Important Note & Preamble     /     The Article

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A Case for the Need of Long Term Care Insurance (“LTCi”)

Seniors, and others, have another very serious need to protect against Long Term Care (“LTC”) Nursing Home and/or Home Care confinements and the costs that accompany them.

For many seniors the annual cost for Nursing Home care (averaging here in CA, in 2005-2006, at around $50,000 per year, or $140 per day) could cause them to either completely loose or seriously deplete assets that would otherwise be used and depended upon for retirement income.

What most do not understand is that Medicare does NOT cover Long Term Nursing & Home Health Care unless one is fully impoverished, and it is not at all likely that Government will ever be able to provide the resources to cover the kind of care most persons would want under such circumstances.

We offer Tax Qualified and Non-Tax Qualified LTC Insurance plans, both Private and State Sponsored, that can help you to effectively address this problem. We strongly recommend that persons get this type of coverage as soon as possible.

Through an affiliation with the national firm, Long Term Care Resources, we also offer many endorsed and discounted LTC Insurance Plans for national Associations and their Members. Please contact us for details.

Remember that while it’s true that money pays for these coverage’s only good health actually buys them; therefore, don’t delay your decision to obtain these types of highly valuable insurance coverage’s.

California Medi-Cal – Resource Limits & Other Details for – 2008

The Largest Un-Funded Liability Facing Americans Today

The Article:

Long Term Care (Nursing Home / Home Care) & Long Term Care Insurance (LTCi) – An Overview,
by Paul M. League, QFP, CFP®

Long Term Care (“LTC”) refers to a broad spectrum of medical and support services provided to persons who have lost some or all capacity to function on their own due to chronic illness or disabling injury.

LTC services are rendered in a setting other than the acute care center of a hospital. LTC services are generally necessary for a long period of time since geriatric injuries and illnesses tend to be progressive and/or overlapping. The primary caregiver in LTC situations is not a physician, as in hospital/medical scenarios, but someone less skilled. A Registered Nurse, Licensed Practical Nurse, Physical, Speech, Respiratory or Occupational Therapist, nurse’s aide, homemaker, or spouse most commonly renders Long Term Care.

The NAIC (National Association of Insurance Commissioners), in its ‘Long Term Care Insurance Model Act of 1986’ defined Long term Care Insurance as:

“Any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense incurred, indemnity, pre-paid or other basis for one or more necessary or medically necessary diagnostic, preventative, therapeutic, rehabilitative, maintenance or personal care services, provided in a setting other than an acute care unit of a hospital. Such term also includes the policy or rider which provides for payment of benefits based on cognitive impairment or the loss of functional capacity.”

California’s Definition of LTC Insurance:

“Long-term care insurance is a form of individual health insurance that has been available in roughly its present form since the late 1980s. Originally conceived in 1974 as an extension of Medicare’s skilled nursing benefit, it has, over the last 25 years, become a comprehensive form of coverage meant to relieve the burden of long-term care expenses, while preserving independence, choice and economic well-being. It has also expanded well beyond its earlier market of Medicare eligible seniors and is now regarded as an integral part of financial and retirement planning.

Long-term care insurance premiums are level and are determined by the age of the client at time of purchase. They are payable for life, or for set periods such as five or 10 years, or to a set age such as 65. The contractual form is known as Guaranteed Renewable, which means that the insurance cannot be cancelled and premiums cannot be raised for an individual, though they may be raised for all policyholders if claims exceed the required regulatory level.

The number of long-term care policies ever sold has risen from 815,000 in 1987 to 2.9 million in 1992. But the number of policies actually in force is considerably lower, because of the high lapse rate. Only 4 to 5 percent of elderly have some kind of private long-term care insurance (Health Insurance Association of America, Families USA Foundation 74).

“Long-term care insurance” includes any insurance policy, certificate or rider advertised, marketed, offered, solicited, or designed to provide coverage for diagnostic, preventative, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital.

Long-term care insurance includes all products containing any of the following benefits types:

coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing home, or personal care home;

home care coverage including home health care, personal care, homemaker services, hospice, or respite care;

community-based coverage including adult day care, hospice, or respite care.

