LTC Benefit Triggers and the Elimination Period
Evelyn, age 72, owns a tax-qualified long-term care policy with a $150 daily reimbursement benefit, a 90-day elimination period, a three-year benefit period, and 3% compound inflation protection. Home care is covered at 50% of the daily nursing-home benefit. She has a stroke and needs hands-on help with bathing, dressing, and transferring; her physician certifies the need will last at least 90 days. For the first 120 days she remains at home and pays $180 per day for aide services. On day 121 she moves to assisted living, which costs $140 per day. She has no cognitive impairment. The policy has no calendar-day waiver of the elimination period.
1. Does Evelyn qualify for benefits, and when do benefits begin?
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Yes. A tax-qualified LTC policy typically triggers when the insured cannot perform at least 2 of 6 activities of daily living for at least 90 days due to loss of functional capacity, or has severe cognitive impairment. Evelyn needs hands-on help with bathing, dressing, and transferring - three ADLs - and her physician certifies the need will last at least 90 days. She meets the trigger even without cognitive impairment.
The policy has a 90-day elimination period. Benefits therefore begin on day 91. The first 90 days are self-funded by Evelyn.
2. Calculate the policy benefit and Evelyn's out-of-pocket cost during home care after the elimination period and after she moves to assisted living.
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Home care benefit: 50% × $150 = $75 per day. Actual home care cost is $180 per day, so the policy pays $75 and Evelyn pays $105 per day.
- First 90 days (no benefit): 90 × $180 = $16,200 out of pocket.
- Days 91–120 (30 days of home care): policy pays 30 × $75 = $2,250; Evelyn pays 30 × $105 = $3,150.
- Total out of pocket through day 120 = $16,200 + $3,150 = $19,350.
Assisted living: actual cost is $140 per day, which is below the $150 daily maximum. The reimbursement policy pays the actual charge, $140 per day, and Evelyn pays $0 for room and board assuming the charge is covered.
The 3% compound inflation rider will increase the $150 maximum over time: after 10 years, $150 × 1.03^10 ≈ $201.59 per day.