WA LTC INITIAL 8 HOUR COURSE Course Outline

Transcription

1 Course Outline Course Outline Chapter 1: Long-Term Care Insurance 7 Introduction to WA Long-Term Care Insurance 8 What Will the Choices Include? 10 Daily Benefit Options 11 Expense-Incurred and Indemnity Methods of Payment 12 Determining Benefit Length 12 Policy Structure 12 Policy Free-Look Period 13 Guaranteed Renewable for Life 14 LTC Insurance Terms 15 Out-of-State Policies 20 Preexisting Health Conditions 20 Prohibited Policy Terms and Practices 21 Right to Return the Policy 22 Outline of Coverage 22 Policy Summary 23 Acceleration of Death Benefits 23 Denied Claims 23 Policy Rescission 24 Nonforfeiture Benefit Option 24 Suitability Standards 25 Violations and Fines 26 Rules 26 Receiving LTC Benefit Payments 26 Care Coordination Services 28 Nursing Home Benefits 28 Assisted Living Facility Benefits 30 Home Health Care Benefits 31 Caregiver Training Benefit 31 Alternate Care Benefit with Care Coordination Services 32 Hospice Care Benefit 33 Respite Care Benefit 33 Restoration of Benefits 33 Waiver of Premium Benefit 34 Inflation Protection Riders 34 Simple and Compound Inflation Protection 35 Required Rejection Forms 35 Partnership Long-Term Care Policy Inflation Protection Requirements 35 Chapter 2: Long-Term Care Services 37 Defining Long-Term Care Services 38 Medicare Requirements 39 Page 1

2 Course Outline Care Options 40 Is Insurance Necessary to Cover Services? 41 Ongoing Long-Term Medical or Personal Care 42 No Durational Coverage Under Medicare 43 Remaining At Home 43 Home Care Insurance Policies 44 Medicare s Home Care Benefits 45 Medicare Qualification 46 Assessing Care at Home 46 Gatekeepers 47 Protecting Against Catastrophic Costs First 47 Chapter 3: State and Federal Regulations and Requirements 49 Medicaid Benefits 49 Comparing Qualified and Non-Qualified Plans/HIPAA 50 Existing LTC Policies 51 Benefits Triggers 51 Activities of Daily Living (ADL) 52 Understanding the Difference in Benefit Triggers 54 Federal Criteria 54 IRS Notice Agent s Responsibility to Know the Laws 56 Policy Conversions Were Offered 56 Who Will Benefit from Tax-Qualified Plans? 58 Defining Chronically Ill 58 Qualifying Contracts for Tax-Favored Status 58 Purchasing Contracts for Financial Protection 59 Determining Tax Treatment 59 Pre-1997 Long-Term Care Policies 60 The Treasury Responds with Exceptions 61 Addressing Consumer Concerns 62 Federal Tax-Qualified versus State Non-Tax (Non-Partnership) Qualified Policies 63 Section 6021: Expansion of State LTC Partnership Program (chart) 64 Making Benefit Choices 66 Daily Benefit Options 67 Agents May Not Prohibited Agent Practices 69 Asset Protection in Partnership Policies 70 Policy Structure 70 Home Care Options 71 Inflation Protection 71 Simple and Compound Protection 72 Required Rejection Forms 73 Elimination Periods in LTC Policies 73 Policy Type 74 Restoration of Policy Benefits 74 Preexisting Periods in Policies 74 Prior Hospitalization Requirements for Skilled Care 75 Nonforfeiture Values 75 Waiver of Premium 75 Unintentional Lapse of Policy 76 Policy Renewal Features 77 Page 2

3 Course Outline WA Limitations & Exclusion: WAC (2) 77 Extension of Benefits 78 Affordability of Contracts 78 Standardized Definitions 78 Minimum Partnership Requirements 78 Benefit Duplication 79 Partnership Publication 79 Partnership Versus Traditional Policies 79 Abbreviations 81 NAIC 2000 Model Act 82 Level Premium Does Not Mean Unchanging Rates 84 Financial Requirements for Rate Increases 84 Rate Certification from the Insurer s Actuary 84 Consumer Disclosure 85 LTC Personal Worksheet 85 Is the Policy Suitable for the Buyer? 85 Consumer Publications 86 Post Claim Underwriting 86 Tax-Qualified Policy Statement 87 Replacement Notices 87 Policy Conversion 87 An Overview 88 The Model Act Applies to All 88 Policy Renewable Provisions 89 Payment Standards Must be Defined 89 Preexisting Standards 89 Policy Type Must Be Identified 90 ADLs (Activities of Daily Living) 90 Life Insurance Policies with Accelerated Benefits 90 Nonforfeiture Provisions 90 Extension of Benefits 91 Home Health & Community Care 91 Additional Provisions for Group Policies 91 Outline of Coverage 91 Policy Delivery 92 No Field Issued LTC Policies 92 Policy Advertising and Marketing 92 No Policy Covers Everything 93 Prior to the Sale 93 Shopper s Guide 93 It s Just Plain Illegal 93 Association Marketing 94 Following the Sale 94 Failure to Pay Premiums 94 In Conclusion 95 Chapter 4: Changes or Improvements in LTC Services 96 Defining Long-Term Care 97 The Evolution of a Major Industry 99 Children as Caregivers 100 Can Families Make It Through? 101 Paid Home Care 102 Page 3

