Long-Term Care Insurance: Overview

Long-Term Care Insurance: Overview

link to page 2 link to page 2

Updated July 21, 2023
Long-Term Care Insurance: Overview
What Is Long-Term Care Insurance?
LTSS. The elimination period is selected by the
Long-term care insurance (LTCI) is a type of insurance
policyholder upon purchase of the policy. This elimination
policy designed to cover the future costs of care associated
period is conceptually similar to a deductible in a health
with a chronic condition or disability that requires extended
care plan; the longer the elimination period, the lower the
policy’s premium
or long-term care. Long-term care, often referred to as long-
cost, all other things being equal.
term services and supports (LTSS), provides hands-on
assistance or supervision to individuals who have functional
Insurance Market
or cognitive impairments associated with basic activities of
LTCI policies can take different forms, from stand-alone or
daily living (ADLs; e.g., bathing, dressing, eating, mobility,
traditional LTCI policies to linked benefit products that
toileting, and continence). If a policyholder becomes
combine life insurance or an annuity with long-term care
eligible for long-term care, the LTCI policy provides a daily
coverage. As of January 1, 2020, about 7.5 million
cash amount (up to a maximum limit) that the policyholder
Americans have some LTCI coverage from either
may use to cover services.
traditional or linked-benefit products. Generally, the types
of services covered under an LTCI policy are not covered
Policy Features
under health insurance. And, unlike most health insurance
LTCI policies are complex insurance products. Individuals
policies, LTCI policies are subject to underwriting, which
seeking to purchase a policy must make certain decisions
means that individuals who have preexisting conditions can
about the product’s features at the time of purchase. In
be denied coverage or offered a policy with a high
general, these purchase decisions are made several years,
premium. The premiums charged by LTCI insurance
sometimes decades, prior to a potential need for LTSS,
carriers vary by age of purchaser. Those purchasing at older
which adds further complexity to the decisionmaking
ages are charged higher premiums because they are at
process. These purchase decisions are described in more
higher risk of needing LTSS. LTCI policies are guaranteed
detail in this section.
renewable; in other words, they may be cancelled only for
nonpayment of premiums.
Covered Services
Services covered under an LTCI policy may include care
Traditional LTCI
provided in a variety of settings, such as nursing homes and
Traditional LTCI policies may be sold by an insurance
assisted living facilities, or an individual’s private home
carrier to an individual directly or to a group as part of an
through home health services. Policies may cover respite
employer-sponsored policy. Employer-sponsored LTCI is
care for caregivers, homemaker and chore services, and
distinct from employer-sponsored health insurance in that
medical equipment, among other services and supports.
employers typically do not contribute to LTCI premiums.
Unlike LTCI purchased in the individual market, employer-
Coverage Amount and Length
sponsored LTCI has the advantage of a larger risk pool and
Individuals must choose a daily benefit amount and whether
generally lower premiums. Among employers offering
to purchase inflation protection. The dollar amount of the
LTCI, the federal government is the largest employer
daily benefit is often initially chosen based on the current
offering group LTCI.
cost of services. Deciding whether and how much this daily
benefit should be adjusted over time to reflect the annual
Linked-Benefit LTCI
inflation rate for LTSS can be difficult, because of
Linked-benefit LTCI products, also known as combination
uncertainty around the unknown future costs of LTSS.
or hybrid products, combine a life insurance policy or an
annuity with a long-term care rider. These policies provide
The length of coverage (in years) of an LTCI policy is
an individual with coverage for LTSS if needed; otherwise,
called the duration of the benefit. LTCI policies can cover
the policy will pay a death or annuity benefit to a
two to five years of services, and some policies can provide
designated beneficiary.
lifetime benefits. Potential policyholders want to purchase a
policy that will sufficiently cover future risks; however,
The LTCI market has changed significantly over the past
such risks are unknown at the time of purchase and vary
two decades. Overall, the market has become more
widely across the older population.
concentrated, with fewer companies selling traditional
LTCI. Linked-benefit products have become more popular,
Waiting Period
with annual sales outpacing traditional LTCI since 2010.
In general, LTCI benefit eligibility depends on limitations
Figure 1 shows that since 2014, the number of individuals
in an individual’s ability to perform a certain number of
with an active or “in-force” traditional LTCI policy has
ADLs. LTCI policies often have a waiting or elimination
declined (see section “Addressing Market Stability”).
period, which is the length of time between the onset of
qualifying impairments and commencement of payment for
https://crsreports.congress.gov

