link to page 2 
August 6, 2020
Long-Term Care Insurance: Overview
What Is Long-Term Care Insurance?
sufficiently cover future risks; however such risks are
Long-term care insurance (LTCI) is a type of insurance
unknown at the time of purchase and vary widely across the
policy designed to cover the future costs of care associated
older population.
with a chronic condition or disability that requires extended
Waiting Period
or long-term care. Long-term care, often referred to as long-
term services and supports (LTSS), provides hands-on
In general, LTCI benefit eligibility depends on limitations
assistance or supervision to individuals who have functional
in an individual’s ability to perform a certain number of
or cognitive impairments associated with basic activities of
ADLs. LTCI policies often have a waiting or elimination
daily living (ADLs; e.g., bathing, dressing, eating, mobility,
period, which is the length of time between the onset of
toileting, and continence). Once a policyholder is eligible
qualifying impairments and commencement of payment for
for long-term care, the LTCI policy provides a daily cash
LTSS. The elimination period is selected by the
amount (up to a maximum limit) that the policyholder may
policyholder when he or she purchases the policy. This
use to cover services.
elimination period is conceptually similar to a deductible in
a health care plan; the longer the elimination period, the
Policy Features
lower the policy’s premium cost, all other things being
LTCI policies are complex insurance products. Individuals
equal.
seeking to purchase a policy must make certain decisions
about the product’s features at the time of purchase. In
Insurance Market
general, these purchase decisions are made several years,
LTCI policies may be sold by an insurance carrier to an
sometimes decades, prior to the need for LTSS, which adds
individual directly or to a group as part of an employer-
further complexity to the decision-making process. These
sponsored policy. The premiums charged by LTCI
purchase decisions (described below) include
insurance carriers vary by age of purchaser. Those
purchasing at older ages are charged higher premiums
the type of services covered,
because they are at higher risk of needing LTSS. LTCI
the dollar amount of coverage and annual inflation
policies are guaranteed renewable; in other words, they may
adjustments,
be cancelled only for nonpayment of premiums. Generally,
the types of services covered under an LTCI policy are not
the length or duration of coverage, and
covered under health insurance. And, unlike most health
the waiting period (or elimination period).
insurance policies, LTCI policies are subject to
underwriting, which means that individuals who have
Covered Services
preexisting conditions can be denied coverage or offered a
Services covered under an LTCI policy may include care
policy with a high premium.
provided in a variety of settings, such as nursing homes and
The LTCI market has changed significantly over the past
assisted living facilities, or an individual’s private home
two decades. The employer-sponsored insurance market has
through home health services. Policies may cover respite
grown as a share of total LTCI sales, and the overall market
care for caregivers, homemaker and chore services, and
has become more concentrated, with fewer companies
medical equipment, among other services and supports.
selling the product. From 2008 to 2014, overall growth in
Coverage Amount
the LTCI market remained relatively stagnant (Figure 1).
Since 2014, the number of individuals with an active LTCI
Individuals must choose a daily benefit amount and whether
policy (often called “in-force”) has declined. In 2018,
to purchase inflation protection. The dollar amount of the
almost 6.6 million individuals had an active LTCI policy;
daily benefit is often initially chosen based on the current
69% were sold as individual policies, and 31% were group
cost of services. Deciding whether and how much this daily
policies.
benefit should be adjusted over time to reflect the annual
inflation rate for LTSS can be difficult, because of
Employer-sponsored LTCI is distinct from employer-
uncertainty around the unknown future costs of LTSS.
sponsored health insurance in that employers typically do
Coverage Length
not contribute to LTCI premiums. Unlike LTCI purchased
in the individual market, employer-sponsored LTCI has the
The length of coverage (in years) of an LTCI policy is
advantage of a larger risk pool and generally lower
called the duration of the benefit. Determining how much
premiums. Among employers offering LTCI, the federal
coverage to purchase adds complexity to the decision-
government is the largest employer offering group LTCI.
making process. LTCI policies can cover two to five years
of services, and some policies can provide lifetime benefits.
Potential policyholders want to purchase a policy that will
https://crsreports.congress.gov
Long-Term Care Insurance: Overview
Figure 1. Long-Term Care Insured Lives
having a level of disability similar (as determined by the
Secretary of the Treasury in consultation with the
Secretary of Health and Humans Services) to the level
of disability described above; or
requiring substantial supervision to protect such
individual from threats to health and safety due to severe
cognitive impairment.
