Do You Need Long-Term Care Insurance

Not everyone is a candidate for long-term care insurance. Find information here to help determine if Long Term Care Insurance is right for you.

Am I Required to Purchase Long Term Care Insurance?

Purchasing a long-term care insurance policy can be an effective way to protect against the often devastating costs of long-term care. In the right circumstances, a good long-term care insurance policy can help you avoid exhausting your life savings to cover needed long-term care services and maintain access to the widest variety of quality service options. It may also provide you with greater choices and help you avoid depending upon the financial assistance of family, friends or the MassHealth (Medicaid) program.

Not everyone is a candidate for long-term care insurance. Long-term care insurance is not offered on a guaranteed issue basis and companies may deny coverage or limit benefits during a preexisting condition waiting period if you do not meet their “medical underwriting” standards. If you already have health problems (e.g., Alzheimer’s disease, Parkinson’s disease or other less serious conditions), insurers may consider you to be a high risk and decline to issue a long-term care insurance policy.

You should NOT CONSIDER buying Long-Term Care Insurance if:  

• You can’t afford the premiums.
• You have limited assets.
•  Your only source of income is a Social Security benefit or Supplemental Security Income (SSI). 
• You often have trouble paying for utilities, food, medicine or other important needs.

You may want to CONSIDER buying Long-Term Care Insurance if:  

• You have significant assets and income.
• You want to protect some of your assets and income.
• You want to pay for your own care.
• You want to stay independent of the support of others.

Even if you are medically eligible, long-term care insurance might not be affordable for you. If you are living on a limited or fixed income or if you must go without basic needs to afford the premiums, you certainly should not buy a policy. You must also consider whether you are going to be able to afford the premiums throughout your lifetime, since it is not unusual for a policyholder to pay premiums for more than twenty years before needing services. 

You should also be clear about what assets you hope to protect by buying long-term care insurance.  If you do not have significant assets, long-term care insurance may not be an appropriate purchase for you. Under the right circumstances, long-term care insurance could be the best way to protect your assets, including your home. Since long-term care insurance is a major financial commitment, before you buy any coverage, understand your options and look closely at your needs and resources. 

What Determines Long-Term Care Insurance Costs?

Although prices vary, it is not unusual for a long-term care insurance policy to cost several thousand dollars in premiums per year. Your actual cost for long-term care insurance depends upon two key factors: (1) your age at time of purchase and (2) the type and amount of benefits you choose.

Your premiums will be substantially higher if you buy a policy at age 75 than they would be if you had purchased the same policy at age 65. Also, the greater the benefits, the higher the cost. A nursing home only policy with a low daily dollar amount of coverage will probably cost less than a policy that includes benefits for home health care, and contains inflation protection and nonforfeiture benefits, but be aware that such a policy may not cover the services you may eventually need.

Remember the rule: “you get what you pay for.” If you are comparing a high-cost policy against a low-cost policy, it is probable that the higher-priced policy may offer greater benefits. Examine the plans carefully, because there may be variation in the premiums charged for policies with similar benefits from one company to another.

Although the highest-priced policy might offer the most benefits, it is not necessarily the one you should buy. You must decide whether there is a policy within your budget that will meet your needs and be affordable until you need those benefits.

Note: Most policies have “level premiums.” A level premium is what the insurer has projected it must charge its policyholders over the life of their policies to cover its costs. It does not mean that your premiums will never go up.  An insurer who projects to need higher premiums to pay for higher than expected future claims may raise your premium. The Division of Insurance does not approve rate changes for employer group plans or policies offered through associations. Consumers should contact the Division of Insurance to understand whether their increase was approved by the DOI.

Who Sells Long-Term Care Insurance and What Policies Can You Buy?

Private insurance companies and fraternal benefit societies sell long-term care insurance. There are two basic types of policies: individual policies and group policies.

