What About Long-Term Care Insurance?

Three Types of Long-Term Care Insurance
Wisconsin Minimum Standards for Policies
Federally Tax-Qualified Long-Term Care Insurance Policies
Long-Term Care Insurance Partnership Program
Life Insurance - Long-Term Care Policies

Three Types of Long-Term Care Insurance

There are three types of insurance policies currently on the market in Wisconsin to cover long-term care expenses. They are:

1. Long-Term Care Insurance Policy

   A long-term care insurance policy covers both institutional (nursing home or other facility) care and care in the community (home health care or other community-based services).

2. Nursing Home Insurance Policy

   A nursing home insurance policy covers only institutional (nursing home or other facility) care. These policies may or may not cover care in an assisted living facility.

3. Home Health Care Insurance Policy

   A home health care insurance policy covers only care received in the community such as home health care. These policies may or may not cover community-based services, such as adult day care.

In Wisconsin, only those policies that provide coverage for both institutional and community-based care may be advertised or sold as long-term care insurance policies.

The publication Long-Term Care Insurance Policies Approved in Wisconsin provides benefit information and sample premiums for individual nontax-qualified, group tax- and nontax-qualified and individual tax-qualified approved long-term care insurance policies. The publication also provides the name, address and phone number for companies that have approved nursing home insurance policies, home health care insurance policies, and long-term care riders to life insurance policies.

Wisconsin Minimum Standards for Policies

Long-term care insurance policies are not standardized like Medicare supplement. Companies sell policies with many combinations of benefits and coverages.

The Wisconsin Office of the Commissioner of Insurance has set minimum standards for each of the three types of insurance policies.

All long-term care, nursing home and home health care insurance policies must:

• Provide at least one year of benefits.
• Provide a minimum $60 a day benefit.
• Provide benefits based on the level of care only if the lowest limit of daily benefits is not less than 50% of the highest limit of daily benefits. For example, benefits provided for home health care would have to be at least 50% of those provided for nursing home care.
• Provide coverage regardless of whether or not care is medically necessary. The policy may require that the care be provided in accordance with a plan of care.
• Pay benefits without requiring you to be in a hospital before getting the covered service.
• Pay benefits if you are unable to perform three or more activities of daily living (ADLs), or if you have a cognitive impairment. The assessment of ADLs and cognitive impairment needs to be performed by licensed or certified professionals, such as physicians, nurses or social workers.
• Pay benefits for "irreversible dementia" (such as Alzheimer's disease) provided you have met the waiting periods under the policy and need the type of care covered by the policy. This does not prevent an insurance company from refusing to accept an application if you have Alzheimer's or a similar disease.
• Offer an inflation protection option that increases the maximum daily benefit and lifetime benefit amounts in an amount at least equal to 5% compounded annually.
• Offer a nonforfeiture benefits option that provides paid-up insurance if your policy lapses.
• Describe the benefit appeal procedure. This procedure requires the insurance company to review the appeal and make a decision within 30 days.

Policies that include home health care benefits must pay for community-based (home health) care:

• Whether or not you have an acute medical problem.
• Even if the services are not provided by a Medicare-certified agency or provider.
• Even if you were not previously in a hospital or nursing home.

Note: Policies that cover only nursing home care or only home health care provide limited benefits for long-term care services and may not be adequate for your needs. If you want coverage for both nursing home and home health care, you are better off buying a comprehensive long-term care insurance policy. Even a comprehensive policy may not cover all the types of services that you may need or want.

Federally Tax-Qualified Long-Term Care Insurance Policies

Congress passed a law in 1996 called the Health Insurance Portability and Accountability Act (HIPAA). HIPAA allows for certain federal income tax advantages for long-term care insurance policies that are designated as "tax-qualified" or "qualified." If you have a tax-qualified policy, you may be able to deduct part or all of the premium you pay for the policy. You can include the premiums with other annual uncompensated medical expenses in excess of 7.5% of your adjusted gross income. The amount of the premium that you can claim as a deduction depends upon your age.

Long-term care insurance policies sold on or after January 1, 1997, as tax-qualified policies must meet certain standards. These policies must contain a caption on the face page of the policy, similar to:

"This policy is intended to be a tax-qualified long-term care insurance contract under Section 7702B (b) of the Internal Revenue Code."

