481 / What are qualified long-term care services?

Qualified long-term care services are any necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services that are 1) required by a chronically ill individual and 2) provided under a plan of care set forth by a licensed health care practitioner.¹

Practice Point: A licensed healthcare practitioner can be a physician, registered nurse or licensed social worker.

A chronically ill individual is a person who has been certified by a licensed health care practitioner as 1) being unable to perform, without substantial assistance from another individual, at least two activities of daily living (“ADLs”) for at least 90 days due to a loss of functional capacity, 2) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment, or 3) having a level of disability similar to the level described in (1) above, as determined by the Secretary of Health and Human Services. In all cases, a licensed healthcare practitioner must have certified the need for such requirements within the preceding 12 months.

Practice Point: Prior to 1997, benefit triggers in long-term care insurance policies were not standardized, but this should not be taken to mean that common triggers weren’t widely found, including those described above. The significance of HIPAA in creating tax-qualified (TQ) policies was thjollowing:

1. Eliminating the “medical necessity” trigger, and

2. Creating the 90-day certification requirement.

The 90-day requirement for the ADL benefit trigger does not establish a waiting period (i.e., elimination period), but simply a duration over which the individual’s disability is certified to last.²

Practice Point: Many commentators (and even some insurance company documents) employ the expression “expected to last” [90 days], but curiously, the source material does not use this phrase. However, the intent is similar: “chronic illness” should be long-lasting, and long-term care policies should pay for care over the long-term. In this way, TQ policies were a break from the past, when these policies had no qualms about paying for short-term claims (i.e., less than 90 days).

To clarify, one’s elimination period states how soon after qualifying care begins that claim payments start, acting like a deductible. There is no conflict in saying, “As a tax-qualified policy, my plan will only pay for claims that last longer than 90 days, but I still want reimbursement from Day 1.” Nevertheless, since 1997 there’s been an explosion in the choice of 90-day elimination periods, which now make-up nearly 90 percent of the market.

Having established an ADL trigger, the six activities of daily living are defined as:

(1) eating;

(2) toileting;

(3) transferring;

(4) bathing;

(5) dressing; and

(6) continence.

In determining an individual’s inability to perform two or more ADL’s, a TQ policy must take into account at least five of these six. Much ink has been spilled debating the merits of “hands-on” assistance versus “stand-by” assistance. The former means the physical assistance of another person without which an individual would not be able to complete an ADL. Stand-by assistance is the presence of another individual necessary to prevent injury while performing an ADL (such as being ready to catch the individual if they fall while getting in the tub while bathing). However, HIPAA uses the umbrella term “substantial assistance”, which the IRS has subsequently clarified is either.