Individual Policies

Individual policies (also called “nongroup” policies) are sold directly to individuals, usually by insurance agents but sometimes through direct mail or phone solicitations. Individual policies must meet certain minimum standards set by the Division of Insurance. They must:

• Be guaranteed renewable or non-cancelable;
• Provide at least 730 days (or a comparable dollar amount) of coverage;
• Not include an elimination period (waiting period) of more than 365 days;
• Provide benefits based upon no more than two Activities of Daily Living (ADLs);
• Include alternate care provision allowing coverage for unspecified services if agreed to by the insured, insurance company and health care practitioner;
• Offer an applicant the opportunity to buy inflation protection and nonforfeiture benefits and at least one policy with home health care benefits and one that qualifies for certain MassHealth (Medicaid) exemptions; 
• Not have a pre-existing condition limitation that lasts for more than six months after the policy’s effective date; and
• Not limit benefit payments because an individual develops Alzheimer’s Disease, mental illness, alcoholism or other chemical dependency after the policy is issued.

Group Policies

Group policies are sold through employers and associations who sponsor group plans as a benefit to their employees and members. Some insurers also sell group policies directly to individuals through out-of-state “group trust” arrangements. Employer, association and group trust policies are NOT subject to all the same state protections. Please be aware that although many of them may include protections required in individual policies, they are not required to meet the same standards under state law. Insurers who sell long-term care insurance in Massachusetts (except through an employer or labor organization) are required to provide you with a policy illustration form for each long-term care insurance policy that they present to you, as well as an outline of coverage for any policy for which you apply. These forms must state whether the policy is an individual or group policy.

Companies Currently Selling Individual Long-Term Care Insurance Policies

 

How Do Policies Work?

Long-term care policies can vary greatly from one insurer to the next. Policies may include benefits for care in a nursing home, care provided in an assisted living facility, home health care or personal care provided in your home, care in an adult day care center or an ever-expanding array of other services. Some may pay for family benefits, such as caregiver training, but most will not pay for services provided by family members.

You should determine what types of facilities are covered by any long-term care policy you are considering. If you buy a policy that limits its coverage to care provided in a nursing home, your insurer will probably not pay for services you receive at home.

The most flexible policies allow you to use your benefits to cover any necessary long-term care service in whatever setting you might eventually need. Although insurers may offer such policies, they usually are more expensive than policies that limit the types and settings of services that are covered under the policy.

New services and facilities are likely to develop between the time you buy a policy and the time you need long-term care. Your policy may or may not cover these. As noted above, all individual policies must contain an alternate care provision which cover unspecified alternate services if agreed to by you, your caregiver and your insurer. The alternate care provision does not entitle you to benefits for service not specified in your policy, but allows the flexibility for an insurer to pay for newly developed services that were not available when you first bought your plan. Group policies are not required to include this provision.

Most of the information you may need to answer your questions about the types of services a policy covers can be found in the policy illustration and outline of coverage.

How much coverage might a policy provide?

Most long-term care policies limit both the amount they will pay each day (daily maximum benefit) and over the life of the policy to a maximum number of days or dollars (lifetime maximum benefit). These limits depend on the choices you make when you first buy a policy.

Lifetime maximum benefits usually are stated in number of days of coverage and usually range between two years and unlimited coverage. Although individual policies are required to cover the equivalent of two years of care, group policies may offer less. As you consider how much coverage to purchase, keep in mind that while some people remain in a nursing home for less than a year, others stay for extended periods. If you are also interested in using community-based options to delay the need to enter a nursing home, you might want to factor that into your coverage analysis.

Daily maximum benefit amounts also vary and usually do not cover the entire cost of a day of longterm care services. Ignoring the effects of inflation, if you choose nursing home benefits covering $130 per day and a nursing home charges $180 per day, you will pay $50 per day (approximately $18,000 per year) from your own resources. When deciding on the amount of daily coverage you need, you should know (1) how much long-term care services actually cost in your area and (2) how much you can comfortably pay out-of-pocket beyond what your policy covers. 

Carefully read the policy’s options to understand your coverage choices. Some policies provide different daily maximum benefits for different services. Some policies might pay twice as much for nursing home services as they do for home health care services.

Some insurers may offer policies without daily maximum benefits. These “coinsurance” policies pay a fixed percentage of the total cost of covered long-term care services. A typical arrangement is for the insurer to pay 80% of the costs while you cover the remaining 20%. Although benefits automatically increase as long-term care services become more expensive, so do your costs.

