Medicare License Chapter 4 - Long-Term Care Policies
Requirement to Deliver Shopper's Guide
A long-term care insurance shopper's guide in the format 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. In the case of: 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
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.
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.
Prohibition Against Post-Claims Underwriting
If a condition listed in the application was known by the insurer, or should have been known at the time of application, to be a medical condition for which coverage would otherwise be denied, the policy may not be rescinded for that condition. Before issuance of a LTC policy to an applicant age 80 or older, the insurer must obtain one of the following: A report of a physical examination An assessment of functional capacity An attending physician's statement or Copies of medical records
Custodial Care
This is personal care that can be provided by a person without medical training. It includes assistance with the activities of daily living (ADLs)—bathing, eating, dressing, etc.—and other routine activities.
Reimbursement Benefit
This is the least expensive design as it pays only the expenses incurred even if the daily amount is higher
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
Renewability
All LTC policies must be guaranteed renewable or noncancellable. The term guaranteed renewable may be used only when the insured has the right to continue the policy by timely premium payments. The word noncancellable may be used only when the insured has the right to continue the policy by timely premium payments and during which period and the insurer has no right to unilaterally make any changes in the policy provisions or in the premium rate.
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 and 75% for group policies
Incontestability
For a policy or certificate that has been in force for less than 6 months, an insurer may rescind a LTC policy or certificate or deny an otherwise valid LTC claim upon a showing of misrepresentation that is material to the acceptance for coverage. For a policy or certificate that has been in force for at least 6 months, but less than 2 years, an insurer may rescind a LTC policy or certificate or deny an otherwise valid LTC claim upon a showing of misrepresentation that is both material to the acceptance for coverage and which pertains to the condition for which benefits are sought. After a policy or certificate has been in force for 2 years, it is not contestable upon the grounds of misrepresentation alone. The policy or certificate may be contested only upon a showing that the insured knowingly and intentionally misrepresented relevant facts relating to the insured's health.
Discontinuance and Replacement of Group Coverage
If a group long-term care policy is replaced by another group LTC policy issued to the same policyholder, the succeeding insurer must offer coverage to all persons covered under the previous group policy on its date of termination. The new policy coverage: May not result in an exclusion for preexisting conditions that would have been covered under the group policy being replaced. May not vary or otherwise depend on the individual's health or disability status, claim experience, or use of LTC services. No LTC policy may be cancelled, non-renewed or otherwise terminated based solely upon the insured's age or deterioration of physical or mental health.
Intermediate Care
Intermediate-level care is also provided by a state-licensed facility. Known as Intermediate Care Facilities, they provide nursing care on a less than 24-hour basis under the supervision of an RN or a licensed practical nurse (LPN).
Long-Term Care
Long-term care insurance includes 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 the following: National studies indicate that at some point 2 out of 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
Indemnity Benefit
The insurer pays the full daily benefit if and only if the insured incurs some qualified commercial costs on that day
Tax Qualification
Partnership policies must be tax qualified according to the 7702B(b) of the Internal Revenue Code.
Requirement to Provide Outline of Coverage
An 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. In the case of: 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
Standards for Benefit Triggers for Qualified LTC Contracts
"Qualified long-term care services" means services that meet the requirements of Section 7702 (c)(1) of the Internal Revenue Code of 1986, as amended, including: Necessary diagnostic, preventive, therapeutic, curative, treatment, mitigation and rehabilitative services. Maintenance or personal care services which are required by a chronically ill individual, and are provided pursuant to a plan of care prescribed by a licensed health care practitioner. The benefit triggers for qualified LTC policies must be: >The inability to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity, or >Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment. The activities of daily living are: >Bathing >Continence >Dressing >Eating >Toileting >Transferring A qualified LTC policy must pay only for qualified long-term care services received by a chronically ill individual provided pursuant to a plan of care prescribed by a licensed health care practitioner. Certifications regarding activities of daily living and cognitive impairment must be performed by a licensed or certified physician, registered professional nurse, licensed social worker, or other individual who meets requirements prescribed by the federal Secretary of the Treasury.
Right to Return (Free Look)
An individual LTC policy holder has the right to return the policy within 30 days of its delivery and to have the premium refunded if, after examination of the policy, the policyholder is not satisfied for any reason. Notice of this right to return must be printed on or attached to the first page of the policy.
