Section VIII - Long-Term Care Policies
Exclusions
>Nervous or mental disorders which have no demonstrable organic cause (Alzheimer's disease must be covered) >Alcoholism and drug addiction >Injury or sickness caused by: >>>>War or any act of war, declared or undeclared >>>>Participating in a felony, riot, or insurrection >>>>Military service >>>>Intentionally self-inflicted injuries >>>>Aviation activities other than as a fare-paying passenger >Care provided in a government hospital, or covered by any government benefit program, or provided at no charge by family members >Services provided outside of the USA
Additional Features - Nonforfeiture - Cash Surrender Value
A guaranteed lump sum that is paid to the policy-owner upon the lapse or surrender of the policy
Additional Features - Nonforfeiture - Reduced Paid-Up
A reduced amount of daily benefit is provided for the duration of the benefit period after premium payments have been discontinued.
Renewability
All LTC policies must be guaranteed renewable or non-cancellable. The term guaranteed renewable may be used only when the insured has the right to continue the policy by timely premium payments. The term non-cancellable may be used only when the insured has the right to continue the policy by timely premium payments and during which period the insurer has no right to unilaterally make any changes in the policy provisions or in the premium rate.
Definition
Any individual policy, group policy, or rider that is advertised, marketed, offered, solicited, or designed to provide coverage for no less than 12 consecutive months. It may cover diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. The goal of regulating long-term care (LTC) insurance is to promote the availability of long-term care coverage, as the need for it is expected to grow. Consider: >National studies indicate that at some point 2 out of every 5 people over age 65 will enter a nursing home. >The older a person, the greater the possibility he/she will need some kind of long-term care >Medicare provides very limited coverage (skilled nursing) for long-term care >Only certain low-income individuals will qualify for assistance through Medicaid >The need for LTC coverage can arise at any age
Policy Summary
At the time of policy delivery, a Policy Summary must be delivered for an individual life insurance policy that provides long-term care benefits within the policy or by rider. In the case of direct response solicitations, the insurer must deliver the policy summary upon the applicant's request, but regardless of request must make delivery no later than at the time of policy delivery. In addition to complying with all applicable requirements, the summary must also include: >An explanation of how the LTC benefit interacts with other components of the policy, including deductions from death benefits. >An illustration of the amount of benefits, the length of benefit, and the guaranteed lifetime benefits if any, for each covered person. >Any exclusions, reductions, and limitations on benefits of LTC >A statement, if applicable, that any LTC inflation protection option required by regulation is not available under this policy If applicable to the policy type, the summary must also include: >A disclosure of the effects of exercising other rights under the policy >A disclosure of guarantees related to LTC costs of insurance charges >Current and projected maximum lifetime benefits
Benefits - Length of Benefit Period
Benefit periods vary from one year through a person's lifetime. Most policies sold today usually have 3- or 5-year benefit periods. This is largely due to the fact that currently, the average stay in a residential, full-time care facility is less than 5 years.
Benefits - Daily/Monthly Benefit
Benefits for LTC policies are described in terms of daily or monthly (or sometimes weekly) benefit amounts, or a total policy payout amount.
Loss Ratios
Benefits under LTC insurance policies are deemed to be reasonable in relation to premiums, provided that the expected loss ratio is at least: >60% for individual policies >75% for group policies
Outline of Coverage and Shopper's Guide - Requirement to Deliver Shopper's Guide
Developed by the National Association of Insurance Commissioners, or a guide developed or approved by the Commissioner, must be provided to all prospective applicants of a long-term care insurance policy or certificate. >Agent solicitations, an agent must deliver the shopper's guide prior to the presentation of an application or enrollment form >Direct response solicitations, the shopper's guide must be presented in conjunction with any application or enrollment form
Additional Features - Financial or Suitability Worksheet
Every provider of LTC insurance must: >Develop and use suitability standards to determine whether the purchase or replacement of LTC insurance is appropriate for the needs of the applicant >Train its agents in the use of its suitability standards >Maintain a copy of its suitability standards and make them available for inspection upon request by the Insurance Commissioner To determine whether the applicant meets the standards developed by the provider, the producer and provider must develop procedures that take the following into consideration: >The ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage >The applicant's goals or needs with respect to long-term care and the advantages and disadvantages of insurance to meet these goals or needs >The values, benefits, and costs of the applicant's existing insurance, if any, when compared to the values, benefits and costs of the recommended purchase or replacement A completed personal worksheet must be returned to the issuer prior to the issuer's consideration of the applicant for coverage. It is prohibited for the insurer or producer to sell or disseminate information obtained through the personal worksheet. If the insurer determines that the applicant does not meet its financial suitability standards, or if the applicant has declined to provide the information, the insurer may reject the application. An insurer may issue a policy to an applicant that does not meet the financial suitability standards if the applicant signs a waiver acknowledging the suitability results.
