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A primer on LTC insurance.

When communicating to clients about long-term care (LTC), the information usually includes care for an individual who is physically or mentally disabled (i.e., unable to function or live without assistance from others). "LTC planning" refers to the process of preparing to meet the financial, medical, housing and personal needs of a person who can no longer function independently; typically, such care is not provided in a hospital. The plan must address the level of care needed and determine the location in which it can best be provided and how it will be financed.

Care Options

Care needed by an individual unable to function independently usually falls into one of the following categories:

* Acute care. Medical needs of the individual warrant hospital admission, so that appropriate care can be provided.

* Intermediate and skilled care. Care at this level is typically provided in a nursing home. If the individual is a private-pay patient, the doctor and family determine whether the facility is appropriate. If Medicaid payment is sought, the individual must meet the state program's "medically necessary" criterion.

* Residential care or assisted living. Generally, individuals who require this level of care do not meet the criteria for a nursing facility's skilled or intermediate care. Typically referred to as residential care facilities, these facilities are more moderately priced than nursing homes. Some states provide payment assistance to individuals who seek this type of care.

* Home care. Generally limited to individuals who can operate with some degree of independence and have a family support system that encourages them to remain at home, home care can be provided with some payment assistance from Medicare or Medicaid.

Payment Alternatives

Usually, LTC is paid from one of three sources: private pay; Medicaid, Medicare and Medigap; or LTC insurance. Some limited services may be initially covered by Medicare or the Veterans' Administration; however, these programs should not be considered long-term funding sources.

* Private pay. Currently, nursing homes charge approximately $3,000 to $6,000 per month for care. Maintaining a person at home with fulltime care is even more costly. Financing the entire bill can be prohibitively expensive if an individual relies solely on private pay.

* Medicaid, Medicare and Medigap. Usually, Medicare and Medigap policies cover portions of the first 100 days of nursing home care. These sources are extremely restrictive and should never be considered a long-term solution to paying for LTC needs.

* LTC insurance. A relatively new product in the insurance market, LTC insurance is similar to life insurance policies. The holder pays monthly premiums to the insurance company; if LTC is needed, the insurance company pays the bill as dictated by the policy provisions. Individuals must be in reasonably good health to qualify for a policy; depending on age and health, premiums can be high. In addition, the insurance company may restrict the facilities from which individuals can choose and the services received may be limited.

Understanding Long-Term Healthcare Insurance

"LTC" refers to the many services used by people with disabilities or chronic illnesses. LTC insurance helps pay for these services, which can be very expensive. A policy should also ensure that individuals can make their own choices about the LTC services they receive and where they receive them.

Ordinary health insurance policies and Medicare usually do not pay for LTC expenses. Medicaid, a Federal/ state health insurance program, will pay for LTC only when an individual has already spent most of his or her savings or other assets. LTC insurance should cover the cost of:

1. Help in the home with daily activities, such as bathing and dressing.

2. Community programs, such as adult day care.

3. Assisted living services (e.g., meals, health monitoring and help with daily activities) provided in a special residential setting other than a personal residence.

4. Nursing home care.

Deciding Whether to Buy a Policy

LTC insurance is not for everyone. Clients should learn as much as they can about the various policy options before buying one. CPAs should encourage clients to keep the following in mind:

1. Is there a good reason to buy LTC insurance? Clients' goals may be to protect assets, minimize their dependence on other family members and control where and how they receive LTC services.

2. What is the cost? LTC insurance is expensive. An individual who is 65 years old and in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing home care and home care; those premiums are adjusted for inflation. Clients should be wary of buying LTC insurance if the cost of premiums will lower their standard of living or force them to give up other things they need. Clients should make sure they will be able to afford the premiums if their income declines.

When to Buy

Middle age may be the best nine to consider whether to buy LTC insurance, as (1) an individual is most likely to be eligible for a policy and (2) premium costs will be lowest. Many people do not think about LTC until they get into their 70s and 80s and their health begins to fail; at that age, it may be too late to purchase insurance. Some LTC insurance policies restrict the age and health status of potential buyers. Even if an individual can obtain LTC insurance in old age, it will be more expensive than if purchased at a younger age.


The State Health Insurance Assistance Program (SHIP) is a free program that counsels older adults about health insurance-related topics. SHIP counselors can help individuals (1) decide if they need LTC insurance and (2) understand an insurance policy they are thinking about purchasing. For the nearest SHIP program, call the Eldercare Locator, at (800) 677-1116.

The National Center on Women and Aging, located at Brandeis University, focuses attention on the special concerns of aging women. The Center published a guide to LTC insurance in its Women and Aging newsletter, available at ltc.html.

The Administration on Aging's (AoA's) Website contains information about the agency, its mission, budget and organizational structure. It also discusses the Older Americans Act, the Federal legislation establishing the AoA and authorizing a range of programs that offer services and opportunities to older Americans and their caregivers; see

The American Association of Retired Persons (AARP) is a nonprofit membership organization dedicated to addressing the needs and interests of persons age 50 and older. Through information and education, advocacy and service, AARP seeks to enhance the quality of life for all, by promoting independence, dignity and purpose; see

Insurance Calculators

The Internet abounds with personal insurance calculators. The following have been identified for work with LTC insurance issues, premiums and benefits:

* Cost of Care in Your Area, John Hancock Insurance Company, at costofcare.cfm.

* Long Term Care Calculator, New York Life Insurance Company, at www. LongtermCare.html.

* Long Term Care Calculator, CPA2Client, LLP, at Calcs.asp?key=_Sample.

* The Federal Long Term Care Insurance Program, at NASApp/ltc/do/assessing_your_ needs/ratecalc.

* The LTC Insurance Evaluators, at insurance/longtermcare/index.cfm? story=evaluators.


CPAs should take the time to understand the different issues involved in the purchase of LTC insurance, to better assist clients.
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Article Details
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Title Annotation:long-term care
Author:Lewis, George A.
Publication:The Tax Adviser
Date:Jan 1, 2005
Previous Article:Income and estate tax planning for special needs trusts.
Next Article:IRS and AICPA collaborate on OIC program.

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