Long-term care insurance includes disability based long-term care policies but does not include insurance designed primarily to provide Medicare supplement or major medical expense coverage. Long-Term care policies, certificates and riders are regulated under this. The commissioner shall review and approve individual and group policies, certificates, riders, and outlines of coverage. Other applicable laws and regulations shall also apply to long-term care insurance insofar as they do not conflict with the provisions of CA Code.

Long-term care benefits designed to provide coverage of 12 months or more that are contained in or amended to Medicare supplement or other disability policies and certificates are regulated under these CA Code provisions.”

Whether as an indemnifying contract paying a specified dollar benefit per day, or as an insurance plan offering reimbursement for medical expenses and services incurred, LTC insurance is much different from other coverage’s. Long Term Care underwriting criteria is more concerned with the applicant’s lifestyle, cognitive state, and ability to perform ‘Activities of Daily Living’ (ADLs) such as bathing, dressing, eating, transferring, toileting and continence. The underwriting intent is to screen out applicants who currently are at risk of entering a nursing home, are cognitively impaired, or who already have ADL dependencies.

On the medical services side, Long Term Care requires less technical and intensive medical expertise than services for an acute condition requiring hospitalization. The physician plays a less prominent role and is not usually the primary source of care. The providers of Long Term Care are usually not the same as those in the major medical/HMO arena. When needing long term care services, the policyholder will interact with nurses, nursing aides, rehabilitation specialists, therapists of all kinds, homemaker service aides, nursing home administrators and social workers.

The factors that define which care platform is used are the Level of Nursing Care required and the Place Where Service Is Rendered.

Levels of Nursing Care:

Skilled Nursing Care is the highest level, requiring the greatest professional expertise, and is generally prescribed for the most severely impaired person who cannot tend to his/her own needs. Skilled nursing care is 24-Hour care ordered by a physician and provided by a Registered Nurse (RN) or Licensed Practical Nurse (LPN).

Intermediate Nursing Care is similar to skilled care, except the patient does not receive or need 24-Hour attention. Thus, intermediate nursing care is skilled care provided on a non-continuous basis.

Custodial Care is the most basic level of nursing care. Custodial care is usually of a non-medical nature in which the patient receives assistance with the ‘Activities of Daily Living’ (ADLs) such as bathing, dressing, eating, transferring, toileting and continence. Persons providing custodial care need not be professionally trained nurses or therapists.

Place of Service:

Long Term Care can be rendered almost anywhere–in a skilled nursing unit of a hospital, at a Long Term Care facility, an Alternate Care facility, in the Community, or in a person’s home.

Long Term Care Facilities: The most common deliverer of LTC services is the Long Term Care facility, sometimes known as nursing home, extended care facility, convalescent care facility, or nursing sanitarium. Depending on the services provided and the scope of the facility’s license, these facilities usually admit those people requiring either a constant or semi-constant skilled level of medical care.

Alternative Living Facilities are additions to the LTC service delivery continuum. They are generally smaller facilities that provide specialized services directed at patients with a particular set of needs.

Congregate housing facilities are dormitory-like settings where people live in the same building, occupy private rooms or apartments, and share some meals. Care is usually of a custodial nature, with emergency medical assistance readily available.

Board and Care Homes are living arrangements modeled after ‘halfway houses’ for recovering alcoholics and drug addicts. In a Board and Care Home, a resident is provided room, meals, help with ADLs, and some degree of protective supervision. They are not usually certified by Medicaid, but are usually licensed by the state. Board and Care Homes are sometimes known as domiciliary care homes, personal care homes, community residence facilities, rest homes, and other similar terms.

In an Alzheimer’s Care Center, the emphasis of care is more on supervision of the patient and providing a safe and controlled environment. Medical disabilities in most Alzheimer’s patients are usually less severe and disabling than for those persons requiring confinement in a nursing home.

Home Health Care and Community-Based Care has been considered a lower cost alternative to LTC Facility confinement, and is becoming more popular as more providers of this service enter the marketplace.

Since the service comes to the patient, it can be more economical than nursing home placement and works quite well for intermediate and custodial levels of care.