Tax Considerations
Favorable tax treatment under Section 7702B(b) of the Internal Revenue Code is given to LTC contracts that meet the eligibility qualifications. These plans must meet the following requirements: >The only protection in the contract is for long-term care >The contract does not pay any Medicare reimbursable expenses >The policy must be a guaranteed renewable contract >The policy has no cash value accumulation that may be assigned as collateral, borrowed, or surrendered for value >All refunds or dividends must be applied to either reduce premiums or increase benefits The policy must comply with the NAIC Model Act which has been adopted by most states. The new requirements of qualification were established by HIPAA and became effective on 01/01/1997. The Act defines qualified long-term care services as required diagnostic, preventive, therapeutic, curing, treating, and rehabilitative required for a chronically ill person, and the services are provided by a licensed care giver. Premiums paid by individuals are treated as deductible medical costs up to certain limits. However, only medical costs in excess of 10% of the taxpayer's adjusted gross income (7.5% for those aged 65 and over) can be deducted. Individuals have better tax treatment of LTC premiums if they place them in an HSA and then use the HSA to pay the LTC premiums. Regardless of whether or not premiums are tax-deductible, all benefits from a tax-qualified reimbursement LTC policies are non-taxable. For disability and indemnity benefit LTC policies, there is a limit on the amount of the daily benefit that can be received tax-free if actual expenses fall below that amount. The limit is subject to change each year. Employers have far greater tax advantages because they can deduct all tax-qualified LTC premiums, unless some of the premium is deemed as income to employees who are policy owners.
Benefits - Levels of Care - Home Health Care
Home Convalescent Care--health care provided in one's home under a planned program established by his/her attending physician. Residential Care--Living accommodations within long-term care facilities. These facilities are commonly for the middle and upper classes because of the costs.
Benefits - Levels of Care - Intermediate Care
Intermediate-level care is also provided by a state-licensed facility known as Intermediate Care Facilities. Provide nursing care on a less than 24-hour basis under the supervision of an RN or a licensed practical nurse (LPN).
Benefits - Daily/Monthly Benefit - Reimbursement Benefit
Least expensive design as it pays only the expenses incurred even if the daily amount is higher
Additional Features - Waiver of Premium
Most LTC policies offer a waiver of premium benefit that provides for premiums to be waived usually after 90 days of confinement or after the time of a claim, whichever is less. Some LTC insurers offer a return of premium optional benefit that provides for a refund of the entire or some part of the premium paid less claims paid, either on a specified policy anniversary, at policy surrender, or death of the insured.
Partnership Plans
Must have disclosure statements that tell the insured: >The policy is a tax-qualified, LTC Partnership policy >The purchase and use of a Partnership policy does not automatically qualify the insured for Medicaid >Partnership status may be lost if the insured moves to a state that does not recognize North Carolina's Partnership Program or modifies the policy after it is issued Once an insurer beings to sell Partnership policies, it must offer all existing long-term care policy owners the opportunity to exchange their policy for Partnership policy. The offer must be made on a onetime basis, within 180 days after the insurer begins to sell Partnership policies. The exchange may involve underwriting and premium adjustments. An exchanged policy is treated as newly issued. Endorsing an existing non-Partnership policy so that it meets the requirements of a Partnership policy is considered an exchange. Before making a change requested by the policyholder to a qualified long-term care partnership policy that would result in the loss of the policy's qualified status, the insurer must provide the policyholder with a written explanation within 30 calendar days of how this action would affect the insured. The insurer must obtain the insured's signature indicating consent his/her to the change. If a qualified long-term care partnership policy subsequently loses qualified policy status, the insurer must explain to the policyholders in writing within 30 calendar days the reason for the loss of status.
Additional Features - Inflation Protection
Must offer to each policyholder at the time of purchase: >Increases in benefit levels COMPOUNDED annually at no less than 5% >Inflation protection that guarantees the insured the right to periodically increase benefit levels, COMPOUNDED annually at a rate of at least 5%, without providing evidence of insurability or health status as long as the option for the previous period has not been declined. >Inflation protection covering a specified percentage of actual or reasonable charges The option for inflation protection is not required under life insurance policies that accelerate the death benefit. Must be included in or with the outline of coverage: >A graphic comparison, over a 20-year period, of the benefit levels of a policy that increases benefits over the policy period with the benefit levels of a comparable policy that does not increase benefits. >Any expected premium increase or additional premium to pay for automatic or optional benefit increases The inflation protection benefit continues without regard to the insured's age, claim status, claim history, or the length of time the insured has been covered under the policy. The inflation protection provisions are required to be included in any LTC insurance policy and certificate unless the insurer obtains a written rejection of inflation protection signed by the prospective policyholder. Where the policy is issued to a group, the offer of inflation protection must be made to the group policyholder or to each proposed certificate holder, depending on the type of group. The offer of inflation protection is not required for life insurance policies or riders containing accelerated LTC benefits.