What are Other Common Policy Features?

Inflation protection

Inflation protection is a costly but important policy feature. It maintains your level of coverage even as the cost of long-term care rises. To determine whether or not you should buy inflation protection, consider your ability to pay out-of-pocket costs ten or twenty years from now. A qualified advisor should be able to help you project your income and growth of assets over time. Unless your policy includes inflation protection, you could find that you have coverage for a much smaller percentage of your actual costs by the time you need benefits. Depending on your age and future health needs, you may hold a policy for 20 or more years before you need long-term care services. If nursing home inflation increases by 5% annually, nursing homes costing $180 per day would cost over $360 per day in 15 years.

There are two basic types of inflation protection: “automatic” and “special offer,” each of which can take a variety of forms. If you are comparing policies, make sure that you understand the exact terms of any inflation protection benefit because it may be administered differently from policy to policy.

• Automatic inflation protection: increases your benefits each year by a fixed percentage. Using simple interest rates, your benefit will increase by the same dollar amount each year (e.g., a $130 daily benefit with 5% simple inflation protection will increase by $6.50 per year to $260 per day in its twentieth year). Using compound interest inflation protection, your daily benefit increase will be higher each year (e.g., a $130 benefit with 5% compounded inflation protection will cover $344 per day in its twentieth year).
• Special offer inflation protection: gives you the option to purchase inflation protection at set intervals, such as every three years. Expect your premium to increase if you exercise the option based upon your age at that time. If you turn down the option to increase your benefits in one year, you might not have another opportunity or may need to satisfy new medical screening to exercise the option later.

Nonforfeiture benefits

Nonforfeiture benefits provide something back to you if, for whatever reason, you drop your coverage (“let it lapse”) after years of paying premiums. If you do not purchase nonforfeiture benefits and allow your policy to lapse, you will “forfeit” the premiums you have paid over the years. There are many different types of nonforfeiture benefits, not all of which are offered by all insurers. In the event that your policy lapses and you have purchased a shortened benefit period nonforfeiture benefit, the policy will pay the same daily benefit but only up to an amount that is some percent of the premiums you paid before your policy lapsed. Return of premium benefits, generally the most expensive nonforfeiture benefits, pay back all or part of the premiums that you paid since you bought the plan. Nonforfeiture benefits are costly options, but provide certain benefits should you allow your policy to lapse. For many people, the most cost-effective protection against dropping coverage is to only buy a policy that is both affordable and contains benefits that suit their needs so that it will be less likely that they will ever need to drop their coverage.

Other features

In addition to the above, many policies contain benefits that pay for services provided by family members under certain circumstances, waive premiums when you are receiving covered services in a nursing home or “restore” the original lifetime benefit amount if you use up part of it, but then go for a period of time without needing long-term care. You should review each plan’s policy illustration form and outline of coverage carefully to be sure that you understand what is and what is not included in any policy that you are considering.

When Could You Become Eligible for Benefits?

“Benefit triggers” refer to the conditions under which you are eligible to claim benefits under your policy. The way benefit triggers are defined in your policy can have an impact on how easily you qualify for benefits. Not only do benefit triggers vary between policies, but the same policy might use a different trigger for home or community-based care than it does for nursing home care.

Most policies use your inability to perform certain “activities of daily living” (ADLs) to determine if you are eligible for policy benefits. The ADLs include:

• bathing;
• continence;
• dressing;
• eating;
• toileting and
• transferring (Moving into or out of a bed, chair or wheelchair)

Before paying benefits, insurers usually require certification by a physician or licensed health care practitioner that you cannot perform certain ADLs because of physical or cognitive impairments.

Individual policies sold in Massachusetts must provide benefits if you are unable to perform two or more of the above six ADLs (unless they are federally tax-qualified in which case the federal rules apply). The benefit triggers for federally tax-qualified policies described in the next section can be based upon either five or six ADLs and the policies must require that you be unable to perform two or more of these. Although a federally tax-qualified policy can use a benefit trigger of two of six ADLs (the same as what is required of non-tax qualified, individual policies sold in Massachusetts), it could contain a benefit trigger that would make it much more difficult for you to become eligible for benefits (e.g. , three out of five ADLs.) Finally, group policies that are not federally taxqualified can use any standard the insurer chooses.

