There’s a “good news/bad news” situation when it comes to long-term care in the U.S. The good news is that Americans are living longer than ever before, with the CDC reporting that the average life expectancy is close to 80 years of age (just under for men and just over for women). The bad news? Those Americans are more likely to need long-term care as they age.
The cost of long-term care is steep and wide-ranging, from an average of $70,000 per year for an assisted living facility to upwards of $130,000 a year for nursing home care. As a CPA, you understand that the choices you make as a young and middle-aged adult could impact your future well-being and comfort. Understanding the ins and outs of long-term care insurance, including knowing if and when you’re eligible to purchase coverage or utilize your benefits, will help you be prepared for what lies ahead.
Understanding Long-Term Care Insurance: A Quick Overview
Before we can fully dive into what long-term care insurance (“LTCI” or “LTC insurance”) is, let’s take a look at what it isn’t. LTC insurance is not:
- A replacement for standard health insurance coverage
- Coverage for medical treatments, procedures, or care for pre-existing conditions
- Covered by or included in Medicare or Medicaid
- End-of-life, palliative, or hospice care
- A way to compensate family members or loved ones who aren’t licensed professional caregivers
Long-term care insurance policies help provide coverage for aging adults and/or people with chronic illnesses who can no longer complete the activities of daily living (ADLs), like toileting, bathing, or eating, without assistance. It is meant to supplement, not replace, existing health insurance like Medicare. LTC insurance is generally designed to provide coverage for custodial care delivered by professionals, including:
- In-home care and ADL assistance
- Skilled nursing care
- Adult daycare
- Care in assisted living facilities or nursing homes
Two Types of LTC Insurance Eligibility: Purchase vs. Benefits
When discussing LTC insurance eligibility, you must distinguish between two types of eligibility: qualifying to purchase a long-term care insurance policy and qualifying to utilize your benefits for long-term care services. We’ll discuss both here, but for most working CPAs, the eligibility they’re most likely to be interested in is how to qualify to purchase an LTC insurance policy.
Often, individuals won’t qualify to use their LTCI benefits until they are past retirement age, but professionals in their 50s and 60s are likely wondering how they can plan their long-term care coverage before those services are needed. The first step is determining eligibility to purchase LTC insurance.
Eligibility to Purchase LTC Insurance: Can You Qualify for Coverage?
Not everyone is eligible to purchase a long-term care policy, even if they feel they’re ready. Depending on available insurance companies, location, and budget, there will be different qualifications that must be met before securing an LTC insurance policy.
Age Requirements and Optimal Timing
You might think that applying for LTCI at a younger age will give you the maximum amount of time to plan and prepare for your golden years. Alternatively, you might think you have plenty of time, and waiting a few more years won’t hurt anything.
Generally, you can apply for LTC insurance at any age, but it may also be a factor in a possible denial of coverage. The recommended window for applying is between the ages of 50 and 70, though a narrower and more ideal range is typically considered mid-50s to mid-60s.
Applying at a younger age can mean paying premiums over a longer period, so it’s important to time your purchase thoughtfully to balance affordability with actual long-term care needs. On the flip side, if you apply when you’re nearing or past the age of 70, it presents a greater risk to insurers, as you’re more likely to need long-term care benefits sooner rather than later.
Health Underwriting: What Insurers Evaluate
Prospective insurers will look at a number of factors when considering your eligibility to purchase long-term care insurance, including:
- Age and sex (women may have a greater need for LTC insurance as they generally live longer)
- Marital status
- Ability to perform ADLs without assistance
- Medical records and history
- Recent surgeries or hospitalizations
- Prescribed medications
- Cognitive abilities
If the insurer deems you ineligible, there may be other options available to you, like hybrid coverage that combines LTCI with life insurance policies or partnership policies that help protect your personal assets from Medicaid’s “spend-down” requirements.
Medical History and Pre-Existing Conditions
Generally speaking, the healthier you are at the time of application, the more likely you will be to qualify for long-term care coverage. Many pre-existing conditions, such as Parkinson’s disease, Alzheimer’s disease, cancer, multiple sclerosis, or other progressive illnesses, can disqualify you from purchasing LTC insurance.
