State Implementation of Partnership Programs
As we have seen, the Deficit Reduction Act establishes the framework for new state partnership programs, setting requirements that partnership-qualified policies must QSLTCIP programs -- states have a good deal of leeway to develop their own programs as they see fit. States may impose requirements on PQ policies in addition to those of the DRA, as long as they apply the same requirements to non-PQ policies. And some of the provisions of the DRA leave room for interpretation and variation in how they are implemented.
A PQ policy must provide "annual compound inflation protection" to insureds who are 60 years old or younger when they buy the policy. But the DRA does not clarify what is meant by this term or stipulate what types of inflation protection qualify, so the states are setting their own standards that they believe comply with this provision.
The DRA does not specifically mandate the 5 percent compound rate that is required by the original partnership programs. Therefore, some states are likely to accept other compound rates (such as 3 percent) as well as inflation protection based on a consumer price index that increases annually on a compound basis.
Some states may accept a guaranteed purchase option (GPO) (described in Chapter Three). However, for a GPO to qualify as "annual compound inflation protection," the offers of additional coverage would have to be made annually, and the amounts would have to be based on compounded increases in the benefit amounts.
Furthermore, states that allow GPOs may need to set rules for them. For instance, must increase offers continue for the life of the policy? (Under most but not all GPOs today, offers generally end if the insured becomes eligible for benefits or if he declines a certain number of offers.) And will a state require an insured to accept every increase offer that is made to maintain the PQ status of his policy? Or can he decline some offers as long as he does not decline so many that he forfeits his right to future offers?
States will also have to decide if they will require an insured to maintain the level of inflation protection required at the time of purchase through the life of the policy, or if they will allow him to downgrade inflation protection when he moves into an older age group, based on the purchase requirements for that age.
Jim buys a PQ policy at age 55, and to fulfill the requirement for annual compound inflation protection that applies at his age, he chooses an automatic 5 percent compound option. After he turns 61, can he switch to a less costly form of inflation protection, such as a 5 percent simple rate, as is permitted for those who purchase after 60? And when he turns 76, can he drop inflation protection altogether, since those who buy at that age are not required to have any?
Can an existing LTCI policy be exchanged for a PQ policy? Under the DRA, if an individual owns an LTCI policy that does not qualify for PQ status, she may exchange it for a PQ policy. But only benefits received under the new policy, and no benefits that may have been received under the old policy, are counted toward Medicaid asset protection. (However, this rule will probably come into play only rarely, as an insured who is receiving or has received benefits is unlikely to be accepted for a new policy.)
Many existing policies meet all the requirements for PQ status except that they were issued before the effective date of the state partnership program. In such cases, an insured making an exchange is simply switching his old policy for an identical new one. Many other existing policies meet the PQ requirements except for issue date and inflation protection, in which case the new policy is essentially the same with the addition of an inflation feature.
States will likely facilitate exchanges by allowing insurers to simply issue an endorsement or rider to an existing policy stating that it has PQ status. However, it is possible that some states may require insureds to lapse their existing policy and purchase a new one.
Insureds sometimes want to make a change in their policy after it has been in force for some time. They may want to decrease their benefits, perhaps to make their premium more affordable. They might, for instance, want to change comprehensive coverage to facility-only coverage because they believe they have sufficient family support to handle any home care needs. Alternatively, an insured may want to increase her benefits. Such changes are not unusual, given that people generally buy LTCI coverage many years before they are likely to need benefits, and needs and circumstances can change over time. But the question arises, if a person buys a PQ policy and later makes a change in her coverage, will the PQ status of the policy be affected?
The DRA states that changes in a policy after it is issued will not affect its PQ status as long as all PQ requirements continue to be met. As we have seen, the great majority of DRA PQ requirements pertain to consumer protection provisions, and these are unlikely to be affected by any coverage change requested by an insured. However, if an insured downgrades or eliminates an inflation protection feature, this could violate the DRA inflation protection requirements, depending on how the state interprets those requirements. It is also possible that a coverage change could violate a state-imposed PQ requirement.
As they develop their programs, states will need to define what coverage changes would violate their PQ requirements, and insurers will then take steps to prevent consumers from inadvertently losing the PQ status of their policies. Some in the insurance industry have proposed including the following notice as part of the consumer disclosures made when someone purchases a PQ policy: "If you make any changes to your policy or certificate, such changes could affect whether your policy or certificate continues to qualify as a partnership policy. Before you make any changes, you should consult with the issuer of your policy to determine the effect of a proposed change."
