While long-term care insurance can be a good way to pay for a nursing home stay or a home health care worker, it doesn’t come cheap. Annual premiums vary significantly, depending on your age, health, and the type of policy, but policies can run as high as $5,000 per year. You do not need to pay that much, however. The following are some ways to reduce your costs.

• Shorter benefit period. The most significant cost-saving step you can take is to not purchase a lifetime policy. Unless you have a family history of a chronic illness, you aren’t likely to need coverage for more than five years. In fact a new study from the American Association of Long-term Care Insurance shows that a three-year benefit policy is sufficient for most people. According to the study of in-force long-term care policies, only 8 percent of people needed coverage for more than three years. By purchasing coverage for three, four, or five years instead of a lifetime, you can save thousands of dollars in premiums. If you do have a history of a chronic disease in your family, you may want to purchase coverage for 10 years, which would still be less than purchasing a lifetime policy.

• Buy younger. Long-term care insurance premiums rise as you age, so the younger you buy, the cheaper your premiums. Be careful, however, because insurance premiums can, and often do, increase considerably from your initial purchase price. Even if you have a policy that is “guaranteed renewable,” your premiums can still increase.

• Shared care policy. If both you and your spouse are purchasing long-term care insurance, a shared care policy might be able to give you more coverage for less money. With a shared care policy, you buy a pool of benefits that you can split between you and your spouse. For example, if you buy a five-year policy, you will have a total of 10 years between you and your spouse. If your spouse uses two years of the policy, you will have eight years. A shared care policy may cost more than separate policies with the same benefit period, but it will allow you to buy a shorter policy, knowing that you have a pool of benefits to work with.

• Longer elimination period. Most policies have a waiting period before coverage begins, typically 30-90 days. The longer you make this waiting period, the cheaper your premiums. Keep in mind, however, that you will have to pay for your care out of pocket until the waiting period is over and the insurance begins its coverage.

• Reduce the daily benefit. Instead of purchasing the maximum daily benefit you might need in a nursing home, you can consider paying for a portion of the daily benefit yourself. You can then insure for the maximum daily benefit minus the amount you plan to pay. A lower daily benefit will mean lower premiums.

• Inflation protection. Inflation protection increases the value of your benefit to keep up with inflation and is almost always recommended. But you can save on premiums by which method of protection you choose: compound-interest increases or simple-interest increases. If you are purchasing a long-term care policy and are younger than age 62 or 63, you will need to purchase compound inflation protection. This can, however, more than double your premium. If you purchase a policy after age 62 or 63, some experts believe that simple inflation increases should be enough, and you will save on premium costs.

You should also remember that your premiums may be tax-deductible. Premiums for “qualified” long-term care policies will be treated as a medical expense and will be deductible to the extent that they, along with other unreimbursed medical expenses (including “Medigap” insurance premiums), exceed 7.5 percent of the insured’s adjusted gross income.

A 55-year-old individual considering long-term care insurance protection can expect to pay $709 a year if married or $1,095 if single, according to the 2008 Long-Term Care Insurance Price Index, an annual report from the American Association for Long-Term Care Insurance, an industry group.

A 65-year-old purchasing comparable coverage will pay $1,342 (married) or $1,999 (single) according to the report. Costs for coverage increased about 4 percent over 2007.

The annual index measures current costs for top-selling long-term care insurance policies that offer consumers approximately $115,000 in current benefits (base-level coverage), with protection increasing yearly as the individual ages. “That coverage will grow in value to over $305,000 of protection in 20 years,” explains Jesse Slome, the association’s executive director. The study compares costs for plans that provide benefits for three years or longer with an annual compound inflation option that increases the available insurance benefits by five percent compounded each year.

Below is the 2008 price index:

2008 National LTCi Price Index

Average price for a comprehensive long-term care insurance policy (100% home care benefit + skilled care coverage) 90-Day Elimination Period with 5% Compound Inflation Protection Option

Age 55
$100 Maximum Daily Benefit x 3 Year Benefit Period Cost: $709-per-year Individual Qualifies for Preferred Health and Spousal Discounts

Age 55
$100 Maximum Daily Benefit x 3 Year Benefit Period Cost: $1,095-per-year Individual is single (preferred health discount)

Age 55
$150 Maximum Daily Benefit x 3 Year Benefit Period Cost: $1,064-per-year Individual Qualifies for Preferred Health and Spousal Discounts

Age 55
$150 Maximum Daily Benefit x 3 Year Benefit Period Cost: $1,578-per-year Individual is single (preferred health discount)

Age 65
$100 Maximum Daily Benefit x 3 Year Benefit Period Cost: $1,342-per-year Individual Qualifies for Spousal Discounts (standard health)

Age 65
$100 Maximum Daily Benefit x 3 Year Benefit Period Cost: $1,999-per-year Individual is single (standard health)

Age 65
$150 Maximum Daily Benefit x 3 Year Benefit Period Cost: $2,013-per-year Individual Qualifies for Spousal Discounts (standard health)

Age 65
$150 Maximum Daily Benefit x 3 Year Benefit Period Cost: $2,998-per-year Individual is single (standard health)

Age 65
$240 Maximum Daily Benefit x 3 Year Benefit Period Cost: $3,221-per-year Individual Qualifies for Spousal Discounts (standard health)

Age 65
$240 Maximum Daily Benefit x 3 Year Benefit Period Cost: $4,729-per-year Individual is single (standard health)

