care insurance, which offers benefits for up to one year. Short-term care insurance (also known as short-duration LTCI, limited LTCI, and recovery care insurance) may offer home health, assisted living, nursing home, adult day services, and in some plans, prescription drug benefits. However, benefits may be limited and may not cover all levels of care.

Some companies have begun to offer hybrid insurance products that combine life and LTCI or LTCI and an annuityA contract that provides fixed payments for a lifetime or a specified number of years, usually after retirement. . These products are overly complex and generally require a substantial up-front premium, so they are not an option for people without significant resources.

Premium rate stability: An important issue for consumers is whether LTCI premiums will increase to a point where they become unaffordable. When policyholders drop their coverage because they can no longer afford it, they can lose their entire premium investment. Insurers are not required to return any portion of it, no matter how large the payments were. Some policies do provide some return, in cash or benefits, on the value of premiums invested. This is known as a non-forfeiture benefit. Non-forfeiture provides a reduced level of benefits after an insurance policy lapses or has been canceled. However, because the benefit is very small—often covering no more than three months of nursing facility care—non-forfeiture is a last resort for consumers who can no longer afford their premiums. One consumer protection alternative is to give policyholders a contractual right to reduce the amount or duration of benefits in any combination.

Consumer information needs: Because of the high cost and complexity of LTCI, prospective purchasers need objective information to help them determine whether to buy it based on their financial circumstances, age, living situation, and health status. Such information would help ensure that consumers purchase appropriate coverage.

It is critical that agents who sell LTCI have adequate training to explain how differences in a policy’s terms can affect future benefits. For example, differences in inflation protection or waiting periods might make one policy less expensive. Still, the purchaser needs to understand that future out-of-pocket costs would be considerably higher with such a policy. It is also important to standardize policy definitions and describe benefit triggers in a clear, uniform format to help consumers compare policies, benefits, and costs.

Lack of Portability: LTCI products often suffer from a lack of portability. For example, an individual who purchases an LTCI policy while living and working in New York and subsequently moves to Florida upon retirement may have difficulty accessing benefits after moving to a new state. This lack of portability discourages the purchase of private LTC policies, increasing the burden on public programs in the process.

Federal and state efforts to encourage the purchase of LTCI: There are some federal and state efforts to educate consumers about their risk for needing long-term services and supportsLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. and options for financing services including LTCI. These include the federal-state Own Your Future Awareness Campaign and the National Clearinghouse for Long-Term Care Information.

Nearly all LTCI policies sold today meet federal standards for favorable tax treatment. Premiums are treated as medical expenses, which can be deducted to the extent they exceed a certain portion of adjusted gross income. People with qualified LTCI policies can add the cost of their premiums to medical expenses up to a maximum limit that increases with age. In addition, benefits received under an LTCI policy are not subject to federal taxes. Employers may also offer LTCI as a tax-free benefit.

A drawback to tax incentives is that they disproportionately benefit people with higher incomes, who pay higher marginal tax rates, and thus, benefit more from each dollar spent on LTCI. Moreover, many people have incomes too low to owe taxes or have insufficient expenses to meet the medical deductionReduction in the amount of income that is subject to tax. A dollar of a deduction reduces taxes by only a fraction of a dollar, as determined by the taxpayer’s applicable tax rate threshold.

PRIVATE LONG-TERM CARE INSURANCE: Policy

PRIVATE LONG-TERM CARE INSURANCE: Policy

Long-term services and supports (LTSS) financing

If a public social LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. insurance system is enacted, private long-term care insurance (LTCI) should be designed to supplement its benefits. Without such a public system, tax incentives should be provided for the purchase of LTCI. But they should be offered only for comprehensive policies (i.e., LTCI policies that do not limit benefits to only one or two types of LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. care such as nursing home careA range of services provided in the home, including health-related care, personal care, and supportive services. ). A comprehensive policy covers care in the home, adult day services, assisted living, and nursing home careA range of services provided in the home, including health-related care, personal care, and supportive services. with strong consumer protections.

Consumer protections

Federal and state governments should improve the quality of LTCI by enacting the strongest possible consumer protection standards.

Federal and state governments should ensure strong regulatory oversight to protect LTCI purchasers from inadequate policies, overly restrictive benefit triggers, and abusive sales practices.

