"Nearly half of people over age 65 will have at least
one stay in a nursing home."
Source: New England Journal of Medicine (Feb. 28, 1991)
What is long-term care?
Long-term care is the assistance needed over an extended
period of time to manage, rather than cure, a chronic
condition, such as, arthritis, stroke or dementia, or
the frailties of aging or accidents.
Long-term care is not typically covered under health
insurance policies, HMO plans, Medicare or Medicare
supplemental policies, which are designed to provide
coverage when you receive care from a doctor or treatment
in a hospital. If these policies cover nursing home
care or home care at all, it is only for a short-term
or limited basis.
Long-term care is primarily the assistance or supervision
you may need when you are not able to do some of the
basic "activities of daily living" (ADLs),
such as bathing, dressing, toileting, or moving from
a bed to a chair. You might need assistance with ADLs
if you suffer from an injury like a broken hip, prolonged
illness, a stroke, or advanced age and frailty. Other
people may need long-term
care because of mental deterioration, called "cognitive
impairment" that can be caused by a brain disorder
such as Alzheimer's, or a mental illness.
Long-term care is sometimes called "custodial
care" or "personal care." Family members
and friends frequently provide it. "Formal"
long-term care (the kind of care you must pay for) is
most often provided by unskilled workers such as homemakers,
companions, or personal care aides. While less common,
"Formal" care can also include skilled care
from medical professionals such as nurses and physical
Long-term care services can be provided in your own
home or in a community program like an Adult Day Care
Center, in an assisted living facility licensed as a
Residential Care Facility (RCF), or in a nursing facility.
Long-term care is not necessarily "long term."
For instance, about half of all nursing home stays last
six months or less. Some people only need long-term
care for a few months, for example, while recovering
at home from a broken hip. Others, however, may need
care for the rest of their life.
Will I need long-term care and if so, will I
need to be in a nursing facility?
Unfortunately, while none of us want to consider the
probability, everyone is at risk of needing long-term
care. A 1990 study, "The Risk of Nursing Home Use
in Later Life," found that nearly half of people
over 65 years of age will spend some time in a nursing
facility. At age 75, the risk increases to 50 percent,
and at age 90, this risk increases to 75 percent. These
statistics only cover care in nursing facilities and
do not include people who only receive care at home.
Your personal risk of needing long-term care depends
on many factors, such as longevity, your gender, marital
status, and health history.
• Longevity: The longer you live; the more likely
it is that you will need long-term care. Those who live
to be 95 years old or older are much more likely to
have spent five or more years in a nursing home than
those who live to their mid-70's. Fewer facts are known
about the use of home care services, although for every
person in a nursing facility, there are four people
receiving the same care in their homes.
• Gender: According to a study completed by the
New England Journal of Medicine, February 28, 1991,
one out of every two women over the age of 65 will spend
some time in a nursing facility. Women are at a much
higher risk of needing to pay for formal long-term care
for several reasons. Women have longer life spans and
often out-live their spouses. When they need long-term
care in their older years there is often no one to care
for them at home and, as a result, are more likely to
need institutional care. Additionally, women are more
prone to chronic diseases such as arthritis and osteoporosis,
conditions that frequently result in a need for long-term
• Married or Single: If you have a spouse (or
other family or friends) who can provide your care whenever
it is needed in the future, you are more likely to be
able to remain in your home rather than move into a
RCF or a nursing facility to receive your long-term
• Health factors: Certain health conditions,
such as severe Arthritis, Alzheimer's or stroke, can
cause a need for long-term care. If you know that certain
health conditions run in your family, you may have a
greater risk of needing long-term care than another
person of the same age and gender.
Who will take care of you?
Almost none of us are willing to accept that we are
likely to need care in a nursing facility in the future.
Most of us are in denial that we will ever need assistance
with eating, dressing, bathing, toileting, or moving
about our homes. If we ever need such assistance, we
believe we will be able to receive it at home. Many
of us assume our adult children will take care of us.
Yet, many family members will find it difficult to provide
an adequate level of care, even though they will likely
want to try. In addition, family caregivers frequently
see dramatic changes in their own lifestyles that negatively
impact their relationship with their spouse, children,
and even the loved ones for whom they are caring. Because
caregivers are often full-time employees, their job
productivity and ability to advance in their careers
is also negatively impacted. Some have to quit work
How Much Does Long-Term Care Cost?
In 2002, the cost of nursing home care in California
averages $141 a day. Costs may be lower in rural areas
and higher in suburban and urban areas. A short 30-day
stay could cost $4,230 or more; a three-month stay,
$12,690 or more; and, a year stay, $50,000 or more.
