484 / When can short-term care insurance be beneficial to taxpayers?

Taxpayers who apply for short-term care insurance (STC) are generally not required to complete the comprehensive applications and medical history screening that is required to qualify for long-term care (LTC) insurance. In general, STC provides an attractive option for those who cannot afford, or are unable to qualify for, traditional long-term care insurance (LTCI). Current statistics show that over 40 percent of LTC claims last less than one-year: the most common reason for these claims are short, recoverable illnesses, sudden terminal illnesses, and the single use of non-caregiving benefits (such as equipment and training). For this reason, some clients may find STC a more suitable option.

STC can also be employed as a “gap” to fill the elimination period of someone’s existing LTC policy. They may have elected a longer elimination period at a time when circumstances were different, or when they didn’t have another choice.

To summarize, STC solves some of the ingrained challenges inherent in traditional long-term care (i.e., more rigorous underwriting and perceived high cost), and is ideal: |

1. for those who have waited too long to apply for coverage;
2. when cost is a barrier;
3. when age or health are barriers;
4. for rehab or accident claims;
5. for filling existing elimination periods;
6. for protecting against Medicare’s “observation status” penalty;¹
7. when existing LTCI has not kept pace with inflation; and
8. for those who object to tax-qualified (TQ) triggers and/or the 90-day certification.

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Planning Points: Although STC insurance has been offered since the mid-90’s, it remains some of the most rate-stable coverage available in the LTC market. Part of the reason it is not more widely promoted is that it has historically—although not exclusively—been offered by carriers with a “less-than-A” rating. If the day comes that “first tier” name brand insurers begin marketing STC, it has many things going for it to penetrate the middle market.

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1. Although new legislation looks to be closing this loophole, for years many patients discharged from the hospital to a nursing facility believed they had satisfied Medicare’s onerous “three-day prior hospitalization” gatekeeper, only to find they had never been admitted as an inpatient to the hospital, and were instead kept under “observation status.”