How PPACA affects long-term care insurance

The Patient Protection and Affordable Care Act (PPACA) — which went into full effect earlier this week and also played a part in the ongoing shutdown of the federal government — is properly understood less as an overhaul of the nation's health care system than as an overhaul of the health insurance system.

See also: Exchanges off to rocky start

One area of health insurance the act doesn't touch, though, is long-term care insurance. Any clients wondering if this is something the Affordable Care Act has made more affordable should be told that the answer is no.

It wasn't supposed to be this way. Early versions of the law contained something called the CLASS Act, a longtime pet cause of the late Sen. Ted Kennedy. Short for Community Living Assistance Service and Supports Act, the CLASS Act would have established a long-term care insurance program funded by payroll deductions, not unlike the way most employees pay for their health insurance.

It was hardly a comprehensive program, though. Coverage would have been limited to the employees themselves, without any provisions for other family members. And as with most government initiatives, there was controversy over how much the program would eventually end up costing.

So as part of the fiscal cliff negotiations that happened at the tail-end of last year, the CLASS Act was officially repealed before it ever went into effect. That left no provision at all in the sprawling health care legislation covering long-term care insurance.

But there are several mitigating factors that might impact your clients' decisions when it comes to LTC. Some things to keep in mind:

There are no more lifetime insurance caps. PPACA eliminates an insurance company's ability to impose a lifetime maximum on how much it can pay out. That means that end-of-life medical issues will be more likely to be covered, which eliminates part of the cost of long-term care. When your clients are shopping for long-term care insurance, that's something important to keep in mind.

LTC costs are growing. One of the purposes of PPACA is to try to make more affordable health policies available. Whether that's been successful or not, LTC wasn't a part of that effort, and not surprisingly, the costs of a long-term care policies continue to rise. According to the American Association for Long-Term Care Insurance, an LTC policy for a typical 55-year-old couple that cost $1,982 a year in 2007 was up to $3,577 a year in 2012. That's an increase of more than 80 percent in just five years.

Medicare still covers some aspects of LTC. The fact that PPACA doesn't cover LTC doesn't mean there is no public plan for LTC. Medicare isn't great about long-term issues, but it does provide a certain amount of coverage.

What clients should know: Following a hospital visit of at least three days, Medicare will help pay for a short stay in a certified skilled nursing facility within 30 days of the client's release from the hospital. The first 20 days are covered fully, and the next 80 days are subsidized. The patient does have to be in need of skilled nursing services, physical therapy or other types of therapy to qualify. So even without a long-term care policy in place, Medicare will provide a bit of a cushion. Medicare also covers some hospice care.

It's time to get creative. Without any relief from PPACA, people searching for a long-term care solution may have to find new approaches to the issue. One such option: a hybrid annuity. Robert Bloink and William H. Byrnes wrote on this site a few weeks ago about these vehicles, which combine the income features of an annuity with the security of long-term care insurance. Because of the Pension Protection Act of 2006, clients can withdraw money from annuity-based products income tax free, as long as those funds are used for long-term care.

One other strategy: Establish a separate account with funds earmarked for long-term care, including conservative vehicles such as intermediate-term bond funds. Another idea is to buy a single bond intended to fund long-term care, with the length of the bond calibrated to the distance the client is from the likelihood of serious care.

In either case, the asset can be funded and set aside, reducing the temptation and ability to withdraw the money before it's actually needed.

For more on long-term care, see:

If not LTCI, then what?

HHS organizing LTC planning awareness survey

Caregivers seek place in patient records