Long-Term Care – Frequently Asked Questions

Generally, there are two types of long-term care insurance policies offered by insurers – tax-qualified policies and non-tax qualified policies.

Tax qualified policies are more common. A tax-qualified policy requires that a person be expected to require care for at least 90 days and be unable to perform two or more activities of daily living without substantial assistance. Tax qualified policies often also offer coverage when the insured needs substantial assistance due to a severe cognitive impairment for at least 90 days. In either case, a doctor must provide a plan of care. Benefits paid under a tax-qualified policy are generally not considered taxable income, and premiums may be deductible as a medical expense.

Non-tax qualified policies were formerly called “traditional” long term care insurance. These policies typically include a “medical necessity” trigger. This means that the patient’s own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay for covered expenses. Non-tax qualified policies often include walking as an activity of daily living and usually only require the inability to perform one or more activities of daily living. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.

(Not all long-term care insurance policies are identical, so you should consult with an accountant or any other financial professional for advice regarding the tax ramifications of specific long-term care policy.)

While the specific coverage offered by long-term care insurance may vary, typically, an insured is eligible for long-term care benefits if he or she is unable to perform at least two or more activities of daily living without substantial assistance.“Activities of daily living” will be a defined term in the insurance policy, but normally, activities of daily living include eating, dressing, bathing and attending to other personal hygiene, walking and toileting without assistance. Most policies provide benefits when and insured is diagnosed with a severe cognitive impairment such as Alzheimer’s or Parkinson’s disease.

Insurers engage in numerous actions to investigate claims. All will initially require that an insured complete claim forms and certifications from doctors, and most will request a plan of care. Once they obtain these forms and authorizations to obtain medical and financial records, they commence the claim investigation by requesting the claimant’s medical information and records. Insurers may also engage in the following activities: background checks, medical examinations, medical and financial consultations, surveillance, telephonic or in-person interviews, interviews with employers and family members and internet searches, among other things. Very often, careful scrutiny of these actions will reveal that the insurer has engaged in unreasonable actions after they have denied claims under these policies.

Almost all policies establish an “elimination period” following the need for long-term care during which no benefits are payable. The elimination period can be for up to 180 days and will be a defined term in the policy. During this period of time, an insured must pay for care. The insured must establish that he or she requires long-term care continuously during the elimination period and beyond. This is typically done by having a physician note that the insured cannot perform the activities of daily living. If he or she is able to function without long-term care during the elimination period, there is no coverage.

Once the elimination period is satisfied, most policies pay benefits on a reimbursement basis, which means that an insured must first pay for the care and he or she will then be repaid for those costs by the insurer. A few insurance companies offer per-diem benefits at a premium higher rate.

In an insurer denies a claim for long-term care insurance, then the next step would generally be to bring a civil lawsuit against the insurer, as there is typically no requirement that the insured submit an appeal. However, an insured should review the policy and denial letter to ensure that he/she has completed all the necessary steps for claiming long-term care benefits. After doing so, the insured should consult with an experienced insurance attorney regarding bringing a civil action. Most attorneys, including the ones from McKennon Law Group PC, will take a meritorious case on a contingency fee basis (meaning the insured does not pay a fee unless there is some type of recovery from which a fee may be earned).

In the rare instance that the long-term care insurance was provided and paid for by the insured’s employer, the policy is most likely governed by ERISA. In this case, then the insured cannot immediately file a civil action to recover long-term care insurance benefits until he/she appeals the initial claim denial. ERISA requires that the insured first appeal the initial determination in accordance with procedures contained in the plan documents/policy. Under the Department of Labor Regulations, an insured has no more than 180 days to appeal a denial decision relating to long term care insurance benefits. If the insured does not timely appeal an adverse benefit decision, then he/she may lose the right to collect benefits under the Plan. When an insurer denies an insurance claim made under an ERISA-governed policy, it is required to advise the insured of the specific reasons for the denial and describe any additional material or information necessary to perfect the claim. Additionally, the insurer must inform the insured of the plan’s review procedures and inform the insured of his/her right to file a subsequent civil action. However, the insurer never tells the insured that he/she will not be allowed to use new evidence to support a subsequent civil action. Because the insured may be limited to the information contained in the Administrative Record in the lawsuit, it is crucial that the Administrative Record contains all information that supports the insured’s long-term care insurance claim.

