What does long-term care insurance provide?
A number of companies offer long-term care insurance as an employee benefit to assist employees with the medical and custodial care and the associated financial responsibility required when chronic physical or mental conditions prohibit individuals from caring for themselves.
Typically, long-term care insurance policies might provide benefits for nursing home care benefits, home health care, hospice care, assisted living facility care, adult daycare or respite care. Additional covered services might include coverage of:
- caregiver training and durable medical equipment;
- a nonforfeitable feature, which allows insureds to retain some coverage if their policy lapses;
- inflation protection --to allow insureds to increase benefits over time;
- a clause that provides for return of the premium upon the death of the insured, payable to the insured's estate; and
- a premium waiver clause --which provides that premiums are waived after the waiting period is fulfilled.
The effect that tax breaks will have on particular types of services provided under long-term care insurance policies remains to be seen. Thus far, these tax breaks have not had a significant impact on the number of employers offering long-term care benefits. Even where long-term care benefits are offered, most companies report relatively low employee participation rates.
Premiums for long-term care insurance are usually based on the age of the employee at the time of enrollment. Some employer-sponsored long-term care insurance policies are portable, which means that employees can take the policies with them if they leave the company to go to work for another employer.
Services not covered. Some long-term care policies may place restrictions on eligibility of individuals or on services for reimbursement. For example, policies may preclude coverage of any type for a preexisting condition deemed to have been diagnosed or treated within the previous 12 months. Policies may insist on hospitalization prior to authorizing long-term care. There may be elimination periods (designated period of time in a nursing home that must have elapsed) or deductibles before long-term care insurance policy benefits begin to cover the expenses. Care required as a result of specific types of diseases may not be covered --for example, Alzheimer's disease may be covered, but all types of mental and nervous disorders may not, nor may most alcohol- or drug-related confinements.
Insurance policy design. Typically, the policies will pay a fixed dollar amount per day for care in specified types of facilities for a limited number of days. The plans might pay a percentage of the costs of care, with or without a deductible. A lifetime maximum may be imposed on long-term care benefits.
Costs. Policies are issued as individual policies and usually are priced based on the age of the insured. The benefits provided also directly affect the premium cost, so a policy paying $100 per day for five years would be more costly than one that reimbursed the policyholder $50 per day for three years.
Employees can receive qualified long-term care insurance on a tax-favored basis.