Federal law provides tax advantages for some aspects of
private LTCI. Benefits from a “qualified” LTCI policy are
excluded from the gross income of the taxpayer (i.e., they
are exempt from federal taxation). LTCI premiums are
allowed as itemized deductions to the extent they and other
unreimbursed medical expenses exceed 7.5% of adjusted
Source: National Association of Insurance Commissioners, Long-
gross income (AGI) for 2019 and 2020 (10% of AGI
Term Care Insurance Experience Reports, 2006-2019). Data elements
beginning in 2021). LTCI premium deductions, however,
used to prepare these reports are extracted from exhibits filed with
are subject to age-adjusted annual maximum amounts. In
the NAIC; however, the NAIC cannot guarantee their accuracy.
2020, these amounts ranged from $430 for those aged 40
and younger to $5,430 for those aged 70 and older.
The Federal Long-Term Care Insurance Program
In addition, under current law, employer contributions
The Long-Term Care Security Act (P.L. 106-265)
toward the cost of tax-qualified LTCI policies are excluded
authorized the Office of Personnel Management (OPM) to
from the gross income of an employee. Self-employed
offer a federal long-term care insurance program (FLTCIP)
individuals may include LTCI premiums in calculating their
which was established in 2002. Under the FLTCIP, active
deductions along with other health insurance premiums.
and retired federal workers and eligible family members
Only amounts less than or equal to the age-adjusted limits
who are approved for coverage may voluntarily purchase a
can be deducted or excluded from taxable income.
LTCI policy. FLTCIP premiums may be deducted from an
individual’s salary or pension benefit, but they are not
Addressing Market Stability
pretax contributions, and workers pay 100% of the
Over the past two decades, annual LTCI premiums have
premiums. Eligible workers receive no premium assistance
increased significantly overall for both current and new
from the federal government. Since enactment, amendments
policyholders. Higher average premiums reflect increased
to this legislation have primarily addressed eligibility.
demand for more comprehensive benefit packages
(including inflation protection) and higher daily benefit
Regulation
amounts. Premium increases have also been driven by
State governments have primary jurisdiction for regulating
inadequate medical underwriting, premiums that were
the private LTCI market. In this capacity, states have
initially set too low, and insufficient growth in investment
established laws and regulations for LTCI carriers and the
funding or reserves to cover future claims.
products they sell. States also play an active role in
LTCI market stability depends largely on the ability of
verifying carriers’ and products’ compliance with these
insurers to adequately predict future claims. Most policies
requirements. To help guide states in their oversight efforts,
issued before the mid-2000s had incorrectly predicted
the National Association of Insurance Commissioners
claims, necessitating changes to key pricing assumptions.
(NAIC) has developed a number of “Model Laws” and
For example, rising claims, lower mortality rates, lower-
“Model Regulations,” which provide recommended
than-predicted voluntary termination (lapse) rates, and
guidelines for state regulators to adopt.
lower-than-predicted rates of return on investments have
Tax Benefits and Consumer Protections
been cited as key reasons for LTCI premium increases.
Nevertheless, large rate increases are likely to have a
Federal law provides tax benefits and minimum consumer
protection standards for purchasers of “tax
continued effect on consumer confidence in these products,
-qualified” LTCI
possibly leading to further reductions in consumer demand.
policies, as authorized by the Health Insurance Portability
and Accountability Act of 1996 (HIPAA, P.L. 104-191).
In response to issues with LTCI market stability and the
These provisions are established in the Internal Revenue
broader challenges of financing long-term care, the U.S.
Code (42 U.S.C. §7702B). Most private LTCI policies sold
Department of the Treasury convened the Federal
after enactment of HIPAA are tax-qualified policies.
Interagency Task Force on Long-Term Care Insurance in
2017. The task force is directed to develop federal policies
HIPAA tax-qualified LTCI products are required to have
to complement state level LTCI regulation and to
defined benefit triggers for when the policy begins to pay
coordinate with state insurance regulators and the NAIC. In
benefits. These triggers require policyholders to meet the
definition of a “chronically ill” individual
2019, the task force held a public meeting and subsequently
, which is defined
invited public comment on the business of the task force.
as an individual who has been certified by a licensed health
To date the task force has not issued any policies or reports.
care practitioner as
being unable to perform (without substantial assistance)
Kirsten J. Colello, Specialist in Health and Aging Policy
at least two ADLs for a period of at least 90 days due to
IF11614
a loss of functional capacity;
https://crsreports.congress.gov
Long-Term Care Insurance: Overview
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11614 · VERSION 1 · NEW