Long-Term Care Insurance

Long-term Care insurance is usually purchased by persons between the ages of 40 and 70. The individual pays the premiums to the insurance company for the coverage. The benefits are typically paid when the insured is elderly or disabled.

LONG-TERM CARE INSURANCE
Long-Term Care insurance is an insurance policy designed to provide coverage for at least 12 consecutive months for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, personal, or custodial care services provided in a setting other than an acute care unit of a hospital, such as a nursing home.

GUARANTEED RENEWABLE:
Guaranteed renewable means that you have the right to continue the long-term care insurance as long as you pay the premiums on time. The insurance company does not have the right to make any change in any provision of the policy or rider while the insurance is in force unless mandated by law. The insurer cannot cancel the policy if your premiums are paid on time and there have been no material misrepresentations. Rates may be revised by the insurer on a class basis.

YOUR RIGHT TO RETURN THE POLICY:
Your new policy provides 30 days within which you may decide, without cost, whether you desire to keep the policy.

EXCLUSIONS OR LIMITATIONS:
The following is a list of circumstances where an insurance company can exclude or limit coverage:

  • Pre-existing condition: a condition for which medical advice or treatment was recommended by, or received from, a provider of health care services within the 6 months immediately before the effective date of the policy.
  • Michigan law provides that your replacement policy or certificate cannot contain new pre-existing conditions or probationary periods. The insurer will waive any time periods applicable to pre-existing conditions or probationary periods in the new policy for similar benefits to the extent such time was spent under the original policy.
  • Mental or nervous disorders: however, this shall not be defined to include more than neurosis, psychoneurosis, psychopathy, psychosis, or mental or emotional disease or disorder and shall not permit exclusion or limitation of benefits on the basis of Alzheimer's disease or related disorders.
  • Alcoholism or drug addiction
  • Illness, treatment, or medical condition arising out of any of the following:
    • War or act of war, whether declared or undeclared,
    • Participation in a felony, riot, or insurrection,
    • Service in the armed forces or units auxiliary to the armed forces, or
    • Suicide, whether or not the individual was sane or insane at the time of the suicide, attempted suicide, or intentionally self-inflicted injury

A LONG-TERM CARE INSURER CANNOT LIMIT OR EXCLUDE COVERAGE BY:

  • Type of illness
  • Type of provider
  • Territorial limitations
  • Treatment
  • Medical condition
  • Accident other than a motor vehicle accident

INFLATION PROTECTION RIDER:
The inflation protection rider is an optional additional benefit to your policy that provides for benefit levels to increase to account for reasonably anticipated increases in the costs of long-term care services covered by the policy. Insurers must offer, at the time of purchase, the option to purchase a policy with an inflation protection feature with at least one of the following:

  • Increases benefit levels compounded annually at a rate not less than 5%
  • Guarantees the insured the right to periodically increase benefit levels without providing evidence of insurability or health status so long as the option for the previous period has not been declined
  • Covers a specified percentage of actual or reasonable charges and does not include a maximum amount or limit

HOME HEALTH CARE SERVICES OR ASSISTED LIVING SERVICES:
A long-term care insurance policy that provides coverage for home care services or assisted living services shall define and provide a detailed explanation in plain English of what home care services or assisted living services are covered. A long-term care insurance policy that provides coverage for assisted living facility stays shall define in plain English what assisted living facilities are covered.

THE SUMMARY OF COVERAGE:
The summary of coverage provides a description of the important features of the policy. You should compare this summary of coverage to summaries of coverage for other policies available to you. The summary of coverage will include, among other things, the following:

  • A description of the benefits provided by the policy
  • A graph showing a comparison of benefit levels over at least a 20-year period of a policy that has an inflation protection rider and the benefit levels of a policy that does not have an inflation protection rider
  • Any expected premium increases or additional premiums to pay for automatic or optional benefit increases

REPLACING YOUR EXISTING LONG-TERM CARE POLICY WITH ONE FROM A DIFFERENT INSURANCE COMPANY:
When an agent determines that a sale will involve replacement, the agent must furnish a notice regarding replacement of accident and sickness or long-term care coverage. One copy of the notice will be kept by you and an additional copy signed by you will be kept by the insurance company.

