Long-Term Care Insurance

A Review for Doctors and Advisors

By Gary A. Cook; MSFS, CLU, ChFC, LUTC, RHU, CFP®, CMP™ (Hon)


Long-term care (LTC) insurance is considered one of the newest forms of personal coverage insurance.  LTC insurance is designed to transfer the financial risk associated with the inability to care for oneself because of a prolonged illness, disability, or the effects of old age.  In particular, it is designed to insure against the financial cost of an extended stay in a nursing home, assisted living facility, Adult Day Care Center, hospice or home health care.  It has been estimated that two out of every five Americans now over the age of 65 will spend time in a nursing home.  As life expectancy increases, so does the potential need for LTC. One unfortunate consequence of being the “new kid on the block” is the lack of actuarial data specifically collected for this style of policy.  This results in policy premiums being underpriced to sustain the claims currently being experienced.  During the first half of 2003, at least three insurance companies stopped writing these policies because of their losses.  Those insurers remaining in this market are expected to increase premiums quickly.  Unless these policies can be profitable for the company, their future will be an uncertain one.


Any discussion of LTC must begin with an understanding of what Medicare is designed to cover.  Currently, the only nursing home care that Medicare covers is skilled nursing care and it must be provided in a Medicare-certified skilled nursing facility.  Custodial care is not covered. Most LTC policies have been designed with these types of coverage, or the lack thereof, in mind. To qualify for Medicare Skilled Nursing Care, an individual must meet the following conditions: 

  • Be hospitalized for at least three days within the 30 days preceding the nursing home admission;
  • Be admitted for the same medical condition which required the hospitalization; and
  • The skilled nursing home care must be deemed rehabilitative.

Once these requirements are met, Medicare will pay 100 percent of the costs for the first 20 days.  Medicare covers days 21 to 100 along with a daily co-payment, which is indexed annually.  After the initial 100 days, there is no additional Medicare coverage. Medicare Home Health Services cover part-time or intermittent skilled nursing care, physical therapy, medical supplies and some rehabilitative equipment.  These are generally paid for in full and do not require a hospital stay prior to home health service coverage.


Critical LTC Policy Features

According to the U.S. Department of Health and Human Services and the Health Insurance Association of America, there are seven features that should always be included in a good long LTC policy: 

  • Guaranteed renewable (as long as premiums are paid, the policy cannot be canceled).
  • Covers all levels of nursing care (skilled, intermediate and custodial care).
  • Premiums remain level (individual premiums cannot be raised due to health or age, but can be raised only if all other LTC policies as a group are increased).
  • Benefits never reduced.
  • Offers inflation protection.
  • Full coverage for Alzheimer’s Disease (earlier contracts tried to eliminate this coverage).
  • Waiver of premium (during a claim period, further premium payments will not be required).

In addition, there are another seven features considered to be worthwhile and are included in the better LTC policies: 

  • Home health care benefits
  • Adult day care and hospice care
  • Assisted living facility care
  • No prior hospital stay required
  • Optional elimination periods
  • Premium discounts when both spouses are covered
  • Medicare approval not a prerequisite for coverage.


Most LTC policies provide benefits for covered insured’s with a cognitive impairment or the inability to perform a specified number of Activities of Daily Living (ADLs). These ADLs generally include those listed below and the inability to perform two of six is generally sufficient to file a claim:

1. Bathing:  Washing oneself in either a tub or shower, or by sponge bath, and includes the task the getting into and out of the tub or shower without hands-on assistance of another person.

2. Dressing:  Putting on or taking off all necessary and appropriate items of clothing and/or any necessary braces or artificial limbs without hands-on assistance of another person.

3. Toileting:  Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene without hands-on assistance of another person.

4. Transferring:  Moving in and out of a bed, chair or wheelchair without hands-on assistance of another person.

5. Eating:  The ability to get nourishment into the body without hands-on assistance of another person once it has been prepared and made available.       

6. Continence:  The ability to voluntarily maintain control of bowel and/or bladder function, or in the event of incontinence, the ability to maintain a reasonable level of personal hygiene without hands-on assistance of another person.

Other Issues

Another issue concerning ADLs is whether the covered insured requires “hands-on” assistance or merely needs someone to “stand-by” in the event of difficulty.  Obviously, LTC policies that read the latter are considered more liberal.


