Long-term care insurance: emerging corporate benefit

Long-term care and its associated costs is a major challenge that is evolving for many reasons on several fronts. These forces include an aging population heavily weighted in the age 65-85 demographic, medical technology resulting in much longer life spans, new environments in which to receive long-term care services that simply didn’t exist years ago — including assisted living and more comprehensive home health care services.

As one might expect, potential solutions to the challenge of paying for long-term care needs are changing along with the new service delivery models. These include more restrictions on two well known, albeit limited, federal sources of funds, Medicaid and Medicare.

The sweeping Deficit Reduction Act of 2005 was perhaps the most drastic set of changes to the Medicaid program since 1993. Modifications under the law, which took effect Feb. 5, 2006, have lots of folks rattled, because doing “Medicaid planning” – rearranging assets to qualify for assistance – has become significantly more difficult.

Traditional firewalls built around one’s estate due to taxes, wealth transfer goals, and other reasons are frequently overrun by long-term care expenses. The message, of course, that the feds are sending is that they want Americans to take far more responsibility for their potential long-term care needs than ever before. This was one of the major forces behind the creation of the Federal Long Term Care Insurance plan offered to federal employees through a joint venture of John Hancock and MetLife several years ago and paid for by the employee. Coincidentally, this federal operation is administered in Portsmouth.

Because of the dynamic between the often astronomical costs of long-term care and solutions to deal with it, more and more employers are offering long-term care insurance to their employees. While there are several ways to fund this as a benefit in the workplace, two important distinctions first need to be made — that of long-term care insurance vs. long-term disability insurance and acute care vs. chronic care.

Simply put, group long-term disability insurance is designed to replace income (as is group short-term disability insurance). It is predicated on having W-2 and/or 1099 income to insure. Once someone leaves an employer or ceases to be self-employed, disability insurance is no longer available. This applies to both group and individual disability policies.

Long-term care insurance, however, can be issued regardless of one’s employment or income status. There also are significant differences in their respective “benefit triggers,” but they share the goal of mitigating the often catastrophic effects of a disability. It is not unusual for employees to have both long-term care and long-term disability insurance and collect under both policies, because as a rule — unlike group disability contracts — no long-term care policy offsets with employer-sponsored disability plans.

As for acute care and chronic care, the generally accepted line in the sand between the two is whether or not your course of care is expected to last more than 90 days. If it is, it is considered a long-term care need. No group health insurance plan today is designed to pay for long-term care, with the typical maximum benefit period for such chronic needs being about 30 to 90 days.

Conversely, long-term care insurance is specifically designed to address chronic care, not acute care, and changes in federal law set clear long-term care insurance claims parameters on this point, pivoting on a 90-day period of expected care.

Modern long-term care insurance policies can provide directly to an insured the tax-free funds necessary to pay for care in a nursing home, assisted living facility, continuing care retirement community, adult day care or home.

It would be a mistake to think of long-term care insurance today as “nursing home” insurance. It in fact is often the one tool that keeps someone out of a nursing home, because they now have money, and money creates choice. Only about 15 percent of Americans who need long-term care services will ever receive it in a nursing home. There are comprehensive alternative environments available, the preferred being home health care.

Hans Hug Jr. is the owner of the LTC Insurance Group, a brokerage based in Exeter. He can be reached at 888-758-8949 or via email at hhug@verizon.net. This article is the first of two parts on long-term care insurance.