Long-term Health Care Insurance provides coverage for a long-term illness that results in a nursing home stay or in-home nursing care.  The average cost for a one-year stay in a nursing home is approximately $46,000.  If you are approaching retirement or you are currently retired, consider offsetting the costs of an extended nursing home stay by purchasing long-term health care insurance.  Long-term health care insurance is ideal if: (1) you have assets in the $200,000 to $1,000,000 range, (2) you want to preserve those assets for your children, and (3) you can free up about 2-5% of your annual income to cover the premiums.  Long-term health care insurance comes in two broad varieties: "Qualified" coverage, the cost of which may qualify as a medical deduction on schedule A of your tax return, and "non-qualified" coverage. Premiums you pay for qualified long-term care insurance are deductible as a medical expense subject to certain limitations.  A qualified long-term care policy must meet the provisions of Internal Revenue Code section 7702B.
 

 Medical Services That Should Be Covered

• Skilled, intermediate, and custodial levels of care.  Covered custodial care should be available in senior day-care centers and assisted-living facilities also known as congregated care centers.
  
  
• Home care coverage.  Look for a policy provision that specifically covers home health care that meets state licensing requirements, if any.  The daily benefit should be at least 75% of the benefit payable for nursing home care.
  
  
• Optional respite care. Option respite care is a short nursing home stay to allow families providing home care a short break.
  
  
• Alzheimer's Disease and Senility.  Avoid contracts that only cover demonstrable organic illness.  Alzheimer's Disease can only be definitively proven with a brain biopsy.  Benefits should be payable based on a doctor's diagnosis.
  
  
• A preexisting condition exclusion of six months or less.  This clause will ensure that you will be covered for conditions that take longer than six months to show up such as Alzheimer's.
• Multiple stays in the hospital
  
  
• Costs of care rendered after you return home to convalesce
  
  
• Optional adult day care

Policy Features

• The policy should not require you have to be hospitalized or have a skilled nursing home stay before paying intermediate, custodial, and/or home health care expenses.  A doctor's order should suffice.  In addition, the policy should not require that the facilities be licensed by your state if your state doesn't license custodial care facilities.  An acceptable policy restriction would require state licensing only where state law requires it.
  
  
• A good Long Term Care policy will be guaranteed renewable.  This will prevent the insurance company from canceling your coverage due to the number of claims you file or due to your deteriorating health.  This does not mean that the insurance company cannot petition your state to increase the premium for all policies of the same type.
  
  
• Benefits should be payable when you cannot perform two or three of the following activities known as activities-for-daily-living or ADL’s: (1) eating, (2) toileting, (3) transferring, (4) bathing, (5) dressing, or (6) continence.  Be sure to understand how ADL’s are defined by the policy.  For example, eating could be broadly defined to include intravenous feeding as opposed to a more narrow definition such as using a utensil. A good policy will pay benefits when you cannot perform ADL’s whether the reason is a physical or cognitive impairment.  For example, it is possible to be able to perform all of the ADL’s but not know when to perform them.
  
  
• A long-term health care policy should waive the payment of premiums while  you are collecting benefits from the policy.
  
  
• Purchase a policy having a restoration of benefits provision.  Under the provision, 100 percent of your benefits will typically be restored if you haven't received benefits for at least six months.
  
  
• According to the Health Insurance Association of America (www.hiia.org) , the leading Long-term Care policies covering one person cost an average of $ 1,645 at age 50,  $ 3,488 at age 65, and $ 10,480 at age 79.  The policy has a daily benefit of $ 200 for four years of coverage, with a 20-day waiting period, and some inflation protection.
  
  
• Consider a policy that requires front-end underwriting where you are required to provide proof of your health before the issuance of the policy.  Companies that issue policies using back-end underwriting usually wait until after the first claim is presented before they scrutinize the application.  Errors and omissions in the contract can result in delays and denied claims.  Front-end underwriters generally have reduced costs and more stable premiums.
  
  
• Pre-existing conditions that would preclude you from receiving benefits under the policy should only be considered if they existed six months before the effective date of the coverage.

Benefit Amount and Coverage Period

• The insurer should allow you to choose the amount of daily benefit (coverage) you desire.  Daily benefits generally range from $100 to $ 400.  Alternatively, the company should allow you to choose levels of actual expense coverage for a given period.  Neither the daily benefit nor the actual expense coverage is superior over the other.
  
  
• The insurance company should allow you to choose the length of time your long term care benefit should be payable.  A reasonable range of options should be from two years to lifetime.  Typically, the longer the benefit you choose, the more expensive the coverage will be.  In addition, the maximum benefit should be expressed in total dollars not days.  If a two-year policy pays $150 a day and you are only charged $100, at the end of the two years you coverage period will be extended.  Not so with a policy where maximum coverage is stated in days--after two years the policy will end.
  
  
• The daily benefit (coverage) should be adjustable for inflation if you want to purchase such a benefit.  You can choose the rate at which the coverage will increase based on simple or compound interest adjustments.  A compound adjustment will result in a larger benefit over time.  Another approach is to buy additional coverage now to compensate for the effects of inflation over time.