If a person buys a PQ policy in State A and later moves to State B and applies for Medicaid, will he be entitled to asset protection in State B? If State B has a partnership program and there is reciprocity between the two states, the answer is yes. Otherwise, the person will have to forgo asset protection, or move back to State A, or move to another state that does have a program and reciprocity with State A.
As we learned, the DRA is intended to promote reciprocity among states. Under the DRA, reciprocity is the rule unless a state explicitly opts out, and the degree of uniformity among QSLTCIP programs imposed by the DRA is intended to facilitate reciprocity. And reciprocity is generally advantageous for a state. If a person with a PQ policy moves in, the state gains a resident with good LTCI coverage who is less likely to need Medicaid benefits than someone without such coverage. It is true that, under reciprocity, if the new resident does end up going on Medicaid, the state will not be able to take assets it otherwise would have been entitled to. But this is not a common occurrence, so the gains to the state would appear to outweigh the losses.
However, the DRA does not require reciprocity, and of course it does not require a state to establish a partnership program some states will probably not create programs, and the owners of PQ policies moving to those states will not be entitled to any asset protection there.
Must an insured wait until his LTCI benefits are completely exhausted before applying for Medicaid? Or can he apply before he has received all benefits payable by his policy? Under the DRA, an insured does not have to wait until the exhaustion of benefits, but the amount of assets that will be protected is based on the amount of insurance benefits paid as of the time of application. In other words, an insured may apply for Medicaid before he has used up his LTCI benefits, but if he does so, he will receive credit only for the benefits paid up to that time, even if benefits continue to be paid afterwards. If, on the other hand, he waits until all benefits due under the policy have been paid, he will receive credit for the full lifetime maximum benefit of the policy.
Joanne has a PQ policy with a lifetime maximum benefit of $200,000. After she has received $150,000 in benefits, she applies for Medicaid. She may apply at this time, but she will be entitled to only $150,000 in asset protection, even if the remaining $50,000 of benefits is eventually paid out.
Sylvia also has a PQ policy with a lifetime maximum benefit of $200,000. She waits until she has received the entire $200,000 before she applies for Medicaid. She will be entitled to $200,000 in asset protection.
Thus, waiting is often advantageous, but not always. For instance, if a person has only $100,000 in assets to protect and has already received that amount in insurance benefits, there may be no reason to wait, even if he is entitled to additional benefits. Also, some individuals who are under a financial hardship as they near the end of their insurance benefits may want to apply early.
Finally, it should be kept in mind that the process of applying for Medicaid can take several months, so those who wait until their insurance benefits have completely run out before starting this process may have to pay for their care out of their own pocket for a time.
If an insured does qualify for Medicaid before he exhausts his LTCI benefits, the Medicaid program will generally require that the insurance remain the "first payer" -- that is, the LTCI policy must continue to pay benefits, with Medicaid providing additional benefits for any expenses not covered by the insurance but covered by Medicaid. This also must be weighed in determining whether it is advantageous to apply for Medicaid early.
An important objective of the DRA was establishing some degree of nationwide uniformity among partnership policies and between partnership and nonpartnership policies. If each state established widely varying requirements for partnership policies and these differed significantly from their requirements for nonpartnership policies, insurers would have to develop and maintain many different products, PQ and non-PQ, for different states. As a result, insurers would be less likely to enter the partnership market, and the growth in the number of people covered by partnership policies would likely be diminished. The DRA seeks to avoid this problem in three ways:
• It establishes standard requirements for all PQ policies in all participating states.
• It bases those requirements on the NAIC LTCI Model Act and Model Regulation, which already apply to most LTCI policies, so that PQ policies will be very similar to most non-PQ policies.
• It prohibits a state from imposing any additional requirements on PQ policies that it does not also impose on non-PQ policies, further minimizing the difference between the two types.
As a result, there will generally be little difference between PQ and non- PQ policies in a state, so that an insurer should be able to develop (and in fact probably already has) an LTCI product that can be used both as a PQ and a non- PQ product. The main difference between the PQ and non-PQ versions would be that a purchaser who wants his policy to have PQ status would need to purchase an inflation protection option that meets PQ requirements for his age.