Some policies will not count an ADL toward the benefit trigger unless you need hands-on assistance to do it. Other policies will count an ADL as long as you need stand-by assistance. It is harder to qualify for benefits if you have a policy that requires hands-on assistance. It also can be more difficult to claim benefits if you have a policy that recognizes only five ADLs. This is especially true if one of those five ADLs is not bathing, which is usually the first ADL that a person cannot do.

Most long-term care policies use “cognitive impairment” (mental incapacity) as another benefit trigger that allows you to qualify for benefits even if you are able to perform all of the ADLs on your own. This is an important benefit trigger if you are diagnosed with Alzheimer’s disease or other dementia but are still able to perform most ADLs.

When Do Benefits Begin?

Many policy benefits usually do not start the first day that you enter a nursing home or use other long-term care services. Instead, you must satisfy the policy’s elimination period (waiting period) or a deductible. An elimination period or deductible requires you to pay for your own long-term care expenses for a specified number of days or a dollar amount before the insurer will pay benefits.

The longer the elimination period or higher the deductible, the lower the premium you will pay. If you choose a policy with a long elimination period, you should be prepared to cover the entire cost of the long-term care services you need during that period. Individual policies offered in Massachusetts cannot have an elimination period of greater than 365 days. Although a policy with a 365-day elimination period may cost less, it may mean that you should expect to pay tens of thousands of dollars before you are entitled to any benefits. Also, if you need care for only a short time, your policy may never pay benefits.

A longer elimination period might be right for you if (1) you can afford to cover your own long-term care costs during the elimination period and (2) you want protection against prolonged or “catastrophic” long-term care needs.

What is a Federally Tax-Qualified Policy?

You may be asked to choose between a “tax-qualified” long-term care insurance policy and one that is “non-tax-qualified.” A federally tax-qualified long-term care insurance policy offers certain federal income tax advantages.

Under federal tax laws, the portion of your medical expenses that exceeds 7.5% of your adjusted gross income may be deductible. If you have a tax-qualified long-term care policy, you may be able to add the premiums you pay for the policy to your other deductible medical expenses when Page 18 calculating your income taxes. Furthermore, benefits paid by a qualified long-term care insurance policy generally are not taxable as income. (The federal Internal Revenue Service has not yet determined whether benefits paid by a non-qualified plan might be taxable as income.)

Policies sold as tax-qualified must meet certain federal standards. They must be guaranteed renewable, must include a number of consumer protection provisions and must cover only “qualified long-term care services.”

Tax-Qualified Policies	Non-Tax-Qualified Policies
Premiums can be included with other annual uncompensated medical expenses for deductions from your income in excess of 7.5% of adjusted gross income up to a maximum amount adjusted for inflation.	You can’t deduct any part of your annual premiums.
Benefits that you may receive will not be counted as income.	Benefits that you may receive may or may not count as income. The U.S. Department of the Treasury has not yet ruled on this issue.
Benefit triggers may be more restrictive than those that may be allowed in non-tax-qualified policies. The federal law requires you be unable to perform at least 2 of 5 out of 6 possible ADLs without substantial assistance.	Policies can offer a different combination of benefit triggers not to exceed requiring that the insured satisfy more than 2 ADLs. Benefit triggers may not be restricted to 2 of 6 ADLs.
“Medical necessity” can’t be used as a trigger for benefits.	“Medical necessity” and/or other measurements of disability can be offered as benefit triggers.
ADL disability must be expected to last for at least 90 days.	Policies don’t have to require that the ADL disability be expected to last for at least 90 days.
For cognitive impairment to be covered, a person must require “substantial supervision.”	Policies don’t have to require “substantial supervision” to trigger benefits for cognitive impairments.

Qualified long-term care services are those required by a “chronically-ill” person and are given by a long-term care provider according to a plan of care prescribed by a licensed health care practitioner.

