The Deficit Reduction Act
The federal Deficit Reduction Act (DRA) of 2005 (effective February 8, 2006) includes provisions intended to facilitate the nationwide expansion of state partnership programs and meet some of the other goals cited above.
As mentioned earlier, the DRA repealed the OBRA requirement that states must apply Medicaid estate recovery rules to assets protected under partnership programs. All states may now establish new programs that allow participants to preserve assets after death.
The DRA impose a degree of uniformity across states by setting minimum requirements for any new state partnership programs and for new partnership policies. The DRA promotes -- but does not require -- reciprocity among the new state programs. Specifically, reciprocity applies unless a state explicitly opts out. In addition, more uniform programs and policies from state to state should facilitate reciprocity. Under the DRA, new programs can protect assets on a dollar-for-dollar basis only. Total asset protection is not permitted. (The DRA exempts the four existing partnership program from these new rules and may continue to operate as before.)
Federal Requirements for Partnership Policies
The Deficit Reduction Act established requirements that an LTCI policy must meet to qualify for a qualified state long-term care insurance partnership (QSLTCIP) program – sometimes called
partnership-qualified (PQ) policies or qualified partnership (QP) policies. (We’ll use the term PQ when discussing partnership policies).
All PQ policies nationwide must meet the requirements of the DRA. In addition, individual states may impose on PQ policies benefit mandates or other requirements beyond those of the DRA. However, if a state imposes such requirements on PQ policies, it must impose them on non-PQ policies too. This provision is intended to minimize the differences between the two types of policies, making partnership policies easier to understand and market. (However, differences are not completely eliminated -- non-PQ policies might not meet all the DRA requirements imposed on PQ policies.)
To be a partnership-qualified policy, an LTCI policy must meet these general requirements:
A PQ policy must be a federally tax-qualified LTCI policy. This means that, in addition to the requirements outlined in this chapter, a PQ policy must also adhere to the requirements of HIPAA. As noted, the large majority of LTCI policies today are tax-qualified.
To have PQ status, a policy must be issued after the date on which the state partnership program goes into effect. Unlike HIPAA, which extended grandfathered status to LTCI policies already in force when that law went into effect, the DRA does not extend PQ status to policies already in force when a partnership program is established.
The insured must be a resident of the state sponsoring the partnership program when coverage first becomes effective. It is possible that an insured could later move to another state with a partnership program and enjoy Medicaid asset protection – but that depends on the state’s reciprocity rules.
In addition, the DRA requires PQ policies to include certain consumer protection provisions, and they must meet certain age-based requirements for inflation protection.
Although the list of consumer protection provisions that a PQ policy must contain is long, it should be understood that these provisions are in fact included in most LTCI policies today. The DRA requirements are based on the NAIC’s LTCI Model Act and Model Regulation that most states have adopted (in whole or in part). Even in states where they are not required, many insurance companies include these provisions to maintain product uniformity across the various states where they operate.
Documentation and Disclosure
· Outline of coverage and guide to LTCI. An outline of coverage is a description of the benefits, exclusions, and provisions of a policy. It must be provided to each prospective insured at the time of application. The insurance laws of most states specify the format and content of the outline of coverage. Prospective applicants must also receive a copy of A Shopper's Guide to Long-Term Care Insurance, published by the NAIC, or the state's own LTCI guide if it has one.
· Certificates for group coverage. Insurance certificates issued to individual insureds covered by a group policy must include a description of the principal benefits, the principal exclusions; and a statement that the group master policy determines the governing contractual provisions.
· General disclosure. The policy must include disclosure provisions regarding renewability, the payment of benefits, limitations, conditions on eligibility for benefits, tax consequences, and benefit triggers.
· Disclosure of past rate increases. The policy must disclose whether the insurer has ever had any premium rate increases on this or other related policy forms.
· Replacement coverage. The application must ask whether the applicant has any other long-term care insurance in force and whether the policy being applied for is intended to replace other coverage.