4 Course Outline Better Health Equates Into Longer Life 102 Policy Benefits Improve Over Time 103 Remaining At Home 104 Qualifying for Medicare Funded Home Care 105 How Does Medicare Determine a Covered Service? 105 Finding a Home Care Provider 106 Recognizing the Need (and the Market) 107 Insurers Determine Risks in LTC Insurance 108 The LTC Marketplace 111 Dramatic Policy Improvement, But Also Rising Premium Rates 111 History of the Partnership for Long-Term Care 112 Partnership Policies are Created 115 Medicaid is the Largest Nursing Home Payor 116 Partnership Asset Protection Chart 120 Program Performance 121 New Federal Legislation: The Deficit Reduction Act of Questions that Remain Unanswered 122 OBRA 1993 Provisions Pertaining to the Partnership for Long-Term Care 123 Sec 1917(b) paragraph 1 subparagraph C 123 Sec 1917(b) paragraph Sec 1917(b) paragraph 4 subparagraph B 123 Promoting Partnership Long-Term Care Plans 124 Program Growth 125 Partnership Participation 126 Public Education 126 Consumer and Agent Education 127 Policy Benefits 128 Inflation Protection 129 Reciprocity Between States 130 Looking into the Future 130 State Funding 130 Chapter 5: Alternatives to LTC Insurance 132 Assessing the Need 132 Realistically Speaking 132 Asset Inventory 134 Liabilities 135 Estate Planning Tools 136 Asset Transfer 137 Government Sponsored Programs 137 Reverse Mortgages 139 Paid Family Members 140 Accelerated Life Insurance Benefits 141 The Largest Payer of LTC: Medicaid 142 Asset Transfers for Medicaid Eligibility 143 Trust Shelters 145 Catastrophic Coverage Act of Information Required When Applying to Medicaid 147 Viatical Settlements 148 Determining How to Cover LTC Costs 148 Receiving the Benefits Expected 149 The Buying Decision 149 Page 4

5 Course Outline Chapter 6: RCW 48.83, and Intent Application Definitions Out-of-state policy -Restriction Preexisting conditions Prohibited policy terms and practices - Field-issued, defined Right to return policy or certificate - Refund Required documents for prospective and approved applicants - Contents - When due Benefit funded through life insurance policy - Acceleration of a death benefit Denial of claims - Written explanation Rescission of policy or certificate Inflation protection features - Rules Nonforfeiture benefit option - Offer required - Rules Selling, soliciting, or negotiating coverage - Licensed insurance producers - Training - Issuers duties - Rules Determining whether coverage is appropriate - Suitability standards - Information protected - Rules Prohibited practices Violations - Fines Rules, generally Severability General provisions, intent Definitions Rules - Benefits-premiums ratio, coverage limitations Policies and contracts - Prohibited provisions Disclosure rules - Required provisions in policy or contract Prohibited practices Separation of data regarding certain policies Severability Effective date, application Washington Long-Term Care Partnership program - Generally Protection of assets - Federal approval - Rules Insurance policy criteria - Rules Consumer education program 177 Chapter 7: Chapter WAC 179 Purpose & Authority 179 Applicability & Scope 179 Definitions 180 Standards for Definitions 181 Minimum Standards for Benefit Triggers 183 Exclusions 185 Renewability 186 Minimum Standards in General 187 Minimum Standards for Gatekeeping Provisions 188 Reduction in Coverage 188 Non-duplication of Benefits (With State or National Health Care Benefits) 189 Prohibition Against Preexisting Conditions/Periods in Replacements 189 Community Based Care Minimum Standards 189 Grace Periods 190 Unintentional Lapse Page 5