Under federal law, a person is considered “chronically-ill” if:

1.  he or she is expected to be unable to perform at least two of five (or six) ADLs without substantial help from another person for at least 90 days or
2. he or she needs substantial supervision to protect his/her health and safety because of a cognitive impairment.

Please note that it is not always to your advantage to choose a federally tax-qualified policy over one that is not federally tax-qualified. You may need to be more incapacitated to qualify for benefits in a federally tax-qualified policy. However, any benefits received under a non tax-qualified policy COULD be taxable as income. Also, depending on your finances, you might not be able to take advantage of the federal tax breaks. You should consult your personal tax advisor on these issues. Note: Most long-term care policies bought prior to January 1, 1997 are considered federally taxqualified even if they do not meet all of the standards required of policies sold after that date. In most cases, you do not need to buy a new policy to qualify for the tax advantages.

What is a MassHealth (Medicaid) Qualified Policy?

If you receive MassHealth (Medicaid) and have a long-term care insurance policy that meets certain coverage requirements, you might be exempt from some MassHealth eligibility and recovery rules. These rules determine (1) whether your home will need to be sold in order for you to become eligible for MassHealth benefits and (2) whether you or your estate may need to repay MassHealth for any of the long-term care expenses it paid on your behalf.

You should seek independent, professional advice before making any decision.

Important Note: You should also be aware that laws may change and the exemptions and the minimum coverage requirements that exist today may not necessarily be the same in the future (or might not exist at all).

Qualifying long-term care insurance policies

Your policy must have a certain level of benefits available to pay for nursing home care as of the day you enter a nursing home in order for you to qualify for the MassHealth eligibility and recovery exemptions. When you enter a nursing home, your policy must:

• Have benefits available sufficient to cover nursing home care for at least 730 days.
• Have benefits available of at least $125 per day for nursing home care, except where the actual cost is less, regardless of whether the policy counts days or dollars toward the benefit level
• Not require an elimination period (days that services must be provided before your policy will begin to pay) of more than 365 days, or in lieu of a waiting period, a deductible of more than $54,750.

It should be noted that although a long-term care insurance policy may satisfy the MassHealth minimum coverage requirements at the time it is purchased, if an insured uses the policy to pay for non-nursing home benefits (e.g., home health care, personal care or assisted living benefits), the amount of benefits remaining available to pay for nursing home care may be less than what is necessary to meet the MassHealth minimum coverage requirements. Depending upon the original maximum benefit and other benefits that may have been used, the policy may not meet the MassHealth minimum coverage requirements on the day you enter a nursing home.

For example: you bought a policy with 730 days of nursing home and home health care coverage, and prior to entering the nursing home used 100 days of coverage to pay for home health care services. On the day you enter the nursing home, you would have 630 days of coverage left to pay for nursing home care. This is less than the minimum 730 days of nursing home coverage required for certain MassHealth exemptions.

Therefore, when buying a policy, you should keep in mind that use of non-nursing home benefits may reduce available nursing home benefits below that required to meet the MassHealth minimum coverage requirements.

MassHealth exemptions for which you might qualify

Eligibility Exemption If a person receives care in a nursing home and MassHealth pays for long-term care expenses, MassHealth may, in some cases, require an applicant's home to be sold in order to be eligible for MassHealth benefits. But if you have a qualifying long-term care insurance policy, MassHealth will not require you to sell your home.

MassHealth does not require all persons without a qualifying long-term-care insurance policy to sell their homes. Regardless of whether you have a qualifying policy, MassHealth will not require you to sell your home in any of the following situations:

• You notify MassHealth that you intend to return home.
• Certain relatives are living there.  You own the home jointly with someone else and the other owner is living there.

Recovery Exemption In some cases, MassHealth will take steps to recover some or all of the costs of MassHealth benefits that you use. But, if you have a qualifying long-term care insurance policy, are institutionalized, and you notify MassHealth that you do not intend on returning home, you may be exempt from the general recovery rules.

