INSU 3315 – Life

and Health
Insurance

Chapter 5: Long-term Care

COLLEGE OF BUSINESS Insurance
Center for Insurance & Risk Management
Preparing Students for Lifetime Careers
Dr. Yao
Learning Objectives

4.1 Why people buy long-term care insurance

4.2 Levels of care
4.3 Long-term care settings
4.4 Cost of long-term care
4.5 Paying for long-term care
4.6 Long-term care insurance policy design
4.7 Triggers that qualify the insured for long-term care benefits
4.8 Policy features
4.9 Policy riders
4.10 Common Exclusions
4.11 Purchasing a long-term care policy
4.12 Group long-term care insurance
Introduction

Long-term care insurance is a coverage that

pays a daily or monthly benefit for medical or
custodial care received in a nursing facility, in a
hospital, or at home.
The cost of long-term care in a nursing home is
staggering. The majority of long-term facilities
charge $90,000 to $130,000 or even more for
each year of care.
The Medicare program provides only limited
assistance in paying for the cost of long-term care.
The patient must require medical care in a skilled
nursing facility, and only up to 100 days are
covered.
Custodial care is excluded altogether.
Introduction

In addition, most elderly are not initially eligible for long-term care under
the Medicaid program, which is a welfare program that imposes strict
eligibility requirements and has a stringent means test.
As a result, some older Americans have purchased long-term care policies to
meet the crushing financial burden of an extended stay in a nursing facility.
Introduction

Facts:
❖ The 75-million-strong, aging baby-boom
generation;
❖ The increase in life expectancy;
❖ Improving but costly medical treatment;
❖ Changing demographics of the United States

Long-term care refers to the medical, social,

personal care, and supportive services needed by
people who have lost some portion of their
capacity for self-care because of a chronic illness
or condition.
Introduction
Insurers designed long-term care
insurance policies in the late
1960’s and early 1970’s.

Now, most states have passed

NAIC’s (National Association of
Insurance Commissioners) model
Long-term Care Partnership
legislation because they recognize
the cost-saving potential for
Medicaid budgets.
 Why people buy long-term care
insurance
▪ Preserve independence;
▪ Guarantee a choice of care and caregivers;
▪ Stay at home (or in another chosen
environment) as long as possible;
▪ Protect assets and standard of living;
▪ Avoid being a burden on family and friends;
▪ Leave more assets to family members, church, school,
or other worthy causes;
▪ Achieve peace of mind
Why people buy long-term care
insurance
Long-term care insurance is a good option if an individual:
▪ Wants to protect significant assets and income;
▪ Does not have significant assets and income to fully fund care, and does
not want to rely on Medicaid;
▪ Wants to remain financially independent and not drain the resources of
family or friends for care or funding;
▪ Wants to receive quality care in a chosen setting.
Levels of care
The severity of the condition and the duration of time required for treatment
will determine the level of long-term health care an individual requires.