6 Course Outline Extension of Benefits 192 Requirement of Offer Inflation Protection 192 Information and Style 194 Long-Term Care Disclosure Form 195 Format of LTC Contracts 201 Loss Ratio Requirements 201 Loss Ratio Definitions 202 Grouping Contract Forms for Loss Ratios 203 Loss Ratio Requirements in Individual Contract Forms 204 Loss Ratio Experience Records 205 Evaluating Loss Ratio Experience Data 205 Loss Ratio Special Circumstances 206 Advertising 206 Standards for Education of Licensees 206 Unfair or Deceptive Acts nd Street East Eatonville, Washington Page 6

7 Introduction Introduction Between January 1, 2009 and July 1, 2009 all insurance producers continuing to transact LTC insurance in Washington must complete an initial 8-hour long-term Care course and new agents must complete the initial course before transacting any long-term care sales or applications. Each license renewal period thereafter agents must complete a WA LTC Refresher 4-Hour course to continue transacting long-term care business. Agents must complete this initial LTC course even if they have previously completed such courses for the state of Washington. This course is approved for continuing education credits for Washington. Since the course is specific to Washington, it will not provide credit hours for other states in which you may be licensed. Long-term care insurance contracts are very detailed; failure to fully understand the products you sell can cause your clients financial harm if an inappropriate product is placed. Unfortunately the policyholder may not be aware of the error until benefits are requested. As an agent, it is your responsibility to fully understand the products you represent since even an innocent error may affect your policyholder. Thank you for ordering your education from We have been offering continuing education courses since 1987 and hope you will find the material you have ordered useful and interesting nd Street East Eatonville, Washington [email protected] Page 6

8 Chapter 1: Long-Term Care Insurance Introduction to WA Selling, soliciting, or negotiating coverage Licensed insurance producers Training Issuers duties Rules (Effective January 1, 2009) A person may not sell, solicit, or negotiate long-term care insurance unless he or she is appropriately licensed as an insurance producer and has successfully completed longterm care coverage education that meets the requirements of this section. As of January 1, 2009 licensed insurance producers must obtain specific long-term care education prior to soliciting, selling, or negotiating long-term care insurance coverage. A one-time education course consisting of no less than 8 hours must initially be completed. Thereafter a 4 hour refresher course will be required each license renewal period. The long-term care education must include information on policy coverage, long-term care services, state and federal regulations and requirements, changes or improvements in the services and providers of long-term care, alternatives to purchasing insurance, the effect inflation has on purchased benefits (importance of inflation protection), and consumer suitability standards. All insurance producers who plan to sell long-term care products in the state of Washington, including those agents who hold their resident license in another state, must complete the initial 8 hour long-term care course that was available as of January 1, 2009 even if he or she has previously completed similar education elsewhere or at an earlier time. This course is required to continue soliciting, selling, or negotiating long-term care coverage in Washington. This course must be completed no later than July 1, This initial 8 hour course is a one-time requirement. Every 24 months producers must obtain another four hours of long-term care education in a course that will be titled WA LTC Refresher 4-Hour Course. This refresher course will be a condensed version of the initial 8 hour course and will, as the title implies, refresh the agent s knowledge of long-term care services and policies. It is important to note that these eight and four hours of education are part of the 24- hour requirement for education in Washington, not in addition to the total requirement. However, the refresher course is due within 24 months of the initial 8-hour course so it does not go by license renewal dates but by the date of the first course completion. Page 7

9 Chapter 1: Long-Term Care Insurance Product-specific training supplies by insurance companies will not be allowed for this continuing education requirement. Only courses that have been approved by the state as meeting the required outlines will qualify for this long-term care education requirement. As was previously true, the insurers are required to monitor this, accepting new applications for coverage only from agents who have shown long-term care education compliance. Most insurance companies will require a copy of the agent s Certificate of Completion as proof of education compliance. Some insurance carriers might seek approval of a course that they will offer directly to their contracted agents, but most will probably leave it to the agents to achieve compliance, requiring proof prior to accepting new product applications. Insurance companies must show evidence of that verification if the insurance commissioner s office requests it. Long-Term Care Insurance In order to define long-term care insurance it is necessary to define long-term care. Although definitions have some variation depending upon the application, Medicare defines long-term care as: A variety of services including medical and non-medical care for people who have a chronic illness or disability. 1 Federal requirements define long-term care as care provided for 90 days or longer. Most long-term care definitions refer to activities of daily living. These activities include eating, toileting, transferring, bathing, dressing, and continence. Non-federal criteria usually include ambulation as a seventh activity of daily living. Washington defines long-term care insurance as a policy, rider, or contract that is advertised, marketed, offered, or designed to provide coverage for at least twelve consecutive months for a covered person. Chronic illness is often the basis for needing some form of long-term assistance. A chronic illness is one that is long lasting and unlikely to correct itself. The assistance may be performed in the recipient s home or some other location within the community, including a nursing home or assisted living facility. Nursing home policies were developed by insurance companies to fill a growing need of elderly Americans. There was a time when family members (most often daughters) stepped in to provide the care for their aging family members but with decreasing family size and the necessity of working, fewer family members are available to provide the needed care. 1 Medicare & You 2009 Page 8