MassHealth generally recovers its costs in two situations. First, if MassHealth places a lien against your home, and you sell it during your lifetime, MassHealth will generally recover from your share of the proceeds the cost of all MassHealth benefits provided. Second, if you die and own property, MassHealth will generally file a claim against your estate for the following costs paid by MassHealth:

1. all MassHealth benefits provided after age 55; and
2. any services in a nursing facility or other institution regardless of your age, if you were permanently institutionalized.

If you qualify for the recovery exemption, you will not have to repay the costs of your nursing home stay or other long-term care. You will still be required to repay the costs of other MassHealth services such as hospital care, physician visits and prescriptions.

You should be aware that there are several situations in which MassHealth does not place liens or collect from estates regardless of whether you have long-term care insurance: 

• MassHealth does not place liens on the homes of all persons whose nursing home care is paid by MassHealth. MassHealth does not place a lien if certain relatives are living in the house, and it does not place a lien until it determines that you are unlikely to return home.
• MassHealth does not collect from the estates of all MassHealth members who die. MassHealth will waive recovery if (1) real property must be sold to pay its claim and (2) the property was left to a person who meets certain financial standards and has continually lived there for a year before you started receiving benefits. However, if during the first two years after MassHealth or a court determines that the conditions for waiver have been met, that person either (a) sells the property, (b) no longer uses the property as his or her primary residence, or (c) no longer meets the financial standards, MassHealth may require payment.
• If certain relatives survive you, your estate may delay paying MassHealth. No payment will be required while your spouse or any blind or permanently and totally disabled child is still living, or while any of your children is under age 21.

Purchasing insurance to qualify for MassHealth exemptions

Whether you should purchase long-term care insurance to qualify for the MassHealth exemptions is a personal decision. Depending on your financial circumstances, you could decide to purchase sufficient long-term care insurance to cover the full cost of any care you might require, thus eliminating the need for public assistance. You might also have other resources you plan on using to supplement whatever coverage you purchase.

As noted above, if you are considering choosing a policy based on whether it is intended to qualify for MassHealth exemptions, you must also consider that using policy benefits to pay for non-nursing home benefits may reduce policy benefits available for nursing home care below the MassHealth required level when you may enter a nursing home. Depending on your situation, you may choose initial benefit levels to reduce the likelihood of going below the MassHealth minimum.

It is important to remember that long term care insurance products are sold with a variety of features and benefit options. The features and benefit options you choose and how you use them may impact whether or not you have a policy that may qualify you for the MassHealth exemptions at the time you enter a nursing home.

For advice on whether to purchase long-term care insurance for the purpose of qualifying for MassHealth exemptions or for other advice in protecting your assets, you should speak with an attorney or financial planner experienced in estate planning and MassHealth eligibility.

For more information regarding the MassHealth program, call MassHealth’s Customer Service Center at 1-800-841-2900 or visit MassHealth’s website at www.mass.gov/masshealth.

Will Your Health Affect Your Ability to Buy a Policy or to Claim Benefits Later On?

Long-term care insurers usually “medically underwrite” individual coverage. If you are at high risk of needing long-term care services, they will most likely not offer you coverage. The insurance company will look at your health and medical history before deciding whether to issue an individual policy. Although group coverage offered through employers or associations is usually issued without medical screening, insurers may also medically underwrite some of these policies.

Most insurers do thorough underwriting at the time you apply for a policy. They will ask you many health and lifestyle-related questions, examine your medical records and ask your doctor for a statement about your health. If they find that you have a history of health conditions that increase the risk that you will need long-term care, they probably will refuse to sell you a policy. There is no law that requires long-term care insurers to insure people they consider to be at high risk.

Some insurers may do “short-form” underwriting by just asking you a few basic questions on the application form or not checking your medical records until you make a claim. This practice is called “post-claims underwriting” which is prohibited for policies sold in Massachusetts. Insurers that do not thoroughly check your health before selling you a policy may deny your claims later on if they find that you provided incomplete or untrue health information on your application. An insurer may try to refuse to pay you benefits because of information found in your medical record after you file your claim.

