Congressional Research Service Issues In Focus White Paper on Overview of Long-Term Care Insurance
Here are excerpts:
* * *
Long-term care insurance (LTCI) is a type of insurance policy designed to cover the future costs of care associated with a chronic condition or disability that requires extended or long-term care. Long-term care, often referred to as long-term services and supports (LTSS), provides hands-on assistance or supervision to individuals who have functional or cognitive impairments associated with basic activities of daily living (ADLs; e.g., bathing, dressing, eating, mobility, toileting, and continence). If a policyholder becomes eligible for long-term care, the LTCI policy provides a daily cash amount (up to a maximum limit) that the policyholder may use to cover services.
Policy Features
LTCI policies are complex insurance products. Individuals seeking to purchase a policy must make certain decisions about the product's features at the time of purchase. In general, these purchase decisions are made several years, sometimes decades, prior to a potential need for LTSS, which adds further complexity to the decisionmaking process. These purchase decisions (described below) include
* the type of services covered,
* the dollar amount of coverage and annual inflation adjustments,
* the length or duration of coverage, and
* the waiting period (or elimination period).
Covered Services
Services covered under an LTCI policy may include care provided in a variety of settings, such as nursing homes and assisted living facilities, or an individual's private home through home health services. Policies may cover respite care for caregivers, homemaker and chore services, and medical equipment, among other services and supports.
Coverage Amount
Individuals must choose a daily benefit amount and whether to purchase inflation protection. The dollar amount of the daily benefit is often initially chosen based on the current cost of services. Deciding whether and how much this daily benefit should be adjusted over time to reflect the annual inflation rate for LTSS can be difficult, because of uncertainty around the unknown future costs of LTSS.
Coverage Length
The length of coverage (in years) of an LTCI policy is called the duration of the benefit. Determining how much coverage to purchase adds complexity to the decisionmaking process. LTCI policies can cover two to five years of services, and some policies can provide lifetime benefits. Potential policyholders want to purchase a policy that will sufficiently cover future risks; however such risks are unknown at the time of purchase and vary widely across the older population.
Waiting Period
In general, LTCI benefit eligibility depends on limitations in an individual's ability to perform a certain number of ADLs. LTCI policies often have a waiting or elimination period, which is the length of time between the onset of qualifying impairments and commencement of payment for LTSS. The elimination period is selected by the policyholder when he or she purchases the policy. This elimination period is conceptually similar to a deductible in a health care plan; the longer the elimination period, the lower the policy's premium cost, all other things being equal.
Insurance Market
LTCI policies can take different forms, from stand-alone or traditional LTCI policies to linked benefit products that combine life insurance or an annuity with long-term care coverage. Generally, the types of services covered under an LTCI policy are not covered under health insurance. And, unlike most health insurance policies, LTCI policies are subject to underwriting, which means that individuals who have preexisting conditions can be denied coverage or offered a policy with a high premium. The premiums charged by LTCI insurance carriers vary by age of purchaser. Those purchasing at older ages are charged higher premiums because they are at higher risk of needing LTSS. LTCI policies are guaranteed renewable; in other words, they may be cancelled only for nonpayment of premiums.
Traditional LTCI
Traditional LTCI policies may be sold by an insurance carrier to an individual directly or to a group as part of an employer-sponsored policy. Employer-sponsored LTCI is distinct from employer-sponsored health insurance in that employers typically do not contribute to LTCI premiums. Unlike LTCI purchased in the individual market, employer-sponsored LTCI has the advantage of a larger risk pool and generally lower premiums. Among employers offering LTCI, the federal government is the largest employer offering group LTCI.
Linked-Benefit LTCI
Linked-benefit LTCI products, also known as combination or hybrid products, combine a life insurance policy or an annuity with a long-term care rider. These policies provide an individual with coverage for LTSS if needed; otherwise, the policy will pay a death or annuity benefit to a designated beneficiary.
The LTCI market has changed significantly over the past two decades. Overall, the market has become more concentrated, with fewer companies selling traditional LTCI. Linked-benefit products have become more popular, with annual sales outpacing traditional LTCI in 2021.
Figure 1 shows that since 2014, the number of individuals with an active or "in-force" stand-alone LTCI policy has declined (see section "Addressing Market Stability").