· Home and community care benefits. If a policy provides benefits for home and community care, these benefits must be at least equivalent to one half of one year's nursing home coverage. For instance, if a comprehensive policy contains a nursing home daily benefit of $180, the total benefits available for home and community care must be at least $32,850 ($180 times 365, divided by half, equals $32,850).
· Extension of benefits. The policy must include an extension of benefits provision that requires that nursing home benefits be paid even if the policy lapses provided the insured began receiving benefits prior to lapse and the nursing home stay continues. (In other words, if an insured enters a nursing home and begins receiving benefits, she must continue to receive benefits as long as they last, even if she lets her policy lapse, unless she leaves the nursing home.) Note that since most policies today have a waiver of premium provision and so do not require an insured who is receiving nursing home benefits to pay premiums, this consumer protection provision is rarely necessary, but it is required nonetheless.
Exclusions and Limitations
· Permitted exclusions and limitations. The policy may include only certain exclusions and limitations, as specified in the NAIC Model Regulation.
· Preexisting condition exclusions. If the policy contains a preexisting condition exclusion, this must be clearly indicated. The insurer may exclude only conditions existing six months or less before the policy's effective date, and it may not deny benefits for the condition for more than six months after the effective date.
Renewal, Replacement, and Termination of Coverage
· Renewability. The policy must be guaranteed renewable or noncancellable.
· Replacement of group coverage. If an employer replaces one group policy with another, the new coverage must be offered on a guaranteed issue basis (without underwriting) to everyone covered by the old coverage.
· Continuation or conversion of group coverage. An employee covered by an employer's group policy whose employment status changes has the right to either continue his group coverage or convert it to an individual policy providing the same coverage.
· Unintentional lapse. The policy must include a provision (such as impairment reinstatement) protecting the consumer against the lapse of her policy if she unintentionally neglects to pay premiums.
· Non-forfeiture. The purchaser must be offered the shortened benefit period non-forfeiture option. If the purchaser declines this option, the policy must provide contingent non-forfeiture benefits.
An insurer has the right to rescind (annul) coverage or deny a claim by contesting the validity of the policy if the insured made misrepresentations in the insurance application. (For instance, if a person did not disclose in her application that she already suffered from Parkinson's disease, and a year after coverage began filed a claim, the insurer might be able to contest the policy.) However, an incontestability clause must be included in a PQ policy. This clause places restrictions on the insurer's right to contest, and these restrictions become more stringent over time:
· If a policy has been in force for less than six months, the insurer must show that the insured made a misrepresentation that was material to her acceptance for coverage. (That is, if the correct information had been supplied, the insurer would have declined the application or offered coverage on a different basis.)
· If a policy has been in force for at least six months but less than two years, the insurer must show that the insured made a misrepresentation that was both material to her acceptance for coverage and pertains to the condition for which benefits are sought. (If the insured files a claim based on arthritis, the misrepresentation must pertain to arthritis.)
· If a policy has been in force for two years or longer, the insurer must show that the individual knowingly and intentionally misrepresented facts relating to her health. (This can be very hard to prove.)
The purpose of the incontestability clause is to give consumers confidence that a policy that they have been paying premiums on for some time will not be contested by the insurer when they apply for benefits. Similarly, the DRA prohibits post-claims underwriting. This is the practice of accepting an applicant for insurance without obtaining adequate information about her health status and health history, and later, when she files a claim, finding a reason to rescind her coverage based on information she neglected to provide in the application.
Sales and Marketing
· Sales practices. The insurer and its agents must comply with training requirements and other safeguards designed to prevent abusive practices that could harm consumers, such as making unfair policy comparisons, selling excessive insurance, misleading consumers, and using high-pressure tactics.
· Advertising. The insurer must submit any advertisement (written, radio, or television) to the state insurance commissioner for review or approval, as required by state law.
· Suitability. The insurer must assist the applicant in determining whether the purchase of long-term care insurance is appropriate for her, based on her financial situation and preferences. The applicant must sign certain forms attesting that this has occurred and return them to the insurer.
· Thirty-day free look. The policy must include the 30-day free-look period.
Sales conduct is discussed in the following Chapter.