The Deficit Reduction Act (con’d)



Inflation Protection


As mentioned, the consumer protection provisions listed in the preceding section are already required by most states and included in most LTCI policies. And the great majority of LTCI policies today are federally tax-qualified. In these respects, partnership LTCI policies do not differ markedly from most other LTCI policies.


But in the area of inflation protection, PQ policies can differ significantly, as the DRA requires far more than HIPAA or the NAIC models. These requirements vary according to age at purchase (defined as the insured's age when the policy becomes effective).  
















Failure to have adequate inflation protection for insureds who will likely need benefits years after they buy their policy defeats the purpose of the partnership program. From the point of view of the state, if an insured's benefit amounts are not increased to cover increases in the cost of care, he is more likely to use up his benefits and qualify for Medicaid. And from the point of view of the insured, if his benefit amounts fall behind rising costs, he will pay more out of his own pocket even while he is insured, depleting the assets that he is trying to protect by participating in the program.


While inflation protection requirements are the main difference between PQ and non-PQ policies, this difference should not be exaggerated. Most LTCI policies today offer an automatic compound option or other type of inflation protection, and PQ policies are no different from non-PQ policies that include these features.


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age at purchase :

DRA requires:

age 60 or younger

must have "annual compound inflation protection."

ages 61 to 76

must have some form of inflation protection

( annual compounded increases;  simple rate increases, GPO or other form of inflation protection)

age 76 or older

must be offered an inflation protection option,

(but they are not required to purchase that option.)