At the time you apply for coverage you must receive an Outline of Coverage. The Outline of Coverage must also contain a notice on the face page that the policy is intended to be a tax-qualified policy.

Tax-qualified long-term care insurance policies are required to cover services for a chronically ill individual. These services are given according to a plan of care prescribed by a licensed health care practitioner. You are considered chronically ill if you are unable to perform a certain number of activities of daily living without substantial help from another person for at least 90 days. You may also be considered chronically ill if you need substantial supervision to protect your health and safety because you have a cognitive impairment.

The benefits paid by a tax-qualified long-term care insurance policy are generally not taxable as income. Benefits you receive from a nontax-qualified long-term care insurance policy may or may not be taxable as income.

State Income Tax Deduction

Beginning in the January 1998 taxable year, you can subtract the amount you paid for long-term care insurance from your Wisconsin income tax. This subtraction applies to both policies designated for federal income tax purposes as tax-qualified and policies that are nontax-qualified. The instruction booklet you receive with your Wisconsin income tax forms includes information on the subtraction for long-term care insurance.

The publication  Long-Term Care Insurance Policies Approved in Wisconsin provides more information on tax-qualified long-term care policies approved in Wisconsin.

Long-Term Care Insurance Partnership Program

The Wisconsin legislature recently passed legislation that allowed for the creation of a long-term care insurance partnership program in Wisconsin. Beginning January 1, 2009, insurance companies will be able to offer in Wisconsin long-term care insurance policies that are certified for partnership program status. Long-term care insurance policies that qualify for partnership program status are intended to allow you to protect some or all of your assets and still qualify for Medicaid if your long-term care needs extend beyond the period covered by your qualified long-term care partnership insurance policy.

Some insurance companies with long-term care policies that qualify for partnership program status may offer existing long-term care policyholders the option of exchanging their existing long-term care policy for a qualified long-term care partnership policy. You are not required to accept the exchange option offer, nor are long-term care insurers required to offer an exchange option.

Long-term care partnership policies must include inflation protection coverage that meets specific minimum standards based on your age at the time you apply for a qualified long-term care partnership policy.

All long-term care partnership policies are intended to be federally tax-qualified long-term care insurance policies as defined by federal Internal Revenue Code.

Purchasing a qualified long-term care partnership policy does not guarantee you benefits, coverage eligibility, or asset protection under the Medicaid program. For example:

• States may withdraw from the partnership program.
• If you exhaust your long-term care insurance benefits under a policy that qualified for partnership program status, you may find that the long-term care services you are receiving are not covered services under Wisconsin's Medicaid program, i.e., assisted living coverage.
• If you exhaust your long-term care insurance benefits under a policy that qualified for partnership program status, you may find that the facility in which you are receiving care does not accept Medicaid.
• If you move to another state, you may find that that state does not participate in the long-term care partnership program and that it does not recognize your long-term care policy's partnership program status in reference to qualifying for Medicaid.

Life Insurance - Long-Term Care Policies

Another way to cover long-term care services is through a rider attached to a life insurance policy. Long-term care riders attached to life insurance policies are different from long-term care policies in several respects. For example, monthly benefits for a stay in a covered nursing home are typically based on a percentage of the life insurance amount. If you have a $100,000 life insurance policy with a long-term care rider that allows benefits to be paid at 2%, then the benefit would give you $2,000 a month. A monthly benefit for home health care, when covered under the rider, is usually half of the nursing home benefit.

The amount of long-term care benefits provided by these riders are tied directly to the amount of life insurance in force. These benefits will be reduced by any loans or withdrawals against the policy.  You should know that using the long-term care benefits will also reduce the life insurance coverage under the policy for the named beneficiary.

A long-term care rider has a separate insurance charge that usually increases each year in a manner similar to the cost of the life insurance under the basic policy. The annual charge for the rider will not exceed the guaranteed cost and will normally be less.

Some life insurance companies offer annuity contracts with a rider that covers long-term care expenses. An annuity contract with a long-term care rider allows you to reduce the value of your annuity without applying any surrender charges to pay for your long-term care expenses. Some companies charge an additional cost for this rider.

The publication Long-Term Care Insurance Policies Approved in Wisconsin provides a list of companies that sell long-term care insurance as a rider to a life insurance policy.