Nearly 55 percent will stay at least one year. Twenty-one
percent of the people who go into a nursing home will
remain longer than five years.
That means more than half the people who go into a
nursing home will spend between $51,100 and $255,500
or more. Consider this: care in your own home can be
even more costly than care in a residential care or
nursing facility, depending on how many hours of you
have to pay for care.
The cost of care in the future will be much higher
than it is today. California nursing home rates increased
at an average rate of 5 percent per year over the past
20 years. These costs are likely to continue to increase
by at least 5 percent per year in the future. A 5 percent
annual increase means a year of care that costs $50,000
today will cost twice that amount in 14 years, or $100,000
a year, and $200,000 a year less than 30 years from
Who Pays For Long-Term Care?
Medicare: Medicare may pay for skilled care in a nursing
home for a very short period--but no longer than 100
days--and only when the patient meets all the Medicare
requirements for daily skilled care. For Medicare to
pay for any days in a nursing facility, you will have
had to spend at least three days in the hospital for
the condition requiring admittance into the nursing
facility. When Medicare pays for nursing facility care,
it only pays the full costs for the first 20 days. For
the next 80 days, your co-payment is $101.50 per day
(based on the co-pay amount for Calendar Year 2002,
which tends to increase annually).Your Medicare supplement
plan will pay this co-payment for you, but will not
pay for additional days in the nursing facility beyond
what Medicare will pay for. Most Medicare HMOs will
cover nursing facility care or care at home for 100
days, if skilled care is required.
While people do get personal care services while receiving
skilled care in a nursing facility, Medicare will not
pay unless there is also a need for daily skilled services
that only a nurse or therapist can provide. Medicare
may pay for some personal care services at home but
again, only if you also need skilled care on a daily
basis that only a licensed person can provide. For more
details, see the Medicare benefits book available from
your Social Security office or by calling the Social
Security Administration, toll-free at 800-772-1213.
Medi-Cal: Medi-Cal (called Medicaid outside California)
pays for necessary health care that is not covered by
Medicare, but only if you meet federal and state poverty
In 2002, a single person over 65 would qualify for
Medi-Cal if he/she had $2,000 or less in non-housing
assets. A married spouse, living in the community, however,
can keep up to $89,280 in non-housing assets and $2,232
in joint monthly income, when his or her spouse is in
a nursing home and applies for Medi-Cal. These guidelines
and the amount of assets and income a person may keep
can change annually.
Note: In general, the value of a person's house is
not counted when applying for Medi-Cal. The state will
recover the costs paid by Medi-Cal from a person's estate,
which can include the house. Recovery will not occur
while there is a surviving spouse or dependent child.
Personal Resources: Most people pay long-term care
expenses from their own income and resources. When care
is provided by family members and friends at home, other
costs such as those for skilled care, equipment, transportation,
and other costs not paid by Medicare are also paid from
the patient's personal income or savings. People who
use up their assets paying for long-term care are “spending
down" and may become eligible for Medi-Cal as a
Long-Term Care Insurance
Another method of paying for long-term care is long-term
care insurance. This type of insurance can cover a wide
range of services for individuals when they need long-term
care, from home and community based care to institutional
care. As with most other forms of insurance, you cannot
purchase coverage once you need the company to pay benefits.
Long-term care insurance is most often sold to individuals
who pay all of the premiums. Some employers offer this
type of insurance, although they rarely pay the premiums.
Some allow the parents, and sometimes the parents-in-law
of their employees, to apply for group coverage. For
instance, the California Public Employees Retirement
System companies offer long-term care coverage to their
employees, retirees, and the parents and parents-in-law
of their members. Companies selling this insurance will
screen most people for existing medical conditions when
they apply for either group coverage or for an individual
The decision to purchase a long-term care policy and
the type of policy you select depends on many factors.
Foe example, significant differences exist among policy
type, features, benefit options and eligibility criteria.
Choosing among these options can be a challenge. It
requires careful consideration of a number of factors
related to your risk of needing long-term care and your
individual financial planning.
What is Long-Term Care Insurance?
Long-term care insurance is designed to reimburse you
for some of your expenses when you need assistance with
basic activities such as bathing, eating, or getting
in and out of bed. You may need this kind of help following
a disabling stroke, because of a disorder like Alzheimer’s
disease, or because of advanced age and frailty.