Long-term care insurance policies typically cover skilled care and custodial
care. While they usually do not cover intensive care, acute care, and
intermediate care, which may be covered by other health insurance.
 Levels of care
❑ Intensive or acute care
The highest level of care for the most serious medical conditions,
with constant monitoring by highly trained medical providers.
This level of care is often short-term in nature, and benefits
typically come from major medical-type health insurance
policies.
e.g., services in a hospital’s emergency room; surgery center, or
intensive care unit
Intensive/acute care is often brief in order to address the urgency
and severity of a situation.
Levels of care
❑ Intermediate care
For a patient who requires maintenance by skilled personnel to administer some of the more complex
medicines or change the dressing on a wound, but only every few hours.
Even though the patient will need this care for a longer period of time, the care is less specialized and
can be of a more rehabilitative nature. Intermediate care often completes treatments that move the
patient toward release from the facility’s direct care.
Benefits typically come from major medical-type health insurance policies.
Levels of care
❑ Skilled care
Provided when a medical condition does not require constant monitoring,
but is still serious enough to require 24-hour nursing care from licensed
medical professionals with the expertise and training, as well as ready access
to a physician who can recommend and prescribe treatment.
The duration is typically longer.
Long-term care insurance is designed to cover this type of care, which is
often administered in a nursing home setting.
 Levels of care
❑ Custodial care
Provides care for an individual who is unable to
perform one or more of the “activities of daily
living” (ADLs).
The care may be performed by a trained nurse’s
aide, other medical personnel, or a trained family
member, and it may be provided in a facility such as
a nursing home or assisted living facility, or
personal residence.
Long-term care insurance is designed to cover
this level of care.
 Levels of care
❑ Hospice care
With an illness or medical condition that
appears to be leading to imminent death.
Although seemingly urgent, hospice care usually
consists of a quieter type of care, intended to
make the patient comfortable in the final stage
of life by tending to personal care issues and
pain management.
This level of care may also be part of a long-
term care insurance policy.
Long-term
care settings
Long-term care settings
❑ Skilled and intermediate care facilities
Rehabilitation centers or nursing homes.
Typically the first stop after a hospital stay for an individual who needs high-
maintenance care.
They may be stand-alone facilities or attached to the hospital that provided
the preceding care.
*CMS: centers for Medicare & Medicaid
services
 Long-term care settings
❑ Home care
Some service may be provided by nurses who travel to a patient’s
home to give simple daily or weekly assistance.
Having the option of being in a home setting, while still getting the
assistance needed, can have a very positive effect on the overall well-
being of the individual, even contributing to a longer and more useful
life.
Skilled professionals may attend to specific health issues at the
patient’s home.
Some homecare professionals live in the patient’s home. The patient’s
family receives training and administers the necessary care in the
home
Long-term care insurance typically covers home care.
Long-term care settings
❑ Assisted living facilities
Residential care facilities. These facilities generally give custodial (non-
skilled) care for people who need help with some activities of daily living
with minimal assistance.
In many cases, assisted living facilities are individual residence units like
apartments, all under one roof, with attendants who can respond quickly to
an individual’s needs.
These facilities can provide temporary accommodations or permanent
residences.
Some facilities also offer graduated services, which range from independent
housing to intermediate, skilled, and even acute care and end-of-life or
hospice care.
 Long-term care settings
❑ Adult daycare
To help keep physically-challenged or cognitively-impaired
individuals (or seniors needing special assistance) in their
own homes.
Adult daycare facilities offer custodial care, typically on
weekdays, to people who need minimal assistance and have
moderate impairments.
Most adult daycare requires a daily fee, and the individual
can attend as frequently as desired, either full or half days.
Costs of long-term care
When individuals are unable to effectively care for themselves and must look
for assistance they must deal with the reality of costs, not only the monetary
cost, but also the human costs.
Costs of long-term care
Future costs
Costs could continue to rise at rate of approximately 4.28% a year, future
costs for long-term care could approach $400,000 per year in 2050.
Ancillary costs
May be difficult to predict. Nursing home additional expenses may include
laundry, medications, adult protective underwear, and other incidentals.
Home care additional expenses may include safety devices.
Ancillary costs also include payments to others for tasks the individual
cannot now perform.
Human costs
Other financial costs; physical costs; emotional costs; family costs.
Paying for long-term care
Government programs
❑ Medicare
Medicare is a federal program that covers individuals who are eligible due to
age (65+), disability through Social Security Disability Insurance (SSDI), or
permanent kidney failure known as end stage renal disease.
Part A of the Medicare program provides benefits to cover more acute
inpatient hospital care, limited skilled nursing home care and limited home
care expenses.
The qualifications and durations for receiving any of these benefits are very
stringent.
Paying for long-term care
Many people receiving long-term care are not elderly but between the ages
of 18 and 64.
❑ Self-insurance
❑ Rely on others
❑ Spend down assets and apply for Medicaid
Medicaid can provide some care benefits to those who are unable to provide
the funds required for care, but this federal and state-sponsored program
requires that spend-down of assets before paying for care.
Government programs
❑ Medicare
❑ Medicaid
Paying for long-term care
Paying for long-term care
❑ Medicare
If the physician prescribes admission to a skilled care facility, there could be coverage
from Medicare, individuals must meet all of the following requirements:
1) A consecutive 3-day period in the hospital for treatment (not including day of
discharge) must precede the admission to the nursing facility. Admission to the
nursing home could be delayed but must occur within 30 days of discharge and must
be for the same medical condition;
2) The care necessary must be skilled nursing or rehabilitative care and not custodial
care;
3) The facility must be certified and approved by Medicare;
4) A physician must certify that daily skilled care is necessary.
Once these four requirements have been met, Medicare can provide up to 100 days of
coverage for the skilled facility stay, subject to the following guideline payout limitations:
▪ Days 1-20 up to 100% of approved amount
▪ Days 21-100 all but $142 per day
Paying for long-term care
❑ Medicare
The Medicare beneficiary must be “continually improving” to receive ongoing
benefits. Medicare can also provide a benefit if the patient could be treated at
home. The following requirements imposed for a beneficiary to qualify:
▪ Medicare may pay benefits for home health care if the beneficiary needs only
intermittent skilled care (less than 7 days per week or less than 8 hours per
day and only up to 21 days);
▪ A physician must certify that this home health care is appropriate;
▪ The patient must be house bound (unable to leave without assistance);
▪ Medicare must certify the home health care agency.
Some of the services not covered by Medicare include full-time nursing care,
prescription drugs, home meal delivery, and personal care or housekeeping
needs (custodial care).
Paying for long-term care
Government programs
❑ Medicaid
A welfare program designed to provide financial assistance for necessary
care to low-income individuals and those without sufficient assets.
▪ The federal and individual state governments fund Medicaid jointly;
▪ Medicaid bases eligibility on assets and income at or below poverty
level.
Care services may be covered but may not be limited to:
Inpatient hospital care; Laboratory services; X-ray services; inpatient skilled
nursing facility services; home health care; outpatient services; physician
services
Paying for long-term care
❑ Medicaid
In order to qualify for Medicaid, the beneficiary must:
▪ Exhaust all assets and have limited income;
▪ Be in need of care services in a nursing facility, private residence or assisted
living facility;
▪ File a claim for benefits through Medicare (even if Medicare would not
cover the level of care);
▪ File a claim for benefits under any available private insurance.
Assets and income that are exempt from liquidation:
Where one spouse needs care, the house where the remaining spouse resides;
personal property, including household belongings; one automobile (with a
maximum actual cash value); life insurance; burial plots; a specified amount of
monthly income.
Federal and state Medicaid rules may impose penalties or disqualification
from Medicaid benefits.
Paying for long-term care
❑ Long-term care partnerships
Medicaid is paying around one-half of the long-term care expenses.
State governments have implemented “long-term care partnerships” to
reward those individuals who purchase the long-term care insurance
coverage.
Instead of spending down all assets prior to qualifying for Medicaid, the
insured individual may retain property and funds valued at the same
amount as the values of the insured’s long-term care coverage policy.
All require that the long-term care policy must:
▪ Be tax-qualified;
▪ Include features that support consumer protection;
▪ Have certain levels of inflation protection.
Paying for long-term care
❑ Transfer the risk
Buying an insurance policy from a private insurer.