Long-Term Care Taxation

Some LTC policies have been designed to meet the required provisions of the Kassenbaum-Kennedy health reform bill, passed in 1996, and subsequently are “Tax Qualified Policies”.  Insured’s who own policies meeting the requirements are permitted to tax deduct some of the policy’s premium, based on age, income and the amount of total itemized medical expenses.  The major benefit of the tax-qualified LTC policy is that the benefit, when received, is not considered taxable income.  There are several initiatives in Congress, however, which would expand and simplify these deductibility rules. 


Regardless, the medical professional or financial advisor [FA] should investigate the opportunity afforded them through their current form of business, or client use, for any purchase of a LTC policy. And, small businesses may be permitted to deduct LTC premiums on a discriminatory basis.


And so, your thoughts and comments on this Medical Executive-Post are appreciated. What have we missed, and who might wish to update this post?

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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9 Responses

  1. Mr. Cook,

    While more than one-third of home healthcare and nursing home organizations said they expect the government’s economic stimulus package to increase use of healthcare information technology, 52 percent said the stimulus package will have little or no impact on their businesses, according to a recent survey by IVANS, Inc.




  2. Mr. Cook and Jill,

    The AARP is just a marketing company; IMHO. They get a % of the sale of everything they market. They try to pick the better products but do not always succeed. Their long term care insurance group plan is overpriced with high deductibles and low benefits http://www.guidetolongtermcare.com

    UnitedHealth also sells a Medicare supplement plan which has saved people I know money. But no insurance covers long term care except long term care insurance, most people don’t know that until it’s too late.

    I am Retired Now


  3. Gary,

    Good post, and did you know that because of the Pension Protection Act [PPA] of 2006, starting in January 2010, we will no longer have to pay federal income tax on an annuity’s proceeds as long as those proceeds are used to pay for long-term-care coverage.

    This means the chronically ill or disabled will no longer have to rely solely on a regular long-term-care insurance policy or Medicaid to fund their medical and nonmedical care.



  4. Despite the economy and subsequent fall in market prices, the cost of long-term care has gone up, according to the 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services and Home Care Costs.




  5. Update on LTCI

    Several insurers have just raised their LTCI premiums this year. Meanwhile, MetLife stopped selling long-term care insurance last November.

    Triggering these moves is the fact that lapse rates on long-term care coverage are proving higher than insurance company actuaries estimated. Because people are holding onto their coverage, insurers are paying more claims than expected. This is taking a toll on the carriers’ bottom line and reserve requirements.



  6. CMS Enacts Face-to-Face Rule for Home Health and Hospice Care

    The CMS just enacted a new Medicare requirement that physicians meet face-to-face with home health and hospice patients, a move that was strongly opposed by providers in the industry.

    Under a provision of the Patient Protection and Affordable Care Act, home health patients must be seen by a physician within 90 days before care begins or within 30 days after it starts, according to a CMS statement. Hospice patients must be seen in the 30 days before the start of the patient’s third benefit period.

    Source: Paul Barr, Modern Healthcare [4/1/11]


  7. LTCI

    Did you know that MetLife Inc., the largest U.S. life insurer, will halt the sale of new long-term care coverage after citing “financial challenges” in the business?


    Ann Miller RN MHA


  8. Bank Giants Quit Reverse Mortgages
    [Blow To Long-Term Care Insurance]

    The two biggest providers of reverse mortgages, a tool often used by advisors to sell long-term care insurance, are abandoning the reverse mortgage business thereby making it increasingly difficult for seniors to get such loans.

    Together, Wells Fargo (26.2% market share) and Bank of America (17.4%) account for 43% of the loans, according to Reverse Mortgage Insight, a provider of data and analysis for the reverse mortgage industry.

    Not too long ago, reverse mortgages – which allow people age 62 and over to tap their home equity without having to make any payments — were growing in popularity on the heels of heavy TV advertising. They were touted as a god-send for seniors to acquire a multitude of things, including long-term care insurance.

    But today, the loans have become riskier because of declining home values and homeowners falling behind on their property taxes and homeowners insurance, both of which maintenance is required to avoid foreclosure.

    John Lunde, president of Reverse Market Insight said “something more or something less” than half the Fargo and BoA volume will be picked up by the rest of the industry.

    The impact on LTC insurance is unclear, but it’s bound be negative for an industry where sales are already flat.

    Source: http://www.financialadvisorpublications.com/docs/compdoing.html


  9. Shrinking private LTC insurance options

    Did you know that Prudential just announced this week that they too will stop taking applications for private Long Term Care insurance (LTCI) at the end of March?

    As noted above, several other insurers have also exited this market in recent years, which means that private insurance options are shrinking as the baby boomers move toward needing LTC.

    Any thoughts FAs, insurance agents, doctors and patients?



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