Long-term care insurance is a policy that pays for
care in institutions like Skilled Nursing facilities
and Assisted Living Facilities; at home for home health
care, personal care, homemakers services, hospice care
and respite care; and in the community of Adult Day
Care (or Adult Day Health Care) or Alzheimer’s
The care that people generally need in any of these
locations is assistance or supervision with the normal
activities of daily living (ADL’s), or because
of a cognitive impairment like Alzheimer’s disease.
This type of care is often called custodial care or
personal care. Medicare does not pay for this type of
care, but long-term care insurance policies do.
What is a Tax Qualified Long-Term Care Policy?
Congress passed legislation effective in 1997 giving
a tax break to people who purchase long-term care insurance
that meets certain federal standards.
This legislation is called the Health Insurance Portability
and Accountability Act or HIPPA. Policies that qualify
for the new tax break use a standard of eligibility
for benefits that is stricter than the standards established
in California. Policies that are labeled as “Federally
tax Qualified” use federal standards for paying
benefits. Some or all of the premiums for these policies
may be deductible as a medical expense (depending on
your age and adjusted gross income), and benefit payments
are excluded from income.
Note: Premiums paid for a tax-qualified policy qualify
as a medical expense. People who itemize medical expenses
on their federal tax return and have a total medical
expense greater than 7.5% of their adjusted gross income
may be able to deduct some portion of a premium for
one of these policies. Contact your tax advisor for
Do All Long-Term Care Policies Offer the Same
No, there are three types of long-term care insurance
policies. In addition, each type of policy can be designed
to qualify for the new tax benefit depending on which
set of standards the company uses – the federal
standards or the state standards.
Nursing Facility Only
These policies only pay for care in a nursing home or
Companies selling these policies must also offer a
buyer coverage for assisted living in a Residential
Care Facility for the Elderly (RCFE) or a Residential
Care Facility (RCF).
Home Care Only
These policies only pay for care in your own home. They
are required to include benefits for home health care,
adult day care, personal care, homemaker services, hospice
and respite care. Some also include care management
services and equipment prescribed for medical purposes.
A few companies also pay for modifications to your home
if necessary to allow you to continue living in your
Comprehensive Long-Term Care
These policies pay for long-term care at home or in
the community, as well as in a nursing home. All of
the home and community services required in a Home Care
Only policy must also be included in a comprehensive
policy. Companies selling this kind of policy must also
offer buyers a benefit for assisted living in a Residential
Care Facility for the Elderly (RCFE) or a Residential
Care Facility (RCF).
Any of these policies can be tax qualified or not,
depending on which set of benefit eligibility standards
are used by the company. A tax-qualified policy must
be labeled as “intended to meet federal tax requirements”.
Agents selling tax-qualified policies are required to
show potential buyers a side-by –side comparison
of both types of policies to illustrate the major differences
between the two. You should ask to see this comparison
before deciding which type of policy to buy.
What Do I Need to Know Before Purchasing a
Life Insurance Policy?
Before purchasing a policy, think about your future
ability to pay the premium if the company has to raise
all premiums for all policy holders. A good benchmark
is that a premium should not exceed 7 percent of your
annual income. Your income may fail to keep up with
inflation as you get older, and if your spouse dies,
your income might drop. You could then be faced with
some tough decisions about what you can afford to continue
If you have abundant assets, you may plan to pay some
or all of the long-term care costs yourself (in other
words, self-insure). If your non-housing assets are
low (less than the cost of a year in a nursing home)
long-term care insurance is probably not a good idea.
If you already qualify for Medi-Cal or would spend all
of you assets within a few months, you do not need long-term
If you are somewhere in between these extremes, long-term
care insurance may be worth considering. The amount
of insurance coverage you buy should be roughly comparable
to the assets you would otherwise have to spend.
Premiums are based on age. The older you are when you
purchase coverage, the more expensive the premium will
be. Many companies will not sell long-term care insurance
policies to a person over 85 years of age. Most people
begin to think about long-term care insurance when they
are planning for retirement. Most people buy a policy
between the ages of 65 and 80.
People with serious health problems are rarely accepted
for long-term care coverage. A few companies will accept
you with certain chronic conditions, but your premiums
are likely to be higher.
An insurance company can refuse to pay if you need care
during the first six months after you buy the policy
because of a condition you had during the six months
before you bought the policy. Some insurance companies
will pay for care caused buy a pre-existing condition
if you listed it on your application and they issued
you a policy. You should always be certain that the
health questions on an insurance application are answered
Financial Rating Companies
If you are considering purchasing a long-term care policy,
there are “Rating” companies that rate insurance
companies on their financial condition and “claims
paying ability.” These companies include AM Best,
Duff and Phelps, Moody’s and Standard and Poor.
