Better medical care means that many individuals are living well into their 80s, 90s, and beyond. Unfortunately, although life expectancy has increased, a great number of older people have serious health problems that keep them from living on their own or caring totally for themselves. Long-term care (LTC) pays for the type of care needed by those who have chronic illnesses or disabilities. It usually covers the cost of nursing home care, and also provides coverage for home-based care – which include visiting nurses, chore services, and respite care for normal daily caregivers who need time away from these duties.

There are three types of coverage that long-term care can provide benefits for. It's important to understand these terms in order to determine the scope of an LTC plan:

  • Skilled nursing care - nursing and rehabilitative care that's required daily and can only be performed by skilled medical practitioners on a doctor's orders.
  • Intermediate care - nursing and rehabilitative care that's occasionally required and can only be performed by skilled medical practitioners on a doctor's orders.
  • Custodial or residential care - this refers to required help in performing the activities of daily living (ADLs) and can be accomplished by someone without medical skills or training, but still must be based on a doctor's orders. ADLs include such things as dressing, bathing, eating, walking, and similar doings to care for one's self.

Of these, custodial care is the type that most elderly people will require at some time in their later years, and – much to the surprise of the majority of the population – is also the one that isn't covered by Medicare. Although it will cover nursing home care if it's part of the treatment for a covered illness or injury, neither Medicare nor its supplements will pay for such care if it's needed due to simple fact of aging. Medicare and supplementary insurance do pay for skilled nursing care, but the coverage is extremely limited – the care must immediately follow a period of hospital confinement, and no benefits are provided after the 100th day of service. Medicaid pays for nursing home care, but provides coverage only for needy families. Unfortunately, in all too many situations, elderly individuals must pay for their own nursing home care, and then turn to Medicaid when their life savings have been exhausted.

LTC policies are still evolving. With the federal government responding to widespread consumer concerns about long-term care coverages, the National Association of Insurance Commissioners (NAIC) developed a model by which state legislatures could better regulate that segment of the industry. More than half of the states currently use the NAIC or a similar model. Some of the key issues include, to name a few, a benefit period of at least one year; stringent restrictions on policy cancellation, specifically prohibiting it solely due to the insured's aging (most policies now guarantee renewability); standards for covering pre-existing conditions; the prohibition of exclusions for Alzheimer's disease; and a free-look period.

LTC policies differ significantly from other health insurance plans in the way that they rate risks. For example, people afflicted with heart disease or diabetes would be rated as substandard risks under most health plans. LTC insurance however, because of its focus on elderly people, utilizes a different means of classification. The key for LTC policies is whether or not an individual can perform the activities of daily living (ADLs); and if so, with what degree of proficiency. Thus, a person who has heart disease but is still able to perform ADLs is a standard risk under long-term care insurance.

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