Benefits - State Mandated Benefits
Must provide benefits for at least 3 levels of care and provide the same duration for each level of care for a minimum of 12 months. Coordination or non-duplication of benefits is permitted between true group LTC policies only. Custodial care that is administered to help a patient perform ADLs may not be denied based on the type of facility in which the care is received. Rather, such care must be provided as long as the insured is confined as an inpatient in any facility licensed by the state, regardless of whether or not that facility is commonly understood to be or is defined as a LTC facility. No LTC policy, contract, or certificate may use waivers to exclude, limit, or reduce benefits for specifically named or described pre-existing diseases or physical conditions.
Outline of Coverage and Shopper's Guide - Requirement to Provide Outline of Coverage
Outline of Coverage must be delivered to a prospective applicant for long-term care insurance at the time of initial solicitation through means that prominently direct the attention of the recipient to the document and its purpose. >Agent solicitations, an agent must deliver the outline of coverage prior to the presentation of an application or enrollment form >Direct response solicitations, the outline of coverage must be presented with any application or enrollment form
Partnership Policies - Tax Qualification
Partnership policies must be tax qualified according to the 7702B(b) of the Internal Revenue Code.
Partnership Plans - Inflation Protection
Partnership policies that are purchased before the insured reaches age 61 must provide annual inflation protection on a COMPOUNDED basis, not just simple. Policies purchases between the ages of 61 through 75 must provide some level of inflation protection, which can be compounded or simple. Policies purchased at age 76 or older may offer inflation protection, but it is not required.
Benefits - Levels of Care - Custodial Care
Personal care that can be provided by a person without medical training. Includes assistance with the activities of daily living (ADLs)--bathing, eating, dressing, etc.--and other routine activities.
Benefits - Levels of Care - Skilled Care
Provided in a Skilled Nursing Facility. This is a licensed facility, operated according to the laws of the state, providing continuous, 24-hour nursing care by or under the supervision of a registered nurse (RN) on the written orders of a physician.
Partnership Plans - Asset Disregard
The Partnership Plan was developed in an effort to reduce Medicaid costs. Under this program, Medicaid disregards, dollar-for-dollar, an applicant's assets and resources equal to the amount of the Partnership policy's benefits.
Additional Features - Nonforfeiture - Extended Term
The full amount of daily benefit is paid for the limited period of time (for as long as the cash value will purchase) after premium payments have been discontinued
Pre-Existing Conditions - 6 and 6 Provision
The insurer cannot more restrictively define a pre-existing condition than a condition for which advice or treatment was recommended or received within 6 months of the effective date of coverage. After 6 months, pre-existing conditions must be covered by the policy
Benefits - Daily/Monthly Benefit - Indemnity Benefit
The insurer pays the full daily benefit if and only if the insured incurs some qualified commercials costs on that day
Long-Term Care Market - Minimum and Maximum Ages
The need for long-term care can happen at any age. The risk increases as people get older, but that should not make younger people feel comfortable about delaying the purchase of LTC insurance. According to the fact sheet entitled "Who needs LTC?" published by George Washington University's Health Policy Institute: >Approximately 63% of the people who need LTC are aged 65 and older >The remaining 37% are 64 years of age and younger Unfortunately, many people do not think about the benefit of having LTC insurance until it is too late for them to buy it. The American Association for Long-Term Care Insurance (AALTCI) reports that about 33% of the people who call their offices are looking for help to get LTC coverage after they have had an application rejected by an insurer. According to Consumer Reports, the average age at which most people sign up for LTC coverage is 61. And already at that age, they are beginning to run into insurability and affordability issues: >23% of LTC policy applicants in their 60s fail the required physical >45% of people in their 70s fail Given that premiums are lower and discounts may be available for people at younger ages, it can never be too early to buy LTC insurance. But it can be too late.
Benefits - Elimination Period
The period of time that the insured will be responsible for paying for his/her own LTC until the policy benefits begin. Just as higher deductibles result in lower premiums, longer elimination periods do as well. Most LTC policies sold today use either an elimination periods of 90 or 100 days because many of these policies are not used until a person enters a nursing facility, for which Medicare pays the first 100 days.
Premiums
The premium charged to an insured may not increase due to either of the following: >The increasing age of the insured at ages beyond 65 >The duration the insured has been covered under the policy The purchase of additional coverage is not considered a premium rate increase. The portion of the premium attributable to the additional coverage will be added to and considered part of the initial annual premium. A reduction in benefits is not considered a premium change, but the initial annual premium will be based on the reduced benefits.
Benefits - Daily/Monthly Benefit - Disability Benefit
This pays the daily benefit amount even if the cost of care is less. It is sometimes called a "cash" benefit because if the amount paid to the provider is less than the policy's daily benefit amount, the insured may keep the difference.
Partnership Plans - Estate Recovery
When a Medicaid recipient dies, states are required to have an Estate Recovery Program to recoup some of the expenses paid for long-term care under Medicaid. The benefit amount paid under a Partnership policy will be disregarded from the deceases recipient's estate when the state seeks expense and cost recovery.