Long-term insurance

Definition

Long-term insurance provides for a person's care in cases of chronic illness or disability. Policies are available with a wide range of coverage options.

Long-term insurance refers to coverage of health services, which may include community health care, nursing home care , and home support. Long-term health insurance is normally for the elderly, but is sometimes also applicable to younger individuals with disabilities.

Description

A major health care challenge looms over America as the population ages and people live longer. The country lacks a comprehensive health system that serves the needs of millions of older persons and individuals with long-term disabilities.

Long-term care options are often fragmented, uncoordinated, and costly for patients, their families and, in some instances, public coffers. Millions of Americans, according to the American Association of Retired Persons (AARP), are denied access to long-term care services because they cannot pay for services, do not qualify for public funding or cannot access the types of services that they need and can afford.

People of all ages usually prefer to receive long-term care in their own homes, or in home-like assisted-living facilities. More than three-quarters of older Americans in need of long-term care live in the community, with most receiving no paid services. The majority of long-term care is provided by unpaid, informal caregivers, such as family and friends. In 1996, more than 22 million households in the United States included a caregiver who was age 50 or older. About 73% of unpaid caregivers were women, nearly one-third of whom were over age 65. Many caregivers, especially women, balance multiple caregiving roles by providing for both their parents and their children.

Medicare does not cover most long-term care services. In 1997, 68% of nursing home residents were dependent on Medicaid to finance at least some of their care. For many, long-term insurance is unaffordable, and many cannot qualify because of pre-existing conditions.

Long-term insurance policies are often complex. People who purchase them may not read the fine print, then are forced to cancel the policy later because it does not fit their needs. Increasing rates factored into some long-term policies, known as "climbing premiums," may also become prohibitively expensive.

Long-term care insurance can benefit the consumer, provided that such items as affordability, coverage gaps, and timing of purchase are carefully considered. It may be advisable to check the financial stability and the claims ratio of the insurance company. Long-term insurance is a serious financial investment and should be considered a part of estate planning. A qualified, independent professional should be consulted to review the policy before purchase. The state health insurance assistance program (SHIP) is also available to answer questions.

The type of care that a client seeks is another important consideration before purchasing a policy. There is as yet no universal standard for defining long-term care facilities. A placement that is covered under one company's policy may not be covered under another's. Physicians can also play a part in denial of a placement by stating that the facility of choice is either not adequate or too advanced for the patient's needs.

When to buy a policy is another important consideration. Individuals with a pre-existing diagnosis for a debilitating condition or illness may not be eligible for coverage. This clause is common in most insurance policies of any type. But purchasing a policy too far in advance of an anticipated need can work against a buyer. The health care industry is currently in a state of flux, and technological advances are rapid. The benefits provided in a policy that is purchased at one point in time may not match the care available in the distant future, giving the company reason to deny benefits.

Generally, long-term insurance operates as an indemnity program for potential nursing home and/or home health-care costs. Additionally, many policies provide coverage for adult daycare, for care delivered in an assisted-living facility, and for hospice care. Rarely are all costs covered.

Some long-term care policies are pure indemnity programs which pay the insured a daily benefit contracted for by the insured. The pure indemnity program pays the full daily benefit regardless of the amount of care that the insured receives per diem.

Other long-term care policies pay for covered losses, or the cost of care actually received each day, up to the selected daily benefit level. This type of policy is also referred to as a "pool-of-money" contract.

Long-term insurance is available either as part of a group or individual coverage, although most are currently purchased by individuals. Most policies cover skilled, custodial and intermediate long-term care services. A purchaser is wise not to consider a contract that does not cover each level of long-term care services.

A recent change in the U.S. federal tax law allows for a portion of a long-term insurance premium to be tax-deductible. This deduction increases with the insured's age.

Benefits under a long-term care contract are triggered in a tax-qualified policy when the insured becomes unable to perform a number of activities associated with normal daily living or suffers from a cognitive impairment that requires supervision.

Non tax-qualified policies usually offer more liberal eligibility criteria, which includes long-term benefits because of a medical necessity.

KEY TERMS

Indemnity —Protection, as by insurance, against damage or loss.

Long-term insurance can help pay for needed services, as well as protect against the risk of significant financial loss. It may also provide choices about services and where they are received. Normally, neither employer health insurance nor Medicare pays for significant long-term care expenses, although Medicare does pay for short-term skilled care. Medicaid, the federal/state health insurance for those with limited assets and income, does pay for long-term care, but patients must use most of their savings or assets before these benefits can be realized.

Viewpoints

Long-term insurance policies can be expensive and may be restrictive in what they provide. Before purchasing a policy, individuals should make certain that it is within their means and will meet their anticipated needs. Some policies allow policy holders to tap into survivor death benefits to use for health care needs. Several different policies should be compared in detail. Recommendations from elderly advocate organizations can be helpful. Young people with disabilities have fewer options for long-term insurance because many policies exempt individuals with a pre-existing condition.

Professional implications

Health care professionals should be aware of the pros and cons of long-term insurance and be able to answer patients' questions. Long-term insurance may involve special billing procedures.

Resources

Shelton, Phyllis. Long-Term Care Planning Guide Version 2000. Shelton Marketing Services, 2000.

PERIODICALS

Bern-Klug, Mercedes. "Health Insurance for People with Medicare." Clinical Reference Systems Annual 2000, p.781.

Norrgard, Carolyn. "Long-term care insurance." Clinical Reference Systems Annual 2000, p. 988.

OTHER

American Association for Retired Persons (AARP) 601 E St., NW, Washington DC 20049. (800) 424-3410. <http://www.aarp.org>.

Jacqueline N. Martin, M.S.