AM Best Reports are often available at public libraries.
The other three companies will give ratings over the
telephone. Some charge a fee, others do not.
An insurance agent should be able to tell you about
any premium increases of the company you are considering.
You should ask about rate increases for any long-term
care policies the company sells now, or has sold in
the past. You can also call the company and ask for
information about their rate increases.
How Much Does Long-Term Care Cost?
The cost of Long-Term care policies varies according
to the type of policy and coverage provided. Policies
that only pay for nursing home care are less expensive
than those that cover both nursing home and home and
Some of the factors that can influence the cost of
long-term care insurance include:
• Your age and health at the time you apply for
• The deductible or waiting period you choose
before the policy begins paying benefits.
• The combination of benefits you want included
in your policy.
• The daily or monthly benefit amount you want
the company to pay when you need care.
• The number of years you want the company to
How Much Will a Policy Pay?
That depends on the benefits you choose. Most policies
pay daily amount (sometime called “daily benefits”
or “daily maximums”) from $50.00 a day to
more than $300.00 a day for the services described in
the policy. This means that the company will pay your
covered expenses “up to” the daily maximum
you choose. You will be responsible for any amounts
greater than the daily benefit, and the company will
not pay more than the cost of the covered service.
For Example: If you choose a daily maximum of $100.00
per day and your nursing home expenses are $150.00 per
day, you will be responsible for the difference, $50.00
per day, or $1,500.00 per month. (This is your co-payment)
While you may have income to pay this co-payment today,
you need to be sure that you can pay it in the future
too. Nursing home costs have doubled about every ten
years, which means that the co-payment you choose will
also increase. State law requires insurance companies
to offer you the chance to buy inflation protection.
While this benefit increases the cost of your premium,
without it you risk not being able to pay your share
of the cost later.
How Long Will a Policy Pay Benefits?
Most policies have a maximum number of days that benefits
will be paid once you start using them. This time period
is called a “benefit period” or “lifetime
maximum.” Others refer to it as the duration of
your coverage, or the total number of dollars that the
company will pay for your care.
Companies generally sell coverage in one-year increments.
You can buy as little as one year of coverage, or lifetime
coverage that will pay as long as you live once benefits
begin. The premium is higher the longer you want the
company to pay benefits, and not many people can afford
the premium for lifetime coverage. Most people buy between
two and five years of coverage.
What Conditions Must Be Met Before Benefits
Will Be Paid?
Know as either the elimination period, deductible or
waiting period (depending on the company). It is the
number of days you must wait after you are eligible
for benefits before the policy begins paying for your
care. While a few policies have no elimination periods
and pay benefits from the first day, the most common
waiting periods are 30 days, 60 days, or 100 days. You
will be responsible for the cost of your long-term care
expenses during the elimination period you choose when
you buy the policy. The policy premiums will be lower
if you select a longer elimination period, but you will
pay the full cost when you first need care.
For Example: If your nursing home cost is $100.00 per
day and you have a 60-day waiting period, you will pay
the first $6,000 for your care before the policy pays
anything. This example assumes that you continue to
stay in the nursing home after 60 days. If your stay
was shorter than your elimination period, the policy
would pay nothing for your nursing home stay.
While some companies require you to meet the elimination
period once during your lifetime, others require you
to meet it for each period of care. For example, if
you need care for a total of 60 days and have a 30-day
elimination period, you pay for the first 30 days and
your policy pays the remaining 30 days. Then if you
do not need assistance for a period of time and later
you need to use your benefits again, you would have
to pay for your care during a new elimination period.
Note: Remember you cannot depend on Medicare to pay
for the first 100 days you are in a nursing home. Medicare
will only pay for the first 20 days and part of the
cost from days 21 to 100 while you are receiving daily
skilled care and rehabilitative services. If you only
need custodial care or personal care services, you or
your long-term care insurance will pay for your care,
depending on how your policy is designed. Federally
tax qualified policies are not allowed to pay the Medicare
coinsurance after the 21st day.
Plan of Care
This is a plan for the care you need that is written
by your doctor or a medical team, such as those at home
health agencies. The plan determines that you need care,
describes the kind of care you need, and how frequently,
and for how long you need care.
Some insurance policies require a Plan of Care for
personal care and homemaker services; others require
one for every benefit. Many insurance companies require
that the Plan of Care be updated periodically.
Who Can Provide The Care I May Need?