The general goal of Medicaid under the Deficit Reduction Act of 2005 (DRA) is to restrict the access of middle-class taxpayers to state medical assistance benefits. One aspect of the law, however, is being touted by the Centers for Medicare and Medicaid Services (CMS) and state medical assistance officials as a measure that will expand the pool of moderate-income individuals who will be eligible for Medicaid. The Long-term Care Insurance Partnership (LTCIP) provisions of the DRA, to the extent implemented in individual states, will allow individuals who have purchased qualified long-term care insurance policies and thereafter exhaust their benefits paying for long-term care to shelter assets of significant value and still become eligible for Medicaid. Section 6021 of the DRA, codified at 42 U.S.C.A. § 1396p(b)(1) and (5), provides that states may amend their Medicaid plans to allow an individual who purchases quali¬fying long-term care insurance policies to keep more assets than the federal standard of $2000. A Medicaid applicant may exempt assets up to the value of the long-term care benefit his or her policy encompasses in determining the total value of his or her countable assets for purposes of determining Medicaid eligibility. For example, a person who buys a qualified Partnership policy that assures a $200,000 long-term care benefit may exclude $200,000 in assets in addition to those assets already treated as exempt or within allowable limits for purposes of calculating the applicant’s total assets and spend-down. The assets are also off-limits from estate recovery. In essence, states implementing this aspect of the DRA “reward” those who buy long-term care policies with special privileges with respect to retention of personal assets in the event they apply for Medicaid at some point in the future.  Many details of the Partnerships have yet to be worked out—among them, portability of policies (that is, whether a Partnership policy purchased in one state will entitle the beneficiary to the asset exemption in a different state) and what measure of inflation protection individual states will mandate. Advocates of the long-term partnership provisions of the DRA provision claim that the long-term care partnership program will save billions in Medicaid costs over the next 10 years.

As of late May 2007, at least 20 states had LTCIPs or had taken the first steps towards amending their state plans to allow for them. These include four states California, Connecticut, Indiana, and New York that were involved in a federally-authorized, privately funded pilot program that began in the early 1990’s, and others that have obtained CMS approval of state plan amendments and intend to roll out their programs by the end of 2007.  State officials are teaming up with CMS for heavy pro¬motion of their LTCIPs with a fanfare that more closely resembles Microsoft’s launch of its new Vista operating system than the implementation of a state Medicaid rule.  New Jersey recently began discussing the concept which is a very positive development.

But what is the true truth about the Long-term Care Partnership programs now being implemented across the country? The bottom line: read the fine print. In the final analysis, it is unlikely that the persons who are most likely to need long-term care in the future will be able to purchase policies, due to existing disabilities or diseases that are almost universally considered disqualifying conditions within this sector of the private insurance market. Additionally, most persons who are healthy enough to qualify for these policies and can actually afford to purchase them are sufficiently well-off that they will not be eligible for Medicaid anyway due to its income limitations.

This article discusses how LTCIPs will be implemented in individual states and what these Partnerships do and do not offer clients who an¬ticipate a future need for long-term care. It outlines some basics about long-term care insurance, dis¬cusses the origins of the DRA’s Partnership autho¬rization in a demonstration program funded by a private foundation, and analyzes the likely potential that older persons who are likely to need long-term care in the future will be able to buy policies. It also offers practice tips for attorneys who shortly will need to know more about long-term care insurance than they have in the past due to the newly impor¬tant relationship between the LTCIP program and traditional Medicaid planning.

Basics of long-term care insurance. Long-term care insurance is a relatively new insurance product.  Nearly 200 companies are licensed in at least one state to sell policies, but the market is highly con¬centrated only six companies control more than 70% of the market based on premiums paid.  The general consensus within the industry is that in the early days of its marketing, LTCJ was significantly underpriced and not sufficiently “exclusive.” Not surprisingly, then, rates have gone up precipitously in recent years, and insurers and underwriters vigor¬ously pre-screen potential applicants. Recent reports suggest that some companies are denying as many as one in four LTCI claims made against older policies.  In May of this year, the industry became the subject of a congressional investigation due to news stories in the popular press reporting that some insurers were routinely denying legitimate claims.

Long-term care insurance policies can vary widely in terms of the benefits offered and other factors: differences among policies include the aggregate amount of the benefit and whether it is paid as a daily, monthly, or accumulated benefit, the event(s) triggering entitlement to the policy benefit, the elimination period, whether home or assisted living care is covered by the policy, whether and how much inflation protection is offered, and so forth.  Premiums vary significantly among policies, and it can be difficult to be an informed consumer when considering what policy to buy.  Companies do not make rate information available online or otherwise in a form that facilitates comparison shopping by potential individual applicants (employers shop¬ping for group policies may have access to better information). Employer-sponsored group policies, which are an option for fewer than 4% of American workers, are less expensive than policies available to individuals. Thus, a healthy 55-year-old state employee who has access to group long-term care insurance plan might expect to pay about $2,400 annually for a policy offering a $200 per day, in¬flation-protected benefit for three years, while a similarly situated person buying an individual policy might have a premium that is 50 to 100% or more higher than this. In short, it is impossible to articulate an “average” monthly cost for long-term care insurance.

Policies that contain inflation protection are al¬most twice as expensive as those without it. A carrier can usually increase rates on existing policies for all members of a “class” of insureds when such an increase is reasonable, as determined by the state regulatory agency.” Loss ratios (the percentage of total premiums collected that are paid out to poli¬cyholders who collect on their policies) appear to be substantially lower than in other sectors of the insurance market. Historically, agents have received higher commission percentages on LTCI sales than on other types of policies, although this may be changing. Three-quarters of all LTCI benefits are paid to persons between the ages of 81 and 95.