* * *
Figure 1. Long-Term Care Insured Lives
Source:
* * *
The Federal Long-Term Care Insurance Program
The Long-Term Care Security Act (P.L. 106-265) authorized the
Regulation
State governments have primary jurisdiction for regulating the private LTCI market. In this capacity, states have established laws and regulations for LTCI carriers and the products they sell. States also play an active role in verifying carriers' and products' compliance with these requirements. To help guide states in their oversight efforts, the
Tax Benefits and Consumer Protections
Federal law provides tax benefits and minimum consumer protection standards for purchasers of "tax-qualified" LTCI policies, as authorized by the Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191). These provisions are established in the Internal Revenue Code (42 U.S.C. Sec.7702B). Most traditional LTCI policies sold after enactment of HIPAA are tax-qualified policies. Linked-benefit LTCI policies with a separately identifiable premium component can offer a tax deduction.
HIPAA tax-qualified LTCI products are required to have defined benefit triggers for when the policy begins to pay benefits. These triggers require policyholders to meet the definition of a "chronically ill" individual who has been certified by a licensed health care practitioner as
* being unable to perform (without substantial assistance) at least two ADLs for a period of at least 90 days due to a loss of functional capacity;
* having a level of disability similar (as determined by the Secretary of the
* requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Federal law provides tax advantages for some aspects of private LTCI. Benefits from a "qualified" LTCI policy are excluded from the gross income of the taxpayer (i.e., they are exempt from federal taxation). LTCI premiums are allowed as itemized deductions to the extent they and other unreimbursed medical expenses exceed 10% of adjusted gross income. LTCI premium deductions, however, are subject to age-adjusted annual maximum amounts. In 2021, these amounts ranged from
Under current law, employer contributions toward the cost of tax-qualified LTCI, while not typical, are excluded from the gross income of an employee. Self-employed individuals may include LTCI premiums in calculating their deductions along with other health insurance premiums. Only amounts less than or equal to the age-adjusted limits can be deducted or excluded from taxable income.
Addressing Market Stability
Over the past two decades, annual LTCI premiums in the stand-alone market have increased significantly for both current and new policyholders. Higher average premiums reflect increased demand for more comprehensive benefit packages (including inflation protection) and higher daily benefit amounts. Premium increases have also been driven by inadequate medical underwriting, premiums that were initially set too low, and insufficient growth in investment funding or reserves to cover future claims. LTCI market stability depends largely on the ability of insurers to adequately predict future claims. Most policies issued before the mid-2000s had incorrectly predicted claims, necessitating changes to key pricing assumptions. For example, rising claims, lower mortality rates, lower-than-predicted voluntary termination (lapse) rates, and lower-than-predicted rates of return on investments have been cited as key reasons for premium increases. Such increases may continue to affect consumer confidence, possibly leading to further reductions in demand for stand-alone LTCI and shifts in demand toward linked-benefit products that offer a fixed premium.
* * *
The white paper is posted at: https://crsreports.congress.gov/product/pdf/IF/IF11614
Census Bureau: 'Health Insurance Coverage by Race & Hispanic Origin – 2021'
Senators Hassan And Marshall Introduce Bipartisan Bill To Help Seniors With Medicare Coverage Options
Advisor News
- 3 issues investors must be aware of in 2025
- More Americans plan to focus on finances in 2025
- Americans’ saving, investment product savvy improves, study finds
- Bull or bear? What are financial advisors’ market expectations for 2025?
- Panel: Is the American retirement system ‘broken’?
More Advisor NewsAnnuity News
Health/Employee Benefits News
- Deal or no deal? Thousands may lose coverage at St. Vincent, MetroWest hospitals
- Reports from Northwestern University Advance Knowledge in Managed Care (How Child Health Financing and Payment Mitigate and Perpetuate Structural Racism): Managed Care
- Deal or no deal? Thousands may lose coverage at St. Vincent, MetroWest hospitals
- Researcher at Governors State University Has Published New Study Findings on COVID-19 (The effect of COVID-19 on health insurance and mental health): Coronavirus – COVID-19
- Ask the Medicare Specialist
More Health/Employee Benefits NewsLife Insurance News