The “Functional Model”
Today’s policies use a functional model to measure the insured’s ability to function independently in the community. This encompasses both physical and cognitive measurements. Without using a cognitive measure, claims for Alzheimer’s disease patients (who may be able to complete most activities of daily living (ADLs) but who need assistance and supervision throughout the day) could be denied. It is important, therefore, that the insurer measures both the applicant’s physical and cognitive abilities before paying benefits.
Physical Assessment
The basis of physical impairment research is a landmark 1963 study by Sidney Katz in which he developed a measurement of physical functioning called activities of daily living (ADLs). These ADLs have been used to:
⦁ Predict the length of hospital stays, the use of services, and the need for health and supportive care among the elderly;
⦁ Determine disability compensation; and
⦁ Chart changes in health status.
After many years of research and practical application, ADLs are now the cornerstone of benefit qualification in long-term care insurance policies.
Activities of daily living provide an excellent means to assess an individual’s need for nursing home care, home health care, or other health-related services. A policy will indicate what number and/or type of ADLs will be used to trigger benefits. When the insured cannot independently perform these ADLs, benefits will be paid to cover expenses for assistance with those activities.
Individuals tend to become physically impaired in a specific order because of chronic conditions. Impairment tends to progress from only problems with one or two activities to problems with all the activities of daily living. Understanding this impairment continuum will help you understand the physical assessment. When you compare policies, note where on the impairment continuum an insurer is likely to pay benefits, in addition to noting how many ADLs need to be impaired for benefits to be triggered.
For example, a company may not assess bathing or one of the earlier lost ADLs. If these early impairments are not assessed, the level of impairment that will trigger benefits may be debilitating. The result is that benefits are not paid until the on-demand level of care is needed.
Evaluating ADLs
The company should evaluate the insured’s normal method of performing the ADL. For example, if the insured normally lives alone and uses a bathtub for bathing, the ability to use the tub and wash alone should be assessed. An insurer should not require the insured to first install special equipment (such as grab bars) or change habits (requiring showers instead of baths). Changing habits or installing equipment should be the insured’s option—not the company’s right. Agents should look for these policy restrictions.
This illustration shows the progression of impairments included in the activities of daily living.
As a result of HIPAA’s requirement for a TQ policy, a technical issue has arisen regarding the assessment of ADLs and an individual’s impairment: whether an individual requires hands-on assistance or standby assistance to complete an ADL.
For example, let’s look at transferring. Standby assistance requires a caregiver to be present as the insured gets out of bed and moves to a chair. Hands-on assistance requires the caregiver to hold or help lift the insured out of bed and lower him into a chair. These distinctions become important when comparing and pricing long-term care insurance products because a policy that covers only those individuals requiring hands-on assistance would provide fewer benefits.
Benefit Triggers Under HIPAA (1 of 2)
Insurance companies offering TQ policies must use ADLs as one of their benefit triggers. HIPAA requires insurers to trigger benefits when an individual is impaired in at least two of the following: bathing, dressing, toileting, transferring, continence, and eating.
HIPAA also standardised the level of assistance that must be present before qualifying for benefits under the ADL trigger. The claimant must be receiving substantial assistance. HIPAA does not define substantial assistance, but the IRS has issued a notice stating that it refers to hands-on assistance as well as standby assistance. This level of assistance must be expected to last at least 90 days. (This does not require all TQ policies to have a 90-day elimination period, but rather requires the licensed health-care practitioner performing an assessment to use his best judgement to determine whether an impairment will last 90 days.) These two requirements are integral parts of the law’s intent to allow only chronically ill individuals to qualify for tax-free benefits.
Benefit Triggers Under HIPAA (2 of 2)
Cognitive Assessment
Comprehensive tests have been developed to measure common cognitive impairments such as intellectual instability or memory loss. These types of cognitive assessments are important because companies that perform only physical assessments of the cognitive condition may miss some people who are able to pass the tests physically but forget how or why to perform the tasks or cannot perform them safely on their own. Typically, these tests include a delayed word recall test that measures the applicant’s short-term memory loss. The applicant might be asked to study a list of words for a few minutes and then recall the list from memory. These tests may also ask questions that are easily answered by individuals with adequate short-term and long-term memory capabilities but are difficult for individuals losing their ability to reason or remember.
The agent should be certain that the contract he sells has specific language stating the company will pay for cognitive impairments independently from the physical measure. For example, if the insured is physically able to dress but must be told how to dress because of memory loss, the contract should allow the insured to qualify for benefits under the cognitive measurement.
HIPAA requires TQ plans to trigger benefits when an individual requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment. According to the IRS Notice regarding HIPAA, severe cognitive impairment means a loss or deterioration in intellectual capacity that is comparable to Alzheimer’s disease (and similar forms of irreversible dementia) and measured by clinical evidence and standardised tests that reliably measure impairment in the individual’s short-term and long-term memory; orientation to people, places, and time; and deductive and abstract reasoning. This severe cognitive impairment must result in the insured needing substantial supervision, which means someone is present throughout the day to protect the insured from threats to his health and safety. An NTQ plan is free to define a cognitive impairment in broader terms.
Functional Model
⦁ Physical Measurements
⦁ Cognitive Measurements
Benefit Triggers for Tax-Qualified Benefits
Assessors
The person responsible for measuring ADLs and cognitive abilities varies among insurers. Although it may not be clear from the contract language, some companies will use an insured’s physician to determine the claimant’s ability, other companies use their own specially trained employees to make the assessment, and still others use a third party such as an outside consultant or assessment team.
An individual’s personal physician often has not been trained to measure ADLs and may lack a sense of urgency about completing the assessment. An insurance company employee seldom is objective because he is working for the insurer. Using properly trained, third-party assessors living in the claimant’s community will provide the most timely, objective, and consistent measure of a claimant’s ability to remain independent.
HIPAA requires that the assessment be performed by a licensed health care practitioner but permits the insurer to select the individual. Most insurers use independent, third-party assessors. A company’s NTQ plan can use any assessor it chooses.
