Individual and group long-term care insurance

What long-term care insurance covers

Long-term care (LTC) insurance pays for the help a person needs when a chronic illness, disability or cognitive decline means they can no longer take care of themselves. Florida defines a long-term care policy as any policy or rider designed to cover necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services provided in a setting other than an acute care unit of a hospital (Fla. Stat. § 627.9404(1)). The benefits can be paid on an expense-incurred, indemnity, prepaid or other basis.

The same definition says what LTC insurance is not: a policy offered primarily as Medicare supplement, basic hospital, basic medical-surgical, hospital confinement indemnity, major medical, disability income, accident-only or specified disease coverage is not long-term care insurance (§ 627.9404(1)). That gap is the reason LTC exists. Medicare and ordinary health insurance pay for short-term skilled care after an illness or injury; they do not pay for months or years of custodial care. Without LTC coverage, that care is paid from savings until the person qualifies for Medicaid.

Levels and settings of care

• Skilled care — daily nursing or rehabilitation ordered by a physician and performed by

licensed professionals.

• Intermediate care — occasional nursing or rehabilitation under supervision.
• Custodial (personal) care — help with everyday activities, which does not require

medical training. This is most long-term care.

Modern policies pay in many settings: nursing homes, assisted living facilities, the insured's own home (home health care), adult day care centers, respite care for family caregivers, and hospice. A limited benefit policy is an LTC policy that covers only nursing home care, or only one or more lower levels of care (§ 627.9404(7)).

When benefits start: the benefit trigger

An LTC policy pays when the insured is chronically ill. Florida defines that as being certified by a licensed health care practitioner — a physician, a licensed nurse or a licensed psychotherapist — as either (§ 627.9404(4), (6)):

1. unable to perform, without substantial assistance from another person, **at least two

activities of daily living (ADLs) for at least 90 days** because of a loss of functional capacity; or

1. needing substantial supervision to protect health and safety because of **severe

cognitive impairment**.

The six standard ADLs are bathing, dressing, eating, toileting, transferring (for example, from bed to chair) and continence. Cognitive impairment means a deficiency in short- or long-term memory, orientation as to person, place and time, deductive or abstract reasoning, or judgment about safety (§ 627.9404(5)). This is why Alzheimer's disease and other dementias trigger benefits even when the insured can still physically perform every ADL.

Once the trigger is met, the insured usually serves an elimination period — a waiting period, such as 30, 60 or 90 days, during which the insured pays for care before benefits begin. A longer elimination period lowers the premium.

How benefits are designed

• Benefit amount — a maximum daily or monthly amount, such as $200 a day.
• Benefit period or pool — how long benefits last (for example, two years, five years or

lifetime), often expressed as a total pool of money that lasts longer if care costs less.

• Reimbursement vs indemnity — a reimbursement (expense-incurred) policy pays actual

covered charges up to the maximum; an indemnity or cash policy pays the stated amount regardless of actual cost.

• Inflation protection — increases the benefit over time, either by a simple or a

compound percentage (commonly 5%) each year. It must be offered to the applicant, and a rejection is normally documented in writing. Compound protection costs more but keeps pace with care costs far better for younger buyers.

• Nonforfeiture benefit — if the insured stops paying premiums, it keeps some paid-up

coverage, typically a shortened benefit period. It must also be offered. Even when it is declined, a contingent nonforfeiture benefit applies if the insurer later raises premiums substantially.

Home health care benefits in Florida

If a policy, certificate or rider includes home health care, Florida sets minimum standards (§ 627.94071). The policy may not:

• require that the insured would otherwise need skilled care in a skilled nursing facility,

or have an acute condition, before home care is covered;

• require nursing or therapeutic services at home first;
• limit covered services to registered nurses or licensed practical nurses, or require a nurse

or therapist for services a home health aide can provide;

• exclude personal care services provided by a home health aide;
• limit benefits to Medicare-certified agencies or providers; or
• exclude adult day care services.

Consumer protections and policy provisions

• Renewability — LTC policies are at least guaranteed renewable: the insurer cannot

cancel or change the coverage while premiums are paid, but it can raise premiums for an entire class. A noncancelable policy also locks the premium.

• Permitted exclusions — typically preexisting conditions for a limited time, mental and

nervous disorders without a demonstrable organic cause, alcohol and drug addiction, war, intentionally self-inflicted injury, and care already paid by government programs. Alzheimer's disease and other organic brain disorders must be covered.

• Prior hospitalization — a policy may not require a hospital stay before paying nursing

home or home care benefits.

• Free look — the buyer can return the policy for a full refund, generally within 30 days.
• Disclosure — an outline of coverage and a long-term care shopper's guide are

delivered to the applicant, and the applicant can name a third person to receive notice before the policy lapses for unpaid premium.

Individual vs group long-term care

The difference is who contracts with the insurer. For an individual policy, the applicant is the person who seeks to contract for benefits; for a group policy, the applicant is the proposed certificateholder (§ 627.9404(2)). Group coverage is issued to an employer, association or other group, and each covered person receives a certificate under the group policy (§ 627.9404(3)).

• Individual LTC is medically underwritten, priced on the applicant's age and health, and

owned by the insured. It is often sold to couples with a spousal discount.

• Group LTC is usually offered through an employer, often with limited or no medical

underwriting for actively-at-work employees and sometimes available to spouses, parents and retirees. The employee typically pays the premium. When a member leaves the group, the coverage must offer a way to keep it, by continuation or conversion to individual coverage, without new underwriting.

Tax-qualified policies, partnerships and hybrids

A tax-qualified LTC policy, under the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), uses the chronically ill trigger described above, is guaranteed renewable, and offers inflation and nonforfeiture protection. Its benefits are generally received income-tax-free, and premiums count as medical expenses up to age-based limits. Employer-paid premiums for a tax-qualified group plan are deductible to the employer and not taxable to the employee.

Long-term care Partnership policies, available in many states, give dollar-for-dollar Medicaid asset protection: each dollar the policy pays lets the insured keep a dollar of assets that would otherwise have to be spent down. Hybrid (linked) products combine life insurance or an annuity with an LTC rider, so benefits not used for care pass to beneficiaries.