Long-Term Care Insurance

The elimination period in a long-term care insurance policy is best described as:

1. A.The maximum number of days or years the policy will pay benefits once they beginThat describes the benefit period, not the elimination period.
2. B.The waiting period after a covered need for care begins during which the insured pays out of pocket before benefits startCorrect. It is a time-based deductible at the front end of a claim.
3. C.The period during which the insurer may contest the policy for material misstatements on the applicationThat is the contestable period, a different provision.
4. D.The number of years the insured must hold the policy before premiums become levelLong-term care premiums are not structured this way, and this is not what elimination means.

Why: The elimination period is the number of days after a covered need for care begins during which the insured must pay for care out of pocket before policy benefits start. It functions as a deductible measured in time rather than dollars, and a longer elimination period lowers the premium. It is distinct from the benefit period, which is how long benefits will be paid once they begin.

Rosalind Aberforth, 71, tells her IAR that she does not need long-term care insurance because Medicare will pay for a nursing home if she ever needs one. What is the MOST accurate response?

1. A.She is correct, because Medicare Part A covers nursing home confinement for as long as it is medically necessary.Incorrect. Part A skilled nursing coverage follows a qualifying hospital stay, is limited in duration and requires cost sharing. It is not open-ended nursing home coverage.
2. B.She is correct, provided she enrols in a Medicare supplement policy, which extends nursing home coverage indefinitely.Incorrect. A Medicare supplement fills gaps in what Medicare itself covers. It cannot create coverage for custodial care that Medicare excludes.
3. C.She is mistaken, because Medicare provides no health coverage at all once a person reaches age 70.Incorrect. Medicare coverage does not end at any age. The limitation is the TYPE of care covered, not the age of the beneficiary.
4. D.She is mistaken: Medicare covers only limited skilled nursing care after a qualifying hospital stay and excludes custodial care, which is what extended long-term care consists of; the means-tested Medicaid program is the public payer for that.Correct. The skilled-versus-custodial distinction is the heart of the issue, and Medicaid eligibility requires a spend-down.

Why: Medicare is health insurance, not long-term care insurance. It pays for medically necessary acute care and, in limited circumstances, for a period of SKILLED nursing or rehabilitative care following a qualifying inpatient hospital stay, with the coverage tapering and requiring cost sharing before it ends. What Medicare does not cover is CUSTODIAL care, which is assistance with the activities of daily living such as bathing, dressing, eating and transferring, and custodial care is precisely what an extended nursing home or home-care stay consists of. The public program that does pay for extended custodial care is Medicaid, but Medicaid is means-tested, so it generally requires the applicant to have spent down assets and to contribute available income toward the cost. The planning choices are therefore to self-insure from assets, to transfer the risk with a long-term care policy or a hybrid product, or to end up relying on Medicaid after a spend-down.

Rosalind Ferrier, 62, compares two long-term care policies that are identical except as noted. Policy One has a 90-day elimination period and a three-year benefit period. Policy Two has a 30-day elimination period and a five-year benefit period. Which statement is accurate?

1. A.The elimination period is the maximum number of days for which the policy will pay benefitsThat describes the benefit period. The elimination period is the initial waiting period.
2. B.The premiums must be identical, because state insurance law standardizes long-term care pricingLong-term care premiums vary with the benefit design and the applicant health and age; there is no such standardization.
3. C.Policy One will cost more, because a longer elimination period means the insurer begins paying soonerA longer elimination period means the insurer begins paying LATER, which reduces cost.
4. D.Policy Two will cost more, because a shorter waiting period and a longer benefit period both raise the insurer expected payout; the elimination period is the number of days of care Ferrier must fund herself before benefits beginCorrect. Less self-funding up front plus more years of coverage equals a richer, costlier policy.

Why: The elimination period is a waiting period measured in days of covered care that the insured must fund out of pocket before benefits begin, so it works like a time-based deductible. The benefit period caps how long benefits will be paid. Shortening the elimination period and lengthening the benefit period both increase the insurer expected payout, so Policy Two will carry the higher premium.

Ottilie Vance, 68, is buying a TAX-QUALIFIED long-term care insurance policy and asks her IAR when benefits actually become payable. Under the federal standard for a tax-qualified contract, a licensed health care practitioner must certify that the insured is:

1. A.Totally and permanently disabled and unable to engage in any occupation.Incorrect. That is an occupational disability standard. Long-term care benefits turn on functional or cognitive impairment, not on the ability to work - and most claimants are already retired.
2. B.Unable to perform at least three of six activities of daily living for a period expected to last at least 30 days.Incorrect on both numbers. The federal standard is at least TWO of six activities of daily living, for a period expected to last at least 90 days.
3. C.Unable to perform, without substantial assistance, at least two of six activities of daily living for a period expected to last at least 90 days, OR requiring substantial supervision because of severe cognitive impairment.Correct. These are the two alternative triggers for a chronically ill individual under a tax-qualified contract; satisfying either one is sufficient.
4. D.Confined to a licensed nursing facility for a continuous period of at least six months.Incorrect. Confinement is not required. Qualified policies pay for home care, adult day care and assisted living as well as nursing facility care, once a trigger is met.

Why: A tax-qualified long-term care contract pays only when the insured is certified as chronically ill under one of two alternative triggers. The functional trigger is an inability to perform, without substantial assistance, at least two of the six activities of daily living - eating, bathing, dressing, toileting, transferring and continence - for a period expected to last at least 90 days. The cognitive trigger is a need for substantial supervision to protect the insured from threats to health and safety because of severe cognitive impairment, such as advanced dementia. Meeting either trigger is enough; the cognitive path deliberately does not require any ADL deficit, since a person with dementia may remain physically capable.