WHO SELLS LONG-TERM CARE INSURANCE?
Agents that are licensed to sell health insurance products in Michigan can sell long-term care policies. For a listing of insurance companies that are authorized to sell long-term care insurance in Michigan see Long-Term Care Writers In Michigan

PREMIUM INCREASES:
Long-term care insurance is a relatively new type of insurance. Early on, there was not a lot of experience with paying claims when developing rates. When the initial rates were being developed companies made erroneous assumptions about how much the company would actually pay for claims. Fewer people dropped their policies than the insurance companies had predicted. Companies may not have used strict underwriting practices, which allowed people to purchase the insurance that really should have been denied coverage or should have been charged a higher premium for their existing health conditions.  Companies have now realized fewer people have dropped, or lapsed their policies.  Policyholders are living longer and those individuals that are in facilities are staying in those facilities for longer periods of time due to better technology and health care.  For all of these reasons, companies are increasing premiums as a means to maintain their reserves and be able to continue paying present and future policyholder claims.

LONG-TERM CARE INSURANCE RATE FILINGS:
Rate filings for individual long-term care policies or certificates issued prior to June 1, 2007, will be subject to the standards set forth in MCL 500.3927.  Section 3927 of the Insurance Code establishes a minimum fixed loss ratio of 60% as the method to determine whether a rate filing is reasonable. The statute states the benefits will be considered reasonable in relation to the premiums provided the expected lifetime loss ratio is at least 60%.  A loss ratio, simplistically speaking, is total paid claims divided by earned premium.  For example, if an insurance company pays out $60.00 in claims and collects $100.00 in premium, then its loss ratio is 60%.  

Rate filings for individual and group long-term care certificates that were issued on or after June 1, 2007, must be submitted to DIFS for review at least 30 days before the insurer notifies policyholders. Within 30 days after submission of the rate filing, DIFS is required to determine whether the filing is complete.  The filing must include an actuarial certification that, under moderately adverse conditions, if the premium increase is implemented no further rate increases are anticipated.  The filing must also include:

  • New premium rate schedule
  • New disclosure of rate increase history
  • New actuarial certification
  • Rate comparison statement

DIFS requires any rate increase filing, regardless of the date the certificate was issued, to provide the following information:

  • Number of Michigan policyholders being affected by the rate increase
  • The average premium before and after the rate increase for both nationwide and Michigan policyholders
  • Experience exhibits showing actual to projected lifetime loss ratios

LONG-TERM CARE INSURANCE APPLICATION:
All applications for long-term care insurance policies must contain straightforward questions designed to assess the applicant's health condition. If an application contains a question that asks whether the applicant has had medication prescribed by a physician, it must also ask the applicant to list the medication that has been prescribed. If any medications listed in an application were known by the insurer or should have been known at the time of application to be directly related to a medical condition for which coverage would otherwise be denied, then the policy shall not be rescinded for that condition. The application must contain the following language:
“Caution: If your answers on this application are incorrect or untrue, [company] has the right to deny benefits or rescind your policy."

Application forms are designed to find out if you have any other long-term care insurance policy in force or whether a long-term care policy is intended to replace any other accident and sickness or long-term care policy presently in force.

PRIOR HOSPITAL STAY REQUIREMENT:
The insurance company cannot require a prior hospital stay before benefits are payable.

TAX QUALIFIED LONG-TERM CARE INSURANCE POLICIES:
When you purchase a long-term care policy, you may be asked to choose between a tax qualified long-term care policy and a non-tax qualified policy.  If you purchase a qualified policy and you itemize your deductions, the premiums you pay for your long-term care policy may be deductible.

Long-term care insurance premiums can be added to your deductible medical expenses.  You may then be able to deduct the amount that is more than 7.5% of your adjusted gross income on your federal income tax return. The amount of premium that can be deducted depends on your age. Refer to your tax advisor for more information.

If you purchased a Michigan approved long-term care policy before 1997, Federal law allows these policies to be "grandfathered" and considered as tax qualified policies.

LONG-TERM CARE PARTNERSHIP PROGRAM

Under the Long-Term Care Partnership program, a qualifying long-term care insurance policy may protect a policyholder’s assets through a feature known as “asset disregard” under Michigan’s Medicaid program.  This feature permits individuals to protect assets from Medicaid’s “spend-down” requirements for the purpose of determining Medicaid eligibility and during the asset recovery process.

This feature provides dollar for dollar asset protection; for every dollar that a Partnership policy pays out in benefits, a dollar of assets can be protected from the long-term care Medicaid resource limit.  When determining long-term care Medicaid eligibility, any assets you have up to the amount the Partnership policy paid in benefits will be disregarded.

If you already have a long-term care policy, you may wish to contact the issuer to inquire about a Long-Term Care Partnership policy.  If you do not have a long-term care policy you may wish to contact a life/health producer, visit the DIFS’ list of long-term care writers, or do a search online for companies that offer Long-Term Care Partnership-qualified long-term care insurance.  Only a Partnership-qualified policy will earn the consumer asset protection.

LONG-TERM CARE INSURANCE INFORMATION:

Long-Term Care Insurance
Long-Term Care Insurance Comparison Guide