Congress should enact minimum national consumer standards for LTCI policies that are stronger than those required in the 1996 Health Insurance Portability and Accountability Act ( HIPAAA federal law that set privacy standards for entities that traditionally collect health care data. (It does not apply to individually used data generators, such as fitness trackers and health applications for phones.) ). Congress should also require states to ensure that all federally qualified LTCI policies sold in the state meet HIPAAA federal law that set privacy standards for entities that traditionally collect health care data. (It does not apply to individually used data generators, such as fitness trackers and health applications for phones.) ’s consumer protection requirements.

States should implement consumer protection standards that are at least equivalent to the most current version of the Long-Term Care Insurance Model Act and regulations adopted by the National Association of Insurance Commissioners.

Federal and state governments should monitor the marketplace and ensure adherence to regulatory standards by insurers and agents through vigorous enforcement.

Federal and state governments should ensure that hybrid LTCI products—such as life insurance and annuityA contract that provides fixed payments for a lifetime or a specified number of years, usually after retirement. products with an LTCI rider—and short-term care insurance products that provide benefits for up to one year are required to comply with the same consumer protection standards that other LTCI products must meet.

Consumer information needs

The public and private sectors should educate consumers about private LTCI and other methods for private financing of LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. . Consumers need to understand their options, make informed choices, and avoid purchasing products that will not meet their needs or that have limited consumer protections. Insurance companies should be required to clearly inform consumers that rates quoted are not guaranteed for the life of the policy and that rates may be increased for the entire class of policyholders based on actuarial projections.

Federal and state governments should establish standardized benefit packages that insurers would be required to offer and limit the number of packages, so consumers can understand the difference among products. Building on the Medigap insurance model, the benefit packages should allow consumers to compare the prices of products with identical benefits and provisions and the quality of the insurance provider.

In the absence of standardized benefit packages, federal and state governments should require LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. insurers to provide information in a standardized format that enables consumers to compare insurance companies, policies, and benefits.

Insurance agents should inform potential LTCI purchasers of the difference between the amount of coverage their policy offers (e.g., $150 per day) and the current rates for covered services such as daily nursing facility rates in their geographic area.

Federal and state regulations should require that insurance agents be adequately trained to explain how differences in policy characteristics affect the future benefit that the purchaser may receive.

Federal and state agencies should make available to consumers the information regulators have collected on all aspects of the sale, use, and cost of LTCI, as well as on insurers’ marketing practices. The data should include uniform information about denied claims, lapse rates, and premium increases, and should be insurer- and state-specific.

States should provide consumers with information about the LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. available in their state, and comparative information about insurers and their policies, including which services and supports each LTCI policy covers, and historical information about premium increases.

Each state should make the information it collects on LTCI available to consumers in marketing materials and through the state regulator’s website in a timely manner (e.g., within 30 days).

Meaningful LTSS coverage

LTCI companies should be required to cover both nursing facility care and a wide range of home and community-based services so individuals can receive services in their preferred setting.

Policies should have an option for policyholders to receive cash benefits so they can hire who they want and direct their own services.

Insurers should be required to offer policyholders the opportunity to upgrade their policies in a fair and timely manner.

Portability

Insurers should be required to cover a full range of LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. options, such as personal care or homemaker servicesThese services include meal preparation, cleaning, laundry, shopping, and other household chores; they may  include informal monitoring of clients’ health and functional status. . These services should be portable across all LTSSLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. settings, including assisted living.

States should allow LTCI policy portability across all states through such mechanisms as multi-state compacts, possibly developed in consultation with the National Association of Insurance Commissioners.

 

Sales practices

Federal and state governments should prohibit false advertising and monitor the marketing of LTCI policies. Individuals should not be pressured to purchase a policy if they cannot afford the premiums over the life of the policy.

Affordability

States should set strong standards and a transparent process for approving requests for premium rate increases. A qualified actuary should thoroughly review all requests.

States should require LTC insurers to provide a non-forfeiture benefit if premiums increase beyond a certain level.

Federal and state governments should require that insurers permit reductions in the amount, type, and duration of benefits for a reduced premium to people who can no longer afford the full premium.

 

Reserves

States should ensure the solvency of insurance companies that offer LTCI policies by establishing appropriate reserve requirements and monitoring companies’ financial performance.

 

Purchase of LTCI

States should provide incentives to private employers to offer LTCI coverage to employees and pay a part of the premium.

States should expand the availability of affordable LTCI products to private- and public-sector employees, retirees, and their families.

Employers (or other sponsors) who provide health insurance should offer enrollees the option of voluntarily purchasing an LTCI policy at the time when they are purchasing their health insurance.

 

Pension funds

LTCI should not be paid for through pension funds, because many pension funds are already inadequate to provide economic security in retirement.