If you have any of the following conditions, an application for long-term care insurance will most likely be declined:

• AIDS;
• Alzheimer’s Disease;
• Amyotrophic Lateral Sclerosis (Lou Gehrig’s Disease);
• Cystic Fibrosis;
• Dementia;
• Huntington’s Disease;
• Muscular Dystrophy;
• Multiple Sclerosis;
• Organic Brain Syndrome; or
• Parkinson’s Disease

Please note that each insurance company will have its own medical underwriting guidelines. You should ask your agent or the insurance company any questions regarding health conditions that may cause an application to be declined.

If you find that an insurer may be practicing “post claims underwriting” or may be improperly denying benefits in your policy, you should contact the Division of Insurance.

What If You Have a Pre-Existing Condition?

A long-term care insurance policy usually defines a pre-existing condition as one for which you have Page 23 received medical advice or treatment or had symptoms within a certain period before you applied for the policy. Insurers may sell policies to people with some pre-existing conditions, but may not pay benefits for services related to that condition for a period of time after the policy goes into effect.

In Massachusetts, individual policies (1) must refer to any pre-existing condition limitations on the front of the policy and outline of coverage and (2) must not exclude coverage for pre-existing conditions for more than 6 months after the date your policy becomes effective. Please be aware that group policies are not subject to the same regulations, and might exclude coverage for preexisting conditions for longer periods.

How Are Benefits Paid?

Long-term care insurers usually pay benefits on an “expense-incurred” basis. This means that the insurer must decide if you are eligible for benefits and if your claim is for eligible services. If so, the insurer pays benefits either to you or your provider up to the limits in your policy. Your policy will pay benefits only when you actually receive eligible services. Less common is the “indemnity” method, where the benefit is a set dollar amount. Under this approach, the insurer decides only whether you are eligible for benefits. If you are, the insurer pays benefits directly to you up to the limit of your policy, regardless of the type of services you receive or whether you receive services at all.

What Happens if You Forget or Are Unable to Pay Premiums on Time?

To protect you from losing your coverage if you forget to pay your premium on time, Massachusetts law requires all long-term care insurers to offer you the chance to designate a person you would like your insurer to contact if your payment is overdue. You will be asked to identify a relative, friend or professional (lawyer or accountant, for example), as your third party at the time of application and at least once every two years thereafter. You should take advantage of this important protection. If you choose not to identify a third party, your insurer will ask you to sign a waiver.

If your payment is over 30 days late, your insurer can take steps to cancel your policy by sending written notice to you and to your third party designee that your coverage will end in 30 days if it has not received your payment.

If your policy is cancelled for nonpayment, you have a right to “reinstatement” if, within five months, you provide proof to your insurer that you were mentally or physically impaired before the end of the policy’s grace period.

Under What Circumstances Can Your Coverage Be Canceled?

If you pay your premiums on time, there are few circumstances under which your insurer can cancel your coverage. In Massachusetts, all individual long-term care insurance policies are at least guaranteed renewable. Long-term care insurance companies must offer you a chance to renew your coverage and can raise your premium only if approved by the Commissioner of Insurance and if it does so for all policyholders with your plan.

Non-payment of premium The most common reason for the cancellation of a long-term care policy is that the policyholder has stopped paying the premium because he or she no longer wants or can afford the coverage.

Inaccurate or incomplete information on an application If you provided incomplete or false information in response to questions about your health status when you applied for coverage, your insurer can rescind (cancel) your policy. It is, therefore, very important that you carefully complete the policy application. Do not accept an insurance agent’s offer to complete the health section of the application for you. Your insurer will give you a copy of your application when the policy is delivered. Review your answers again and report any inaccuracies to the insurer right away. If, within two years of the application, your insurer discovers that the information you provided is not accurate, it can return your premiums and cancel your policy.

Termination of a group policy Your coverage under a group policy may be canceled if your employer or group sponsor cancels its relationship with a carrier or if you are no longer a member of the sponsoring group. You may be able to continue your coverage within the group or in a group conversion product depending upon the terms of your policy’s renewal section.

If You Already Own a Policy, Should You Switch Plans or Upgrade Existing Coverage?