However, while there will generally be a high degree of uniformity between PQ and non-PQ products within a state, PQ products may differ significantly from state to state. This is because states are free to impose requirements on PQ policies in addition to those of the DRA (although they must impose these requirements on non-PQ policies as well). However, the fact that most states have adopted, at least in part, the NAIC models tends to limit diversity, and in any case this diversity will likely be no greater than that which already prevails for non-PQ products.
Certification and Disclosure of PQ Status
If a product developed by an insurance company meets all the requirements of the DRA and of a state partnership program, how does it become a partnership-qualified policy?
• The state insurance department reviews the product and certifies that it meets all requirements. Alternatively, an insurance department could establish a process for self-certification, such as a checklist.
• The insurer must prominently disclose to consumers whether or not a policy is partnership-qualified. This disclosure will most likely be made in a form provided by the state or developed by the insurer and included with the policy when it is delivered. This approach will facilitate the process for policies already in force that meet the PQ requirements -- instead of having to revise such policies simply to add the disclosure statement and re-file them, the insurer can simply issue the form to policyholders.
Insurance companies will have to report certain data on their PQ policies. There are two reasons for this requirement:
• A state Medicaid program needs to know whether an individual is covered by a PQ policy, and if so, how much (if any) she has received in benefits, so that this information can be taken into account if she applies for Medicaid.
• The states and the federal government need data for use in evaluating partnership programs and setting policy for them. Government agencies will want to know whether the asset protection offered by PQ policies does in fact lead consumers to buy them, what type of PQ policies consumers are buying, and what impact the program is having on Medicaid finances.
The Department of Health and Human Services will issue reporting regulations, which will specify the type and format of data and information that all insurers issuing PQ policies will be required to include in reports to the Secretary of HHS. These reports will be made available to all participating states.
The DRA does not prohibit states from imposing reporting requirements in addition to those of HHS. But the Centers for Medicare and Medicaid Services (CMS) are seeking to minimize the need for state-specific requirements by working with the states to identify their needs and ensure that the HHS requirements meet them.
RECAP 0For what two main purposes will insurers be required to report information on PO policies?
The DRA and CMS directives require each state insurance department to provide assurance to the state Medicaid program that any person who sells, solicits, or negotiates a PQ policy has received training in these policies and demonstrated an understanding of them and the part they play in the public and private financing of long-term care.
What will this mean in practice for insurance agents? In addition to the requirements they must meet to sell long-term care insurance in their states, there will be new training requirements for selling partnership LTCI policies. There may also be an examination to satisfy the requirement to demonstrate understanding.
States will of course vary in their exact requirements, but at its September 2006 meeting, the NAIC adopted a Model Bulletin that will likely be adopted (perhaps with some modifications) by many states. The requirements of the Model Bulletin are as follows:
• All LTCI agents in the state will receive training in PQ policies.
There will be an initial training course of no less than eight hours. In addition, agents will be required to receive no less than four hours of ongoing training (continuing education) every 24 months thereafter.
• Topics covered in the training must include long-term care services, long-term care insurance, PQ policies, and the relationship between PQ policies and other public and private coverage of long-term care. All types of LTC I policies must be covered, with the advantages and disadvantages of PQ and non-PQ policies discussed. State or federal law may require the use of certain materials.
• The training cannot include any training that is specific to an insurance company or its products. It cannot include any sales or marketing information, materials, or training.
• The state's requirements for continuing education (such as those related to class attendance, the conduct and monitoring of examinations, self-study courses, and web-based training) must be adhered to.
• When a state establishes a partnership program, it will set a date at least one year after the effective date of the program, by which time all agents selling LTCI must have received the training. Until that date, any licensed and qualified LTCI agent may sell PQ policies.
• Insurance companies issuing PQ policies must require agents selling these policies to provide them with verification that they have received this training. The companies must maintain this verification on file and be able to provide it to the state insurance commissioner upon request.
It should be kept in mind that some states may not adopt this model, and their training requirements may differ. And of course the four original state partnership programs will continue to operate differently.
It is the intention of the NAIC Model Bulletin that satisfaction of the training requirement in any state will be deemed to satisfy it in any other state. However, agents are advised not to assume reciprocity with any state but to seek confirmation with the state insurance department. In particular, states that do not adopt the NAIC training model might not be granted reciprocity by states that do.