Personal Long Term Care Insurance Overview
Plan Ahead and Be Prepared. A recent study in the Best’s Review, Life and Health Insurance Edition, indicates that 40% of all persons age 65 and over will enter a nursing home in the future. Long Term Care (LTC) is a phrase which is used to describe a variety of services in the area of health, personal care and social needs of persons who are chronically ill or infirm.
The National Public Accountant conducted a survey in 1987 showing that Medicare paid for less than 2% of the cost of a nursing home and private insurance paid for even less. Medicaid paid for 42% of the expenses but the patient or his or her family paid over one-half of these costs.
To minimize the impact and to keep your estate from being depleted, you need Long Term health Care.
Common Elements Of Long Term Care Insurance Policies
- Alzheimer’s Disease: Most policies now include coverage for organic brain disorders like Alzheimer’s disease
- Amount of the Benefit: Most policies pay a fixed dollar amount for each day you are eligible for the benefit; e.g., $80 per day. A survey of nursing homes in your area can help determine the desried amount.
- Deductible or waiting Period: Most LTC policies require you to “pay your own way” for a specified number of days (generally ranging between 0 to 120 days) before the insurance company will begin to pay benefits. Of course, the shorter the waiting period, the higher the cost will be. This is usually referred to as the elimination period.
- Guaranteed Renewability: This important provision will prevent the insurance company from canceling your policy for as long as you continue to pay the premium when it is due. However, the insurer may be able to raise rates on class basis.
- Home Health Care: Many long-term care policies can provide coverage in the insured’s home. It is most often offered as a rider (requiring an additional premium) to nursing facility coverage, and reimburses the cost of long-term care received at home.
- Inflation Protection: Since costs inevitably increase, a policy without a provision for inflation may be outdated in a few years. Of course, an additional charge is incurred for this protection.
- Level of Care: Three generally recognized levels of care, in an institutional setting:
- Skilled Care: Daily nursing and rehabilitation care under the supervision of skilled medical personnel
- Intermediate Care: The same as skilled care, except it requires only intermittent or occasional nursing and rehabilitation care
- Custodial Care: help in one’s daily activities including eating, getting up, bathing, dressing, use of toilet etc. person performing the assistance do not need to be medically skilled, but the care is usually based on the physician’s certification that the care is needed.
- Place of Care: Does the policy require that nursing home be licensed or otherwise certified by the state to provide skilled or intermediate nursing care? Must the facility meet certain record keeping requirements?
- Plan of Care: A plan of care is part of the health care claims process. It is the result of an assessment prepared by the insured’s physican, and a multidisciplinary team, including practical nurses, social workers, and other health care professionals. The plan outlines the appropriate level of care needd to assit the insured in performing the activites of daily living.
- Pre-existing conditions: Depending on the state, a policy may limit coverage of pre-existing conditions to discourage persons who are already ill from purchasing the policy. Many policies will provide benefits if the pre-existing condition was overcome six months or more prior to applying for the policy. Also, some policies will not pay benefits if the pre-existing condition re-occurs within six months after the effective date of coverage.
- Prior Hospitalization: This policy provision requires one to be hospitalized (for the same condition) prior to entering the nursing home, or no benefits will be paid under the policy. Although prior hospitalization clauses have been outlawed in all states, some older policies atill in force may contain this provision.
- Rating the Company: Companies should be financially sound and have a reputation of treating policyholders fairly.
- Waiver of Premium: Some policies will waive the future premium after you have been in the nursing home for a specified number of days.
Tax Issues of Long Term Care Insurance Contracts
The Health Insurance Portability and Accountability Act of 1996, which became law on August 21, 1996, significantly changed the federal income tax aspect of LTC policies.
Benefits excluded from income:
Beginning with contracts issued in 1997, benefits received under an LTC contract are generally excluded from income as an amount “received for personal injury and sickness.” In order for benefits paid under a contract to be excluded from income, the contract must meet strict requirements to be a qualified contract. Further, benefits must be for services provided to a “chronically ill individual.” A limited grandfather clause applies to contracts in existence before 1997.
The exclusion from income is limited to $210 per day (calendar year 2002) for contracts which pay benefits on a daily basis, without regard to actual expenses. This limitation will be adjusted for inflation in future years.
Long-Term Care expenses are medical expenses:
The act also redefined the term medical care to include unreimbursed amounts an individual paid for qualified Long Term Care Insurance Policies services, as well as premiums paid for qualified Long Term Care Insurance policies. For individual taxpayers, such expenses thus qualify for the medical expense itemized deduction. Under federal law, qualifying medical expenses itemized deduction to the extent they exceed 7.5% of adjusted gross income. State law will vary.
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