Before you switch to a new long-term care insurance policy, make sure it is better than the one you have. Please note that this will probably cost you more since you will probably be older than when you first bought the policy. Check to see if you can upgrade the coverage on your current policy if you need additional benefits. It might cost less to improve a policy you have now than to buy a new one. Even if your agent now works for another company, you should think carefully before making any changes. If you decide to switch to a new long-term care policy, make sure the new company has accepted your application and issued the new policy before you cancel the old one. Otherwise, you could end up with no coverage if the new insurer rejects your application. Be mindful of the timing of your switch. When you cancel a policy in the middle of its term, many insurers will not refund the premiums you have paid. Also, new restrictions on pre-existing conditions may apply. You may not have coverage for some conditions for a certain period of time.

What are the Responsibilities of Agents Selling Long-Term Care Insurance?

Long-term care insurance can be sold directly by insurance companies by mail or phone solicitation, by agents and brokers who represent one or more insurer, by some estate-planning lawyers or through an employer or other group setting. Most people who buy long-term care insurance do so through an agent. A responsible, well-trained agent can be an important source of information about the policies that you are considering.

Even though insurers are required to train their agents, not all agents who are licensed to sell long-term care insurance are equally well-trained and experienced. Ask about the training and experience of any agent with whom you are thinking of working. Insurers usually pay agents commissions for each policy they sell. The amount of these commissions varies depending on the insurer and the type of policy. An agent might represent only one insurer or might receive a higher commission for selling one policy rather than another. Ask your agent to identify the insurers he or she represents and to explain his or her commission arrangements. This will help you understand whether the agent has an incentive to sell you a particular policy.

Massachusetts requires persons who sell long-term care insurance to:

• Disclose the fact that they receive compensation in connection with the sale or replacement of all long-term care insurance.
• Identify the insurer that they are representing in the sale and include the insurer’s name on any printed materials that they present.
• Disclose whether the policy presented is an individual or group policy and, if it is a group policy, identify the group sponsor and any conditions that the consumer must satisfy to join and remain a member of the group.
• Provide the following materials to potential policyholders on a timely basis:
  • (1) a copy of this guide, “Options for Financing Your Long-Term Care: A Massachusetts Guide” no later than the first personal contact between the potential insured and the agent;
  • (2) a “policy illustration form” outlining the benefits of each policy you are presented no later than the time of the policy quote; and
  • (3) an “outline of coverage” prior to the presentation of the policy’s application form.

Massachusetts law prohibits persons who sell long-term care insurance from:

•  Misrepresenting their expertise, qualifications or training to potential clients. 
• Commenting on the legal or tax implications of purchasing long-term care insurance to the extent that they lack the training, qualification or license to provide such advice.
• Using “high-pressure tactics” (marketing methods that use force, fright, threat or other inappropriate pressure to sell insurance).
• “Twisting” (making misleading or incomplete comparisons of insurers or policies to convince a policyholder to drop, keep or change in any way his or her current policy or to buy a policy from another insurer).
• Engaging in “cold-lead advertising” (failing to disclose that the advertising is connected with the sale of insurance and that an agent will be contacting the consumer). If you believe that an agent or insurer might be violating any of the above marketing rules, you should report the agent to the Division of Insurance or the Attorney General’s Office.

How Can You Effectively Work with an Agent, Broker or Financial Planner?

When working with your long-term care insurance agent, broker or financial planner, the most important thing to remember is not to be afraid to ask questions. In particular, be sure to discuss the following:

• Ask him or her to assist you with comparisons. Compare the policy illustrations, outlines of coverage and disclosures from several companies.
• Make sure you understand the difference between Medicare and MassHealth (Medicaid), including the limitations of each.
• Know how any change in policy features affects the premiums. In particular, understand how the different inflation options work and which one is right for you based on your age, health and financial needs.
• Understand the important differences in policy benefits and prices. Remember that price is always relative; comparing similar plans is not always an easy task.  
• Customize your coverage based on your specific needs. One insurance plan does not fit all situations.

A well-trained and experienced long-term care insurance specialist should ask you questions about your finances, health, family health history, support network and expectations regarding your financial security. Ultimately, the time taken at the outset to understand your needs will help ensure that you get what you need and avoid buying too much coverage.