– Long-term care insurance

One option in planning for the possibility of nursing home care is to purchase an insurance policy that will pay for the costs of custodial care in a nursing home or at home. Obviously, this must be done before entry into a nursing home is imminent. The premiums should be affordable so that the payment will be out of excess income that is not needed for present expenses. If the premiums are too high for your income level, then planning should focus on the items discussed in part D.

The attorney’s role in assisting clients in their purchase of this insurance should be limited to explaining the policy provisions and helping the client understand the policy. The attorney is not an insurance expert and should not recommend any particular policy nor should the attorney decide which policy the client should purchase.

You should carefully review a policy summary and compare several policies before making your choice. An actual sample policy is preferable and with some persistence can be obtained in most cases. The following features are of particular importance in your policy evaluation.

  1. Company Rating – There are various publications that rate the financial strength of companies. Look for an A+ rating with A.M. Best. Also there should be a AAA rating with Standard & Poors, Moody’s or Duff & Phelps, or an AA rating from two of these three.
  2. Underwriting – Front-end underwriting is preferable to post-claims underwriting. This means that a physician must supply the insurance company with a statement concerning your health. The company will then decide if they want to issue a policy or perhaps will exclude coverage for a certain condition. In post-claims underwriting, the company will check your medical records years later when you have filed a claim and then may cancel the policy based upon your misrepresentation in the application.
  3. Inflation Protection – The policy should allow for an increase in benefits to keep pace with inflation. This can be a flat percentage (5%), or compounded percentage, indexed to the Consumer Price Index, or simply a benefit amount agreeing to pay reasonable charges or a percentage (e.g., 80%) of actual charges.
  4. Facility – The policy should allow coverage for any facility that provides custodial care. Some policies have restrictive definitions that limit covered facilities to a “skilled facility” or “Medicare certified facility”.
  5. Alzheimers Coverage – The terms should cover Alzheimers or Cognitive Impairment and require only a physician’s diagnosis. Language such as “provisions for demonstrable organic based disease” is unacceptable.
  6. Benefit Triggers – The event or condition that must occur before the policy pays should be based upon the person’s ability to function independently in the community. Tests based upon ADL’s (activities of daily living) are common. The least restrictive (e.g., 2 of 5 or 3 of 5 ADL) is best. Also, cognitive impairment alone should be a sufficient benefit trigger. Policies that require “medically necessary care” are unacceptable.
  7. Daily Coverage – The benefit amount should be determined by reference to local costs.
  8. Coverage Period – You should consider lifetime coverage. If the premiums for this are too expensive, you can choose a 2, 3 or 5 year period of coverage. There may be separate periods for home care and nursing home care. Also, the maximum coverage could be expressed in dollars rather than years.
  9. Elimination Period – Benefits are not usually paid upon the first day of nursing home care. Rather, policies specify that coverage begins a certain number of days after this first day.
  10. Level of Care – There should be coverage for skilled care, intermediate care and custodial care without any requirement of receiving one level before the other (e.g., a skilled nursing home stay before custodial care).
  11. Prior Hospitalization – There should be no requirement that the person be first hospitalized in order to receive benefits.
  12. Guaranteed Renewable – The company should have no right to cancel the policy because you get older or have new health problems. However, the company usually reserves the right to raise premiums if this is done for all policyholders in the state.
  13. Waiver of Premium – A good feature is that premiums no longer have to be paid if benefits are being paid, i.e., there has been entry into a nursing home.
  14. Home Health Care – Look for similar policy provisions providing for care in the home. Adult day care and respite care might also be available in the policy.
  15. Pre-Existing Condition – Most policies exclude coverage of such conditions for the first six months of the policy. Thus, you will be denied coverage for a condition for which treatment was underway or recommended before the policy date.
  16. Premium Cost – Compare premiums of the policies and consider the quality of the policy.


One of the more positive DRA changes is the provision for a qualified State long-term care insurance partnership program. This program provides that if a person has a long term care policy that pays benefits, then their remaining assets up to the amount of insurance benefits will be disregarded for purposes of determining Medicaid eligibility. For example, if a person purchases a policy that pays out its limit of $200,000 for nursing home benefits, then the person can keep up to $200,000 as a non-countable amount and still be eligible for Medicaid. This provision is obviously meant to encourage the purchase of long term care insurance and is a very positive development in this regard. The State of Ohio has adopted this program effective on 9/1/07. One of the requirements is that on the date the policy was issued, the State must have had an approved plan amendment in place. Thus, policies issue prior to 9/1/07 will not qualify under this rule unless exchanged as described below.

The Department of Insurance has also issued regulations governing the DRA partnership program. The regulation requires insurance companies to offer all existing policyholders who purchased their policy on or after 8/12/02 an opportunity to exchange their current policy for a new policy that complies with the partnership program. The companies must make this offer within 180 days of beginning to sell the new policies in this State. This is a onetime offer. It must be open to all policyholders without regard to their age or health status.

The offer may be deferred for persons who are already receiving payments under a policy or are in their elimination period. For example, a person in a nursing home who is getting reimbursed for nursing home expenses by their long term care policy will not get an exchange offer. The exchange offer also does not have to be made if the insured would have to purchase additional benefits to qualify under the partnership program and he/she is not eligible to receive these new benefits under the insurer’s underwriting guidelines. In other words, if you have to qualify for a better insurance policy, the company can refuse to issue the policy based upon your current health status. If offered, any rate increase can only apply to the increased benefit portion and rates must remain the same for the benefits under the new policy that are the same as those of your existing policy. If the old policy is actually better than the new policy, then the company cannot require an underwriting process and must continue to charge the same rates. The rate must be based upon the original issue date and risk class of the insured that was used to determine the rate of the old policy.

For those persons with a policy issued before 8/12/02, the insurance company is not required to offer an exchange. However, if they choose to make such an offer, it must meet all the above requirements. The insurance companies must file their new partnership program certification and policy with the Ohio Department of Insurance before offering these new policies. If you have any questions concerning your policy, call your insurance agent.

© 2015 Michael Millonig, LLC