United States
Hong KongLong-term care: two of six activities of daily living
Benefits are typically triggered by an inability to perform two of six activities of daily living, or by severe cognitive impairment, after an elimination period commonly of 90 days. Medicare does not cover custodial long-term care.
A topic with a small number of specific facts and one very large misconception to correct.
What Medicare does not do
It does not pay for custodial long-term care.
It covers limited skilled nursing following a qualifying hospital stay, for a limited period, on conditions. Help with bathing, dressing and eating over a period of years is not covered at all, and clients arrive assuming it is.
Medicaid does cover long-term care, after the client has spent down assets to a very low level. That is the default outcome for people without cover or means.
The benefit trigger
The six activities of daily living: bathing, dressing, eating, transferring, toileting and continence.
Tax-qualified policies pay when the insured cannot perform two of the six without substantial assistance, expected to last at least 90 days - or where there is severe cognitive impairment, which is an alternative trigger and not a second requirement.
A client with dementia who is physically capable may fail no ADLs and still qualify. Treating the cognitive trigger as an addition to the ADL count rather than an alternative is the error questions are built on.
Policy terms
- Daily or monthly benefit. How much the policy pays.
- Benefit period. Two years, five years, or lifetime.
- Elimination period. Commonly 90 days, during which the client self-funds.
- Inflation protection. Essential, because a policy bought at fifty-five may be claimed on at eighty-five. Simple or compound, and compound costs more and is worth it.
- Where care is delivered. Facility only, or including home and community care. Home care is what most people want.
Inflation protection is the term with the largest effect on whether the policy is worth anything decades later, and it is the one most often traded away for a lower premium.
Hybrid policies
Life insurance or an annuity with a long-term care rider. If care is needed, the benefit funds it; if not, a death benefit is paid.
They exist because of the use-it-or-lose-it objection to traditional cover, and because premium increases on traditional policies damaged confidence in the product. They cost more for the same care benefit, which is what you pay for the certainty.
Taxation
Premiums for tax-qualified policies may be deductible as a medical expense within age-based limits. Benefits are generally received tax free up to a per-diem limit.
Business owners get better treatment through the entity, which is a planning point that connects this to the tax domain.
Dollar limits here are indexed annually and several were changed by recent legislation. Confirm the current figure before relying on it, and expect the exam to test the rule rather than the number.
Common questions
What triggers long-term care benefits?
Inability to perform two of the six activities of daily living without substantial assistance, expected to last at least 90 days - or severe cognitive impairment, which is an alternative trigger.
What are the six activities of daily living?
Bathing, dressing, eating, transferring, toileting and continence.
Does Medicare cover long-term care?
No, not custodial care. It covers limited skilled nursing after a qualifying hospital stay. Medicaid covers long-term care after assets are spent down to a very low level.
Is inflation protection worth paying for?
Yes. A policy bought at fifty-five may be claimed on at eighty-five, and without compound inflation protection the benefit will have lost most of its value by then.
What is a hybrid long-term care policy?
Life insurance or an annuity with a long-term care rider - the benefit funds care if needed, or pays a death benefit if not. It costs more for the same care benefit, which buys certainty.