Long Term Health Care Insurance Tips for Florida Residents

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. This aligns with comprehensive long-term care insurance alternatives to ensure proper care and financial protection.

Physical Assessment

Physical impairment research began with Sidney Katz’s landmark 1963 study. He developed a measurement called Activities of Daily Living (ADLs). Today, ADLs serve multiple purposes:

Predict hospital stays, service use, and the need for health or supportive care in older adults
Determine disability compensation
Track changes in health status

After decades of research and practical use, ADLs now form the foundation of benefit qualification in long-term care insurance policies..

Using ADLs to Trigger Benefits

ADLs provide a clear method to assess an individual’s need for nursing home care, home health care, or other services. Each policy specifies which ADLs and how many must be impaired to trigger benefits.

When an insured cannot perform these ADLs independently, the policy pays benefits to cover assistance. This ensures individuals receive support for daily tasks like bathing, dressing, or eating.

For retirees and older adults, coordinating long-term care insurance with comprehensive financial planning for seniors is essential.

Understanding the Impairment Continuum

Physical impairment usually progresses in a predictable order. Chronic conditions tend to affect one or two ADLs first, then gradually involve all ADLs. Understanding this continuum helps you interpret physical assessments.

When comparing policies, check where along the continuum an insurer pays benefits and how many ADLs must be impaired. Some companies may not consider early ADLs, such as bathing, when determining benefit eligibility. If early impairments are ignored, benefits may only pay once the individual reaches a debilitating level of care, delaying essential support. This kind of evaluation is also relevant when considering senior housing placement, such as assisted living or memory care.

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 standardized 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

Insurers use cognitive assessments to identify impairments such as memory loss or intellectual decline. These assessments are crucial because a physical evaluation alone may miss individuals who can perform tasks physically but forget how or why to complete them, or cannot do them safely on their own.

Common Cognitive Tests

Cognitive tests often include a delayed word recall exercise to measure short-term memory. For example, the applicant may study a list of words for a few minutes and then recall them from memory.

Other questions evaluate short-term and long-term memory, reasoning, and problem-solving abilities. Individuals with declining cognitive abilities may struggle to answer these questions correctly, even if they can perform tasks physically.

Policy Considerations

Agents should ensure that the insurance contract covers cognitive impairments independently of physical assessments. For instance, if the insured can physically dress but needs guidance due to memory loss, the policy should allow them to qualify for benefits based on cognitive measurements.This is important for families also reviewing life insurance arrangements to ensure resources are available for care

HIPAA and Tax-Qualified (TQ) Plans

Under HIPAA, TQ plans must trigger benefits when an individual requires substantial supervision to protect themselves from health and safety risks due to severe cognitive impairment.

The IRS defines severe cognitive impairment as:

Loss or deterioration in intellectual capacity, similar to Alzheimer’s disease or irreversible dementia
Measurable through standardized tests that assess:
- Short-term and long-term memory
- Orientation to people, places, and time
- Deductive and abstract reasoning

The impairment must require someone to be present throughout the day to protect the individual’s health and safety. Non-tax-qualified (NTQ) plans can define cognitive impairment more broadly.

Functional Assessment Model

Long-term care policies typically assess two areas:

Physical measurements – ADLs (Activities of Daily Living)
Cognitive measurements – memory, reasoning, and supervision needs

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.

FAQs:

1. What is the functional model in long-term care insurance?

The functional model assesses an individual’s ability to live independently by evaluating both physical and cognitive abilities. Insurers use this model to determine eligibility for benefits, ensuring that people who need assistance receive support.

2. What are Activities of Daily Living (ADLs)?

ADLs are standard measures of physical functioning, including bathing, dressing, eating, toileting, transferring, and continence. Insurance policies use ADLs to determine when benefits should be paid. Impairment in a specified number of ADLs triggers coverage.

3. How do physical and cognitive assessments differ?

Physical assessments focus on the ability to perform ADLs independently or with assistance.
Cognitive assessments evaluate memory, reasoning, and decision-making abilities. This ensures people with conditions like Alzheimer’s qualify for benefits even if they can perform tasks physically care.

4. Can cognitive impairment alone trigger benefits?

Yes. Policies should allow claimants to qualify for benefits based on cognitive measurements, even if they can physically perform ADLs. This ensures people with memory or reasoning issues receive proper care.