As such, following denial of a long-term care insurance claim, the insured should immediately consult with an experienced attorney and discuss whether to appeal the insurer’s initial decision or proceed to a lawsuit. As discussed above, time is of the essence and the insured does not want to risk losing long-term care insurance benefits by failing to file a timely appeal. But, if an appeal is required, the insured should not simply submit an appeal stating that he/she disagrees with the insurer’s denial decision. The insured should have an attorney prepare the appeal and ensure that the file contains all of the documents and information needed in a subsequent lawsuit. Specifically, a qualified attorney can help the insured review the insurer’s often voluminous records and identify any problems or irregularities in its initial denial. An experienced attorney can also ensure that these problems or irregularities are noted in the Administrative Record and are backed up by applicable case law citations. Moreover, when confronted with the arguments of experienced ERISA attorneys such as McKennon Law Group PC, the insurer or plan administrator will often reverse itself and approve the claim for benefits without the need to file a lawsuit.

If the matter is not governed by ERISA, then state law claims will apply, such a breach of contract and insurance bad faith. These allow for a broader array of damages, including compensatory damages caused by the insurer’s bad faith, emotional distress, and punitive damages. Furthermore, under California law, an insured may be able to bring additional claims under Bus. & Prof. Code section 17200 and California elder abuse law, which potentially allows for treble damages.

There is a high likelihood that social media could impact the insured’s claim for long-term care income benefits. Insurers are increasingly utilizing social media to investigate the legitimacy of long-term care claims. Generally, information on social media sites can be obtained without the insured’s knowledge or permission. In fact, recent case law suggests that social networking sites are not considered private and may be subject to discovery by defendants. Increasingly, insurers are relying upon electronic surveillance to paint claimants in an unflattering light based upon social media entries and photographs. The best practice when filing a claim for long-term care income benefits is to remove cancel or suspend all social media accounts.

However, should the insured choose to keep social media accounts active, we recommend that the insured ensure that all of his/her social media accounts are set to the most restrictive privacy setting possible. The insured should take every possible step to ensure that none of his/her personal information and any questionable photographs are accessible to the public.

The insured should take the following precautions while in the process of filing a claim or litigating to recover long-term care benefits:

1. Set all social media accounts to the most restrictive privacy settings.
2. Refrain from connecting, linking up with or “friending” anyone that the insured does not know personally and cannot identify.
3. At no point should the insured make any comment about his/her case or matters surrounding the long-term care insurance claim or case.
4. Avoid making any comments about physical or mental conditions. These status comments can potentially be used to show that the insured’s condition has improved or is inconsistent with what the insured has represented.
5. Do not post anything about meeting with lawyers or a lawyer’s staff members. This can result in a challenge to the attorney-client privilege.
6. Be very discrete about any photos posted, and avoid posing for any photos that can be misconstrued as the insured participating in physically challenging activities. Photographs showing physical activity inconsistent with the insured’s claims can be very damaging.
7. Do not post any “party” photos that show the insured drinking alcohol or otherwise being engaged in an activity that the insurer can potentially misconstrue as reckless or irresponsible behavior.
8. Do not send any e-mails regarding the insured’s claim or case to anyone other than the insured’s attorneys. Emails often contain emotional content that may be inconsistent with the insured’s recollection if the insured is deposed later in litigation. Additionally, the insurer may attempt to subpoena these emails.
9. At no time should the insured participate in any blogs, chat rooms or message boards concerning insurance companies.

There is no guarantee that an insurer will attempt to access the insured’s social media, but the increasing likelihood that an insurer will investigate a long-term care insurance claim through social media, strongly suggests that the insured should take every precaution to minimize any adverse effects that his/her social media could have on a claim. After all, the insured’s latest status post could be the determining factor between a generous settlement and failure to collect any benefits.

Yes. Under California law, if a claimant can prove that the insurer acted in “bad faith” in denying the claim, then an insured can recover future policy benefits and attorneys’ fees. If ERISA applies to an insurance claim, attorneys’ fees are often recoverable, but future benefits are usually not.