Debunking Common Myths About Long-Term Care Benefit Models

Introduction

There's been considerable debate over which long-term care (LTC) benefit payment model is superior: cash indemnity or reimbursement. Several myths surround cash indemnity benefits. Here, we debunk these myths to provide a clearer understanding of LTC benefit models.

Myth #1: Cash indemnity benefits are taxable above the HIPAA per diem, unlike reimbursement benefits.

Fact: Cash indemnity benefits are tax-free if the received amount is equal to or less than the HIPAA per diem. If LTC expenses exceed the HIPAA per diem and the benefit amount is no more than the LTC costs, the benefits remain tax-free. Only the portion exceeding the greater of LTC expenses or the HIPAA per diem is taxable. Most policyowners' benefits are within HIPAA limits, making taxation rare.

Myth #2: Cash indemnity benefits don’t last as long because the full amount is paid, even if it exceeds expenses.

Fact: Policyowners can choose to take less than the full LTC benefit, preventing unnecessary expenditure. Unlike reimbursement policies, which may not cover all expenses, cash indemnity policies provide flexibility and control over LTC benefits, potentially reducing out-of-pocket costs.

Myth #3: Cash indemnity policies are more expensive.

Fact: The cost varies by product type:

• Traditional LTC Insurance: No major carrier offers indemnity benefits in traditional LTC policies.

• LTC Riders on Life Insurance: The cost difference is minimal, depending on the base policy's pricing.

• Linked-Benefit Policies (Hybrid LTC): Costs depend on the benefit length and carrier specifics. Value should be prioritized over price, considering features like elimination periods and guaranteed death benefits.

Myth #4: Cash indemnity policies require more bookkeeping, taking time away from quality visits with loved ones.

Fact: Both cash indemnity and reimbursement policies require monthly financial diligence. Tasks include reviewing bills, confirming services received, and tracking out-of-pocket expenses. Cash indemnity benefits offer predictability, allowing caregivers to manage bills efficiently without reconciling direct and reimbursed payments.

Myth #5: Cash indemnity benefits are more prone to elder financial abuse compared to reimbursement policies.

Fact: All insurance companies must monitor elder financial abuse. Reimbursement benefits can also be misappropriated by unscrupulous relatives or caregivers with power of attorney, similar to indemnity benefits.

Myth #6: Cash indemnity policies turn policyowners into employers when paying unlicensed caregivers.

Fact: The caregiver's employment status depends on whether they are an employee or if the patient is a client of a business providing LTC services. With proper planning, quality care can be received from less expensive unlicensed caregivers without employer obligations. Cash indemnity benefits allow for informal care if preferred, offering flexibility in care choices.

Importance of LTC Planning

No single benefit model or insurance company suits all LTC needs. Effective LTC planning should include a funding strategy and clear instructions on preferred care types. LTC coverage protects the financial retirement plans of individuals and families, ensuring family continuity and financial stability.

Long-term care planning should be a priority for everyone, with dedicated funding to support it.

Conclusion

Understanding the truths about LTC benefit models helps individuals make informed decisions. Nationwide’s LTC products offer flexibility and comprehensive coverage to meet diverse needs. Consult a financial professional for personalized advice.