Exclusions
Only the following exclusions are permitted in LTC policies: 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 or >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 the United States
Skilled Care
Skilled care is 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 an registered nurse (RN) on the written orders of a physician.
Extension of Benefits
Termination of long-care insurance must be without prejudice to any benefits payable for institutionalization if the period of institutionalization began while the long-term care insurance was in force and continues without interruption after termination. The extension of benefits beyond the period the long-term care insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits and may be subject to any policy waiting period, and all other applicable provisions of the policy.
Asset Disregard
The Partnership Program 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. If a Partnership policy paid $200,000 in benefits, Medicaid will disregard that amount (plus the original $2,000 allowance) from an applicant's assets and resources if he/she later applies for Medicaid benefits.
6 and 6 Provision
The insurer cannot more restrictively define a preexisting 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, preexisting conditions must be covered by the policy.
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 long-term care?" published by George Washington University's Health Policy Institute: Approximately 63% of the people who need long-term care are aged 65 and older, and The remaining 37% are 64 years of age and younger Unfortunately, many people do not think about the benefit of having long-term care 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 long-term care 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 and 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 long-term care insurance. But it can be too late.
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.
Standards for Benefit Triggers
A LTC policy may require a recommendation by a physician that the services are necessary because of illness, injury, or infirmity, but may not condition benefits on medical necessity. LTC policies must condition the payment of benefits on: >An assessment of the insured's ability to perform activities of daily living or >Cognitive impairment A determination of impairment may not be more restrictive than requiring either: >A deficiency in the ability to perform three of the activities of daily living, or >The presence of cognitive impairment The determination of a deficiency may not be more restrictive than: >Requiring the hands-on assistance of another person to perform the prescribed activities of daily living, or >If the deficiency is due to cognitive impairment, needing supervision or verbal cuing by another person to protect the insured or others Assessments of activities of daily living and cognitive impairment must be performed by appropriately credentialed, experienced, trained professionals, such as physicians, registered nurses, or licensed social workers.
Adult Day Care
Adult day care is a type of community care. It is designed to provide custodial care outside the home during the day for individuals who continue to live at home.
Unintentional Lapse
An individual policy cannot be issued until the insured provides a written designation of at least one person, in addition to the insured, who will receive a notice of lapse or termination. The designee has no liability for services provided to the insured. The insured has the right to change this written designation once every 2 years. The insured may decline to have a designee but must do so in writing.
Policy Rescission Prohibited
An insurer may not rescind a policy or limit or deny its benefits if the insurer knew or should have known that any medications listed in the application were directly related to a medical condition for which coverage would otherwise be limited or denied.
Replacement of Individual Coverage
Application forms must include questions designed to determine if the proposed policy purchase will replace an existing long term care policy. Solicitations Other Than Direct Response - Upon determining that a sale will involve replacement, the agent or the insurer, other than an insurer using direct response solicitation, must furnish the applicant a notice regarding replacement of LTC coverage or other health insurance before delivering an individual LTC insurance policy. A copy of the notice must be given to the applicant, and another copy signed by the applicant will be retained by the insurer. Direct Response Solicitation - Insurers using direct response solicitation must deliver a notice regarding replacement of LTC coverage or other health insurance to the applicant upon issuance of a LTC policy. When replacement is intended, the replacing insurer must give written notice to the existing insurer of the proposed replacement. This notice must identify the insured and the policy number or the address of the insured. The notice must be given within 5 working days from the date the application for the newly applied coverage is received at the home office of the insurer, or the date the policy is issued, whichever is earlier. Life insurance policies that accelerate benefits for long-term care must comply with this section if the policy being replaced is an LTC insurance policy. If the policy being replaced is a life insurance policy, the insurer must comply with the replacement requirements for life insurance policies. If a life insurance policy that accelerates benefits for long-term care is replaced by another policy, the replacing insurer must comply with both the long-term care and the life insurance replacement requirements.