Long-Term Care Insurance: Overview
Figure 1. Traditional Long-Term Care Insured Lives
premium component can also qualify for tax benefits.
HIPAA tax-qualified LTCI products are required to have
defined benefit triggers for when the policy begins to pay
benefits. These triggers require policyholders to meet the
definition of a “chronically ill” individual who has been
certified by a licensed health care practitioner as
• being unable to perform (without substantial assistance)
at least two ADLs for a period of at least 90 days due to
a loss of functional capacity;
• 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
Source: National Association of Insurance Commissioners (NAIC),
individual from threats to health and safety due to severe
Long-Term Care Insurance Experience Reports, 2006-2021). Data
elements used to prepare these reports are extracted from exhibits
cognitive impairment.
filed with the NAIC; however, the NAIC cannot guarantee their
Federal law provides tax advantages for some aspects of
accuracy.
private LTCI. Benefits from a “qualified” LTCI policy are
The Federal Long-Term Care Insurance Program
excluded from the gross income of the taxpayer (i.e., they
The Long-Term Care Security Act (P.L. 106-265)
are exempt from federal taxation). In general, LTCI
authorized the Office of Personnel Management (OPM) to
premiums are allowed as itemized deductions to the extent
offer a federal long-term care insurance program (FLTCIP)
they and other unreimbursed medical expenses exceed 7.5%
of adjusted gross income. LTCI premium deductions are
which was established in 2002. Under the FLTCIP, active
subject to age-adjusted annual maximum amounts. In 2023,
and retired federal workers and eligible family members
these amounts ranged from $480 for those aged 40 and
who are approved for coverage may voluntarily purchase a
younger to $5,960 for those aged 71 and older.
LTCI policy. FLTCIP premiums may be deducted from an
individual’s salary or pension benefit, but they are not
Under current law, employer contributions toward the cost
pretax contributions, and workers pay 100% of the
of tax-qualified LTCI, while not typical, are excluded from
premiums. Eligible workers receive no premium assistance
the gross income of an employee. Self-employed
from the federal government. Since enactment, amendments
individuals may include LTCI premiums in calculating their
to this legislation have primarily addressed eligibility.
deductions along with other health insurance premiums.
Only amounts less than or equal to the age-adjusted limits
OPM suspended new enrollee applications for FLTCIP
can be deducted or excluded from taxable income.
coverage as well as current enrollee’s coverage increases to
allow time to assess benefit offerings and premium rates.
Addressing Market Stability
The suspension period began December 19, 2022, and is
Over the past two decades, annual LTCI premiums in the
scheduled to remain in effect for 24 months unless OPM
stand-alone market have increased significantly for both
decides to end or extend the suspension period.
current and new policyholders. Higher average premiums
reflect increased demand for more comprehensive benefit
Regulation
packages (including inflation protection) and higher daily
State governments have primary jurisdiction for regulating
benefit amounts. Premium increases have also been driven
the private LTCI market. In this capacity, states have
by inadequate medical underwriting, premiums that were
established laws and regulations for LTCI carriers and the
initially set too low, and insufficient growth in investment
products they sell. States also play an active role in
funding or reserves to cover future claims. LTCI market
verifying carriers’ and products’ compliance with these
stability depends largely on the ability of insurers to
requirements. To help guide states in their oversight efforts,
adequately predict future claims. Most policies issued
the National Association of Insurance Commissioners
before the mid-2000s had incorrectly predicted claims,
(NAIC) has developed a number of “Model Laws” and
necessitating changes to key pricing assumptions. For
“Model Regulations,” which provide recommended
example, rising claims, lower mortality rates, lower-than-
guidelines for state regulators to adopt.
predicted voluntary termination (lapse) rates, and lower-
than-predicted rates of return on investments have been
Tax Benefits and Consumer Protections
cited as key reasons for premium increases. Such increases
may continue to affect consumer confidence, possibly
Federal law provides tax benefits and minimum consumer
leading to further reductions in demand for stand-alone
protection standards for purchasers of “tax-qualified” LTCI
LTCI and shifts in demand toward linked-benefit products
policies, as authorized by the Health Insurance Portability
that offer a fixed premium.
and Accountability Act of 1996 (HIPAA, P.L. 104-191).
These provisions are established in the Internal Revenue
Kirsten J. Colello, Specialist in Health and Aging Policy
Code (42 U.S.C. §7702B). Most traditional LTCI policies
sold after enactment of HIPAA are tax-qualified policies.
IF11614
Linked-benefit LTCI policies with a separately identifiable
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 4 · UPDATED