10 Chapter 1: Long-Term Care Insurance At one time most consumers did not believe they would ever enter a nursing home. This attitude has mostly changed as people acquired first-hand knowledge of friends and family members entering institutions. Today it is common for people to consider the purchase of nursing home policies in their fifties, when pricing is more affordable. Insurance policies offer many choices so applicants make several choices when considering coverage for the nursing home, home health care, and assisted living coverage. A long-term care policy is issued by an insurance company who completes underwriting prior to policy issuance. Acceptance of the risk is determined by factors related to the likelihood of the applicant needing long-term care services of some type (not necessarily just in a nursing home). Like all types of insurance coverage, underwriting criteria is based upon the risks that lead to receiving benefits under the contract (policy). Policy issuance begins with the application. As such, the insurance agent is the first person to begin the underwriting process. By correctly answering the health questions on the application the agent provides vital information that will be used by the insurer s underwriting department. It is common for the underwriting department to also request information from the applicant s doctors or other attending medical personnel. Intentionally incorrect or omitted information on the application will cause policy denial even if they might otherwise have issued the policy. If the policy has already been issued when fraudulent information is discovered it is possible that the issued policy might be rescinded by the insurer, depending upon the level of misrepresentation, and how it might affect claim payments. Claims may be denied if the information provided for underwriting would have affected policy issue. Once the policy has been in force for two full years only fraudulent misstatements in the application may be used to void the policy or deny claims. All insurance contracts must conform to the laws of the state where issued. If the policy is a tax-qualified policy, they must also conform to federal requirements. If any policy provision conflicts with the state or federal laws, the provision is automatically changed to comply with the minimum state and federal requirements. Insurance companies work daily with risk factors. Therefore, the earlier an individual purchases a long-term care policy the lower the cost will be since the insurer has more time to work with the premium dollars, accumulating and investing the money. Premiums for long-term care policies can and probably will increase over time. The older the applicant the more he or she will pay than their counterpart who is ten years younger. There are two ways to price a long-term care policy: by attained age at application and by age banding. Attained age refers to the age of the applicant at the time they apply for coverage. Age banding looks at groups of age, such as age 65 through 69. In this case, Page 9

11 Chapter 1: Long-Term Care Insurance an applicant who is 65 years old will pay the same premium as another applicant who is 69 years old. Few companies will issue policies to individuals who are age 80 and older. Premium may be paid monthly, quarterly, semi-annually, or annually. Many industry professionals prefer their clients to use a monthly bank-draft mode since memory loss is common with aging. The wrong time for a policy to lapse due to nonpayment of premium is when the insured is experiencing memory loss. What Will the Choices Include? All policies must follow specific guidelines, including those mandated by the federal and state governments where policies are issued. Policies following federal guidelines will be tax-qualified, whereas the policies following state guidelines will be non-tax qualified plans. Washington mandates specific agent education prior to being able to market or sell LTC policies to ensure that the field agents properly represent the products. All policies offer some options, which may be purchased for additional premium or refused. When refusing some types of options, a rejection form must be signed and dated by the applicant. When a consumer decides to purchase a long-term care policy, several buying decisions must be made. These could include: 1. The amount of per day benefits if confinement in a nursing home occurs. 2. The length of time the policy will pay benefits. This is likely to range from one year to lifetime. Of course, the longer the benefit period selected, the more expensive the policy will be. 3. Whether or not to include an inflation protection to guard against rising costs. 4. The waiting period, also called an elimination period, must be selected. This is the period of time that must pass while receiving care before the policy will pay for anything. It is a deductible expressed as days not covered. The option can range from zero days to 160 days. 5. The specific type of policy to be purchased. Policies may be federally taxqualified or non-tax qualified. Partnership long-term care policies are also coming since the passage of DEFRA opened up this type of coverage to all states. As every field agent knows, clients often prefer to have the agent make selections for them, but this is not always wise. Although the agent will be valued for the advice he or she gives the actual benefit decisions need to be made by the consumer. This means the Page 10