Services are provided by a wide range of providers, from RN’s, LPN’s, therapists and nurses’ aides (CNA’s), to chore persons (HHA’s) and homemakers. Other services include Adult Day Care, senior transportation services and “meals on wheels.”

Private long term care insurers responded to these criticisms and made substantive changes to their products to meet the growing demands of consumers. The resulting newer policies are more comprehensive in scope and contain less restrictive provisions. Characteristics include:

Home health care benefits no longer contingent upon prior confinement.

All levels of care covered upon admission.

Elimination of prior hospital stay.

Raising of benefit amounts over time. (Inflation riders such as simple or compound, at a fixed rate of interest or tied to the CPI.)

More extensive home health care benefits such as personal or chore services.

Benefit eligibility based on activities of daily living (ADL) dependencies versus medically necessary.

ADLs commonly found in policies are: Eating, Dressing, Bathing, Toileting, Transferring and Continence.

Benefit eligibility base on cognitive impairment.

Newer LTC policies may also incorporate instrumental activities of daily living (IADLs) as a benefit determination. IADLs were developed to assess the level of cognitive as well as physical impairment and include such activities as: shopping, using the telephone, housekeeping, doing laundry, taking medications, and managing finances. IADLs are not as well understood as ADLs and are more difficult to assess.

Alzheimer’s/dementia disease specifically named as covered conditions.

Removal of separate maximums on nursing home and home health care with one overall lifetime maximum.


Guided by National Association of Insurance Commissioners (NAIC), the state focus on LTC insurance has been primarily directed toward product design and market practice issues. Early NAIC models were generally flexible enough to meet the needs of the marketplace but consumer advocate pressure, mounted in the late 1980s, prompted the NAIC to add consumer protection policy standards such as:

Prohibition on prior hospitalization requirements.

Prohibition on linking one level of care to another level (e.g., predicating receipt of custodial care benefits upon prior skilled care benefit).

Minimum standards established for home health care.

Minimum benefit period of 1 or 2 years.

Certain post-claim underwriting practices are forbidden. Contestability period may be shortened from 2 years to 6 months.

Increased supervision of agent conduct.

Standards set for products offering long-term care tied into life insurance products.

Mandated benefit levels.

Regulation of rates and reserves.

There are also LTC state ‘partnership’ initiatives funded by the Robert-Woods Johnson foundation to pursue an alternative of public/private approaches wherein the first couple of years of long term care are covered by a private plan.

Each partnership state (New York, Indiana, Connecticut, and California) has created a prototype LTC policy to encourage consumers to purchase private coverage. In this product design, the benefits spent under the private policy shelter the policyholder’s assets on a dollar-for-dollar basis against Medicaid spend down requirements. The result of this ‘private sector/social insurance hybrid’ is that the State’s Medicaid Program is not the sole source of funding for Long Term Care services for its citizens.


On April 23, 1996, the U.S. Senate passed the Health Insurance Portability & Accountability Act (Kennedy-Kassenbaum Health Insurance Reform Bill) which provides favorable tax treatment for long term care insurance, effective for tax years beginning after December 31, 1996. This act allows for individuals who have LTC policies to receive tax free benefits, subject to conditions, and it allows for deductions of insurance premiums on itemized tax returns. Any LTC policy, which was issued on December 31, 1996 and prior will be “grandfathered” to receive favorable tax treatment (“material changes” to such a policy can cause it to loose its “grandfathered or protected” status; however, a change in premium mode would not be considered “material” but a change in benefits or the dollar amount of benefits would be).

Debate continues within the long term care industry, consumer groups and state departments of insurance over whether or not tax qualified plans are best for the consumer. The following briefly outlines what is different about tax qualified long term care insurance policies.

What is different about a Tax Qualified (“TQ”) long term care insurance plan?