Policy definitions determine where you can get care
and who can provide care. Home health agencies can provide
any of the required home care services. Licensed professionals
such as nurses, physical therapists and social workers
may also be eligible providers of certain skilled care
What Home Care Services Are Covered in a Long-Term
Many policies contain the following services:
• Home Health Care – skilled nursing, part-time
and intermittent, or other professional services and
therapies in your residence, including audiology and
medical social services;
• Adult Day Care – a licensed day care program
that usually provides personal care, supervision, protection
or assistance in eating, bathing, dressing, toileting,
moving about, and taking medications;
• Personal Care – assistance in your residence
with any activity of daily living (bathing, dressing,
continence, toileting, transferring, eating, and ambulating)
as well as using the telephone, managing medication,
shopping for essentials, preparing meals, laundry, and
• Homemaker Services – services in your
residence that provide physical, emotional, social and
spiritual support for you, your caregiver and your family
when a terminal illness has been diagnosed; and
• Respite Care – short-term care in a nursing
facility, in your home or in a community program to
relieve the primary caregiver in your home.
Note: Personal care, homemaker and hospice services
may be provided by a skilled or unskilled person when
they are required in a plan of Care developed by your
doctor or a care team under medical direction.
How Do I Qualify for Benefits in a Long-Term
Benefit Eligibility Triggers
Eligibility for home health care benefits in usually
based on the inability to perform certain “activities
of daily living” (ADLs), or an impairment of cognitive
ability. These are referred to as “benefit eligibility
Most policies that pay for home care pay benefits when
you are impaired in 2 out of the 7 ADLs listed below:
OR, when you need help because of cognitive impairment.
(An example would be someone with Alzheimer’s
disease who needs supervision.)
Tax Qualified Policies
Policies that pay for home care and use the eligibility
standards for federally tax qualified policies cannot
pay benefits until a health care practitioner certifies
that you will need care for at least 90 days because
you cannot perform 2 out of the 6 ADLs listed below
without substantial assistance from another person:
OR, when you need help because of severe cognitive
Impairment in Cognitive Ability
In policies that use the federally tax qualified eligibility
standard; you must require substantial supervision because
of severe cognitive impairment.
What Other Policy Features Are Available?
When you buy individual long-term care insurance, the
insurance company must offer you the option to purchase
inflation protection. In some cases, you must choose
this option at the time you purchase the policy and
the cost is included in the premium. In others, you
can purchase inflation protection at stated intervals
during the life of the policy. Your premium increases
each time you choose this option.
If you buy long-term care through a group like an employer
or an association, the offer of inflation protection
has been made to the group master policyholder. You
may not be able to purchase this option if the group
didn’t choose to offer it to their members.
If you choose the 5% simple inflation protection, your
original daily benefit will increase by 5 percent each
year. If you choose 5 percent compounded inflation,
your previous year’s daily benefit will increase
by 5 percent. Compounded inflation increases your maximum
daily benefit at a much faster rate than simple inflation
protection. Long-term care expenses increase at a compounded
rate, and your benefits should too.
This is a growing and popular option for people when
they cannot stay in their own homes. Many of these newer
facilities offer independent living with on-site services
like meals, supervision, and assistance with ADLs.
Insurance companies are required to offer you the option
of purchasing coverage for assisted living either as
a rider, or as a benefit in the policy. This benefit
must pay no less than 50% of the nursing home benefit
you choose. Your benefit must be paid in any facility
that is licensed as a Residential Care Facility for
the Elderly (RCFE) or a residential Care Facility (RCF).
Long-term care policies must allow the lifetime maximum
amount to be used interchangeably for any of the benefits
covered by the policy. If a policy covers both home
and institutional care, the company is allowed to pay
less each day for home care than for nursing home care.
However the company must continue to pay until the
maximum amount of the policy is exhausted, unless the
person dies, or does not meet other requirements of
Companies must allow you to reduce your coverage in
exchange for a lower premium. There are three ways this
can be done. You can reduce the daily benefit payment
or the total number of years the policy will pay. You
can also change your coverage from a Comprehensive policy
to a Nursing Home Only policy if the company sells one.
This right to reduce coverage can be exercised anytime
after the first year or whenever the premium increases.
Companies must also offer this option to you if you
stop paying premiums.
Waiver of Premium
Many policies will allow you to stop paying premiums
while the policy is paying benefits (usually after a
waiting period). Most waivers of premium apply only
when you are using the nursing facility benefit, but
some policies will also waive premiums while you are
using the home care benefits.