If you have recently had a surgery or lengthy hospitalization, it may be best to wait to apply for LTC insurance until you’re able to demonstrate your recovery and return to normal daily activities.
Functional Ability Assessment
Generally, insurers will want to know that, at the time of purchase, you are able to independently manage all ADLs without assistance from a caregiver or professional support person. This typically includes toileting, dressing, eating, bathing, transferring, and continence. If you require ADL assistance before applying for long-term care insurance, you may be denied.
Financial Qualifications
Most insurers require prospective policyholders to have a steady income, though the threshold for eligibility will vary. Insurers may review your net worth as well. They may analyze your ability to pay ongoing premiums, both at the time of purchase and past retirement. Individuals without regular income, those who qualify for Medicaid, or who are dependent on Social Security, may be denied.
Getting Better Rates: Factors That Improve Your Eligibility
If you want to qualify for long-term care coverage and get the lowest insurance premiums, here are some proactive steps you can take:
- Apply for LTC insurance between the ages of 55 and 65
- Wait until any minor health issues have resolved before applying
- Ask about discounts if you apply with a spouse or partner
- Look into hybrid policies that add a rider onto your life insurance policy or combine LTCI with an annuity
- Adjust your coverage limits, including lowering your maximum daily benefit or lengthening the elimination period
Eligibility to Receive LTC Insurance Benefits: When Does Your Policy Pay Out?
The second type of eligibility you’ll need to consider when planning for long-term care is when and how you qualify for care benefits.
Activities of Daily Living (ADL) Triggers
A licensed caregiver will typically evaluate your ability to perform ADLs. The six previously mentioned ADLs include:
- Continence
- Bathing
- Dressing
- Eating
- Toileting
- Transferring
To be eligible to use your benefits, you must show evidence of needing assistance with two or more of the six ADLs.
Cognitive Impairment Triggers
A licensed professional may also need to assess your cognitive ability and mental function in order to show the need for long-term care services. Qualified individuals must display signs of severe cognitive impairment to meet this trigger for long-term care.
Understanding Elimination Periods
An elimination period is a waiting period before long-term care benefits kick in. While this waiting period differs between insurance carriers, it is most often in the range of 30-90 days. It’s important to note that during this elimination period, all care provided will be self-pay, so when evaluating LTC insurance policies, be sure to ask about the elimination period and look for one that fits your budget now and works with your needs in the future.
Special Considerations for CPAs Approaching Retirement
As a CPA, your financial knowledge and experience will likely work to your advantage when planning for long-term care. However, the stress and workload of your profession may add a few potential roadblocks, including:
- Delaying planning due to a busy schedule or heavy workload
- Taking care of everyone’s needs but your own, including focusing solely on your clients over yourself
- Assuming you’ll have time to take care of it down the road
- Thinking your savings will be enough to cover the cost of care as you age
- Relying on loved ones to assume the role of future caregiver
- Neglecting preventative and ongoing healthcare, which could make you ineligible for LTCI
What If You Don't Qualify for Traditional LTC Insurance?
If you find that you are ineligible for LTC insurance, there are still steps you can take to plan for your long-term medical care:
- Explore LTC annuities that allow you to invest a lump sum for future care.
- Consider short-term LTCI policies that only cover around a year but offer less stringent qualifications.
- Ask your life insurance provider about adding a long-term care rider to your existing policy.
- Look into hybrid policies that eliminate the “use-it-or-lose-it” element of many LTCI policies and allow you to leave a death benefit to your loved ones.
- Understand the ramifications of self-funding your long-term care by borrowing against your equity (reverse mortgages, HELOCs, etc.), including ongoing costs and how they may impact your personal assets.
Key Takeaways for CPAs Considering LTC Insurance
CPAs are notorious for giving valuable financial advice. As you age, it might be time for you to take all that good advice into consideration. Whether you’re 20 years or two years away from retirement, the time to start planning for long-term care is now. Understand that LTC insurance eligibility can change and use the tips here to set an ideal time to start the application process. Discuss your concerns and questions with a reputable insurance carrier or broker and explore your policy options. Remember to ask about waiting periods, spousal and professional organization discounts, and what type of insurance will best meet your long-term care needs.