The government has set forth guidelines that must be strictly followed before a policy can be tax qualified:

Benefit Triggers- Modified for tax qualified policies

Medical necessity can no longer be utilized as a benefit trigger

Uses NAIC model of 6 Activities of Daily Living – eating, toileting, transferring, bathing, dressing, continence

Care received must be certified by a Licensed Health Care Practitioner* (does not apply to “grandfathered” LTC policies) as a result of (1) being unable to perform (without substantial assistance from another individual) at least 2 Activities of Daily Living “expected ” to last for a period of 90 days** due to a loss of functional capacity, or (2) requiring substantial supervision to protect yourself from threats to health and safety due to severe

Cognitive Impairment

*Any physician, registered professional nurse, or licensed social worker. **This is not a waiting or “elimination period”.

Policy Caps, Benefits & Tax Deductibility Issues – Per Diem or Reimbursement Policies

Tax Advantages for Premium Payments:

Premiums paid by individuals are deductible, subject to limitations. The amount deductible is based on their age at the end of the year. This amount will change each year due to inflation. The deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows:

Age at year-end

Deductible Amount – 2009

Deductible Amount – 2010

40 or less



41 but not yet 51



51 but not yet 61



61 but not yet 71



71 or 0ver



Source: IRS Revenue Procedure 2007-66 (2007-2009 limits)

In order for an insured to itemize their LTC premium as a tax deduction, their total medical expenses must exceed 7.5% of their adjusted gross income.

Employers who pay LTC premiums for their employees and self-employed individuals are also entitled to tax advantages.

Effect on Benefit Payments:

Effective January 1, 1997, every insurer will be required to report all benefit payments made to the IRS. All benefit payments made to an insured that has a LTC policy which reimburses expenses incurred (a reimbursement benefits policy) will not be considered taxable income.

All LTC policies which pay a “per diem”* benefit, verses a reimbursement benefit, have guidelines set by the federal government. All “per diem” benefit payments up to certain caps are not considered taxable income; however, any amount above the following caps is considered as “taxable income”; however, the taxpayer may exclude from income the “excess benefits” to the extent of the individual’s actual un-reimbursed Tax-Qualified Long-Term Care expenses:

Daily Benefit, Non-Taxable Cap

2008 Cap

2009 Cap



(*A pre-determined benefit amount which is payable regardless of the amount of expenses incurred).

A Non-forfeiture Benefit
provides protection if you cancel your coverage for a period of time that it would take to exhaust the benefits value for long term care needs. Non-forfeiture provides limited benefits, typically based on the amount of time you’ve had the coverage and the amount of premium payments you’ve paid.

Coordination with Medicare:

All tax qualified policies coordinate with Medicare. This means that if Medicare pays for services, the insured can not receive payment for the same services from their LTC policy. Additionally, benefits from their LTC policy can be used as “co-insurance” or to pay Medicare deductibles. It is now a federal offense to consciously commit Medicare fraud and if convicted, the offender is subject to a prison sentence.

California Medi-Cal – Resource Limits & Other Details for – 2009:

Spousal Impoverishment Limits – Community Resource Allowance (CRA): $109,560

Minimum Monthly Maintenance Needs Allowance (MMMNA): $2,739

The Average Private Pay Rate (APPR) for Nursing Facility Care is: $5,698

California Partnership Policies:

The minimum Daily Benefit for CA Partnership LTC Policies is equal to 70% of the above APPR rate, with 70% of this amount for Residential Care & Assisted Living Benefits.

Please contact us directly for a personalized proposal and rate quote as Long Term Care Insurance plans, whether private or through the California Partnership for Long Term Care, are too complex to be discussed and quoted over the Internet: 800.482.5347.

Disclaimer: The material discussed herein is meant for general illustration or informational purposes only and is not to be construed as financial advice. Although the information has been gathered from sources believed to be reliable, it is not guaranteed. Please note that individual situations can vary; therefore, the information contained herein should be relied upon only when coordinated with individual professional advice. We are not licensed for and therefore do not provide tax or legal advice.

About the Author: Paul M. League, QFP — QUALIFIED FINANCIAL PLANNER, is the Founding Principal of League Financial & Insurance Services (, which is a privately held company, established in 1984, and located in Palm Desert, CA. Paul and his company specialize in assisting clients to create, expand & preserve assets “…in a league of our own.” Contact Information: Paul M. League, P.O. Box 11800, Palm Desert, CA 92255-1800; 800.482.5347; © Paul M. League. All rights reserved.

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