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 long-term care 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
Standards for Home/Community Health Care
Benefits for home health care or adult day care services may not be excluded or limited by requiring any of the following: That the insured would need care in a nursing facility if home health care services were not provided That the insured first receive nursing and/or therapeutic services in a home, community, or institutional setting before home health care services are covered That eligible services be provided by a registered nurse or nurses or licensed practical nurse or nurses That a nurse or therapist provide services that can be provided by a home health aide or other licensed or certified home care worker That the provision of home health care services be at a level of certification or licensure greater than that which is required for the eligible service to be performed under the laws of this state That personal care services provided by a home health aide are excluded That the insured have an acute condition before home health care services are offered That benefits be limited to services provided by Medicare certified agencies or providers If a LTC policy provides for home health or adult day care services, it must provide total home health or adult day care services coverage that is equivalent to at least one-half of one year's coverage available for nursing home benefits under the policy, at the time home health or adult day care services are being received. This requirement does not apply to policies or certificates issued to residents of continuing care retirement communities. Home health care coverage may be applied to the non-home health care benefits provided in the policy or certificate when determining maximum coverage under the terms of the policy or certificate.
Nonforfeiture
Cash Surrender Value - A guaranteed lump sum that is paid to the policyowner upon the lapse or surrender of the policy. Reduced Paid-Up - A reduced amount of daily benefit is provided for the duration of the benefit period after premium payments have been discontinued. Extended Term - The full amount of daily benefit is paid for a limited period of time (for as long as the cash value will purchase) after premium payments have been discontinued.
Suitability
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.
Riders and Endorsements
Except for riders or endorsements that were requested by the insured, all riders or endorsements that reduce or eliminate policy benefits or coverage require the insured's written acceptance. After the date of policy issue, any rider or endorsement that increases benefits or coverage but also increases premiums must have the insured's written consent unless the increased benefits or coverage are required by law.
Qualified LTC Policies
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 the Health Insurance Portability and Accountability Act (HIPAA) and became effective January 1, 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 age 65 and over through 2016) can be deducted. Individuals have better tax treatment of LTC premiums if they place them in a Health Savings Account 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 (as a point of reference, it is $340 per day for 2016). 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.
Continuation or Conversion of Group Coverage
Group LTC insurance issued on or after December 19, 2007 must provide covered individuals with a basis for continuation or conversion of coverage. Written application for the converted policy must be made and the first premium due, if any, must be paid as directed by the insurer no later than 31 days after termination of coverage under the group policy. The converted policy is issued effective on the day following the termination of coverage under the group policy, and is renewable annually. Continuation of coverage or issuance of a converted policy is mandatory, except in either of the following cases: Termination of group coverage resulted from an individual's failure to make any required payment of premium or contribution when due. The terminating coverage is replaced no later than 31 days after termination, by group coverage effective on the day following the termination of coverage. A group policy converted to an individual policy may contain a provision that benefits will be reduced if the person is already covered by a LTC policy and both policies together would pay more than 100% of incurred expenses.
Inflation Protection
Insurers must offer the following 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. The following information 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.
State Mandated Benefits
Long-term care insurance policies must provide benefits for at least three 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 the activities of daily living 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.
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
North Carolina established its Long Term Care Partnership Program in 2011. Partnership Policies 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 begins to sell Partnership policies, it must offer all existing long-term care policyowners the opportunity to exchange their policy for Partnership policy. The offer must be made on a onetime basis, within 180 days after an 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.
Inflation Protection - Partnership Plan
Partnership policies that are purchased before the insured reaches age 61 must provide annual inflation protection on a compound basis, not just simple. Policies purchased between the ages of 61 through 75 must provide some level of inflation protection, which can be either compound or simple. Policies purchased at age 76 or older may offer inflation protection, but it is not required.
Long-Term Care Insurance Personal Worksheet
People buy LTC insurance for many reasons. Some do not want to use their own assets to pay for traditional long-term care. Some buy insurance to make sure they can choose the type of care they get. Others do not want their family to have to pay for care or do not want to go on Medicaid. But LTC insurance may be expensive, and it may not be right for everyone. The company will ask applicants to fill out the following worksheet to help them and the company decide if they should buy a long-term care insurance policy. By state law, the insurance company must fill out part of the information on the worksheet.
Elimination Period
The elimination period is also called the "waiting" period. It is the period of time that the insured will be responsible for paying for his/her own LTC until the policy benefits begin. In principle, it is the same as a deductible on auto and property policies. Just as higher deductibles result in lower premiums, longer elimination periods do so as well. The premiums on a policy with a 30-day elimination period are about 15% to 20% more than one with a 90-day elimination period. Most LTC policies sold today use either an elimination period 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.
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 deceased recipient's estate when the state seeks expense and cost recovery.