Waiting Period

• You should have a choice of waiting periods.  The waiting period is the time that must elapse before the insurance company begins to pay the claim.  Typically, the longer the waiting period the lower the cost of the coverage. Most waiting periods will range from 20 to 120 days.   However, because the chances of staying in a nursing home for more than 120 days is not as high as staying for shorter periods, it is generally better to opt for a shorter elimination period.  Because a shorter elimination period will result in a higher premium you may want to settle for a lower daily benefit to reduce your premium if cost is a major issue.
  
  
• Avoid policies that measure waiting periods in consecutive or contiguous days.  This type of policy will cause you to wait longer before benefits are actually paid.  For example if you receive care only four days a week, you would use only eight days of the waiting period in two weeks instead of 14 days.

Qualified Long-term Care Insurance

Qualified long-term care insurance is any long-term care policy that meets the requirements of Internal Revenue Code section 7702B.  The policy premiums of a long-term care insurance policy that meets the requirements of section 7702B are deductible by the individual policy holder or employer, and benefits paid within certain limits are nontaxable.  To qualify for these benefits, a qualified long-term policy must meet the following requirements:

• The policy can only provide necessary medical and personal care services which are required by a chronically ill individual.  A certified licensed health care provider must certify that (1) the individual is unable to perform, without substantial assistance, at least 2 activities of daily living for a period of at least 90 days, or (2) the individual requires substantial supervision to protect himself from threats to his health and safety due to severe cognitive impairment (such as Alzheimer's disease).  IRC 7702B(c)
  
  
• Long-term care coverage is the only coverage that can be provided under the policy. IRC 7702B(b)(1)(A)
  
  
• The policy cannot pay or reimburse certain amounts covered by Medicare including a deductible or coinsurance amount.  IRC 7702B(b)(1)(B)
  
  
• The policy must be guaranteed renewable.  IRC 7702B(b)(1)(C)
  
  
• The policy cannot provide for a cash surrender value that can be paid, assigned, pledged as collateral for a loan, or borrowed. IRC 7702B(b)(1)(D)
  
  
• All refunds of premiums and all policy dividends are to be applied as a reduction in future premiums or to increase future benefits. IRC 7702B(b)(1)(E)
  
  
• A policy with a level premium payment must offer a minimum non-forfeiture benefit in the event the policyholder defaults on his payments.  One of the following non-forfeiture benefits must be provided: (1) Reduced paid-up insurance, (2) extended term insurance, (3) shortened benefit period, or (4) some other similar benefit.   IRC 7702B(g)(4)
  
  
• For 2009 qualified long-term care insurance premiums are deductible up to the following amounts based on your age at year end:
  
  

  40 or less	$ 320 for 2009
  Over 40 but less than 50	$ 600
  Over 50 but less than 60	$ 1,150
  Over 60 but less than 70	$ 3,180
  Over 70	$ 3,980

                                   IRC 213(d)(10)

Other Long-term Health Care Insurance Strategies

• Find out which illnesses and services are excluded from coverage.
  
  
• Long-term health care benefits should be paid in addition to any other insurance benefits you may be collecting, including Medicare benefits.
  
  
• If your employer makes long-term care insurance available be sure that you can take the policy with you in the event you leave.
  
  
• Determine the financial strength of the insurance company.  See: How to Evaluate the Strength of Your Insurance Company.
  
  
• Prior to purchasing a long-term care policy, ask the insurance companies your are considering to provide you reports showing the percentage of  claims  they denied during the previous five years.  Steer clear of companies that can't  justify a high denial rate.  
  
  
• As an alternative to long-term health care insurance, consider a continuing-care retirement community and other types of housing for senior citizens who can't quite manage on their own but don't need continuous nursing care.  These communities offer independent living and skilled nursing care, as well as assisted living to bridge the gap between the two.  You pay an entrance fee ranging from $25,000 to $250,000, and you're guaranteed access to nursing care.  In effect, the entry fee buys long-term care insurance.  Continuing-care communities vary widely in how much nursing care is provided in exchange for the initial fee. Study the contract carefully.
  
  
• Periodically insurance companies upgrade their policies.  Ask how often they upgrade, whether you as an existing policy holder will be notified, whether you will be able to participate in the upgrade, and what the cost of upgrades, if any, is likely to be.  
  
  
• Because of constant changes to long-term health care policies and national health care, be sure to reevaluate your policy ever two or three years.  Compare your policy to the most recent policy issued by the company and its competitors. 
  
  
• Find out from your state insurance regulators whether the company has been approved to do business in the state where you live.  In addition, think twice about buying long-term care insurance from a company that hasn't been offering long-term care insurance for at least 8 years and that doesn't have assets of at least 10 billion.
  
  
• Be sure to read the actual policy and not just the marketing materials.  By taking the time to read the policy you can ensure that the policy features promoted in the sales literature actually exist as you were made to believe.
  
  
• For more information on Long-term health care policies, request a copy of A Shopper's Guide to Long-term Care Insurance by writing the National Association of Insurance Commissioners, 120 W. 12th Street, Suite 1100, Kansas City, MO 64105.
  
  
• To obtain a copy of the Guide to Choosing a Nursing Home, write to Medicare Publications, Health Care Financing Administration, 6325 Security Boulevard, Baltimore, MD 21207