Long term care (LTC) insurance provides coverage for the cost of custodial and other types of extended care provided in a nursing home. Coverage also is frequently provided for selected medical care and personal services delivered in the insured's home. LTC policies provide important protection to the insured because, currently, neither Medicare nor the typical medical expense insurance policy covers custodial-type care. The aging of the U.S. population, coupled with continuing medical advances, will likely lead to significant growth in the demand for custodial and related care. This increased demand, together with costly nursing home stays (now estimated at $35,000-plus per year), will likely create an environment where much publicity and attention remain focused on the need for LTC insurance.

Long term care (LTC) insurance policies may differ in terms of their coverage of skilled nursing care, intermediate nursing care, custodial care and home care. What are the differences in these levels of care?

Skilled nursing care is the highest level of nursing care and consists of round-the-clock care, ordered by a physician and usually provided by a registered nurse or a licensed practical nurse. Intermediate nursing care is similar to skilled nursing care except that the care is usually not provided round-the-clock. Custodial care consists of help in carrying out the activities of daily living (ADLs). Since it does not consist of any medical treatment, custodial care can be delivered by persons who are not medically trained. Home care consists of both medical care and personal services (e.g., cooking and cleaning) provided at the patient's home.

Why is it that most employers do not currently provide their employees with long term care (LTC) insurance along with medical expense insurance, group life insurance and other employee benefit plans?

A primary reason is the uncertainty that exists currently as to the federal income tax treatment accorded employer-provided LTC insurance. Although considerable debate has taken place, Congress has yet to clarify the tax treatment surrounding employer-provided LTC insurance. A second reason may relate to the premium cost for this coverage. Because it is expected that as much as 40 percent of the over-65 population will need care in a nursing home, the premium for LTC insurance can be relatively high.

In addition to the premium cost, what other important factors should be considered when purchasing long term care (LTC) insurance?

Because LTC insurance is still an evolving product, there may be considerable variation among LTC products marketed by different insurers. Some of the more important factors that should be carefully examined when comparing LTC policies include: (1) whether the policy is issued on a guaranteed renewable (insurer cannot cancel the policy but can increase the premium) or noncancelable (insurer cannot cancel the policy or increase the premium) basis; (2) the nature of any preexisting conditions exclusion; (3) whether skilled nursing care, intermediate care, and home care are covered in addition to custodial care (and the extent to which benefit amounts vary according to the level of care); (4) the policy's definition of activities of daily living (ADLs) and the minimum number (e.g., 2) of ADLs that the insured must be unable to perform in order to qualify for custodial care; (5) whether a prior hospitalization is required before coverage is provided in an extended care facility; (6) whether there is a required 30-day wait, for example, between a hospital discharge and admission into an extended care facility; (7) the extent to which coverage is provided for persons suffering from mental illness, Alzheimer's and senile dementia; and (8) whether the policy coordinates its coverage with the skilled nursing care and home health care benefits provided under Medicare.

What benefit choices are typically offered by insurers marketing long term care (LTC) products?

Insurers frequently offer prospective insureds: (1) the choice of length of the elimination (waiting) period prior to the commencement of benefits; (2) a choice as to the maximum daily benefit (e.g., $100, $150) that can be purchased; (10) the choice of maximum benefit period (e.g., 2, 5, or 10 years or lifetime); and (11) an inflation protection option. Given the rapid pace of change in product design, other options may be offered in the future.