12 Chapter 1: Long-Term Care Insurance agent must fully explain each option so that the consumer can make informed choices. In a way, it is similar to the cafeteria insurance plans where employees had an array of choices in benefits. The difference is that the long-term care policies have no limits on the choices that the consumer can make. If he or she is willing to pay the price, absolutely everything available can be selected. Daily Benefit Options While there are many policy options, the daily benefit amount is usually the first policy decision, with the second one being, the length of time the benefits will continue. Both of these strongly affect the cost of the policy. The daily benefit is based upon the type of policy selected. Policies that cover institutional care in a nursing home will have options that may vary from policies that cover only home care benefits. Integrated policies will vary from those that pay a daily indemnity amount. Obviously, the consumer could not select a higher daily benefit than offered by the issuing company. Nor can an insurer offer a daily indemnity amount that is lower than those set by the state where issued. At one time insurers offered as low as a $40 per day benefit in the nursing home. By today s standards, that would be extremely inadequate for nursing home care. This daily benefit can have variations. Some policies will specify an amount (not to exceed actual cost) for each nursing home confinement day. Other policies (called integrated plans) offer a more relaxed benefit formula. These policies have a "pool" of money, which may be used however the policyholder sees fit, within the terms of the contract. This means that this "pool" of money could be spent for home care rather than a nursing home confinement. Benefits will be paid as long as this maximum amount lasts regardless of the time period. The danger in having a pool of money, however, is that the funds may be used up by the time a nursing home confinement actually occurs. If the funds have been previously used up, there will be no more benefits payable. Since people prefer to stay at home, this may work out well, but it can also quickly deplete funds in a wasteful manner. While there are not specific figures available across the board (individual insurers most certainly do keep these figures for their company), most policies are probably still written as a set daily benefit amount. The amounts paid will usually vary depending upon whether they are going towards a nursing home confinement, home health care, adult day care, and so forth. The "pool of money" is gaining popularity, however, since consumers see it as a way to make health care choices more freely. Integrated policies are generally more expensive than indemnity contracts. Page 11

13 Chapter 1: Long-Term Care Insurance Expense-Incurred and Indemnity Methods of Payment When benefits are paid from a specific dollar schedule for a specific time period, they are generally paid in one of two different ways: 1. The expense-incurred method in which the insured submits claims that the insurance company then pays to either the insured or to the institution up to the limit set down in the policy. 2. The indemnity method in which the insurance company pays benefits directly to the insured in the amount specified in the policy without regard to the specific service that was received. Of course, both methods require that eligibility for benefits first be met. Determining Benefit Length While the daily benefit is typically the first choice made, the second choice is just as important to the policyholder: the length of time for which benefits will be paid. This may apply to a single confinement or it can apply to the total amount of time spent in an institution. An indemnity contract offers benefits payable for a specified number of days, months or years (depending upon policy language). An integrated plan pays whatever the daily cost happens to be unless the contract specifies a maximum daily payout amount. When funds are depleted, the policy ends. While statistics vary depending upon the source, most professionals feel a policy should provide benefits for at least three years of continuous confinement. The average stay is 2.5 years according to federal figures. Of course averages are made up of highs and lows. Some people will only be in a nursing home for three months while others may remain there for five years. Using the average stay, however, is a good medium figure. Since the majority of consumers will not be willing to pay the price for a life-time benefit, three or four year policies are likely to do a good job for them and still be affordable. Policy Structure We have seen much legislation by the states directed at long-term care policies. Even the federal government has been involved in this with the tax-qualified plans. It is important to note that tax-qualified plans always come under federal legislation whereas non-tax qualified plans come under state legislation. Each state will have specific policy requirements. The states will assign descriptive names in an effort to identify policies in Page 12

14 Chapter 1: Long-Term Care Insurance a way that consumers can comprehend. Such terms as Nursing Facility Only policy, Comprehensive policy or Home Care Only policy will be used. Washington, like many other states, mandates specific agent long-term care education prior to selling them. Even in those states that do not have special continuing education requirements, however, it is necessary for agents to acquire knowledge in this field. Long-term care policies often do not pay benefits for years after purchase. An error on the part of the agent can have devastating consequences. When an individual is applying for long-term care coverage he or she must make several decisions: the daily benefit amount, the elimination period, maximum benefit periods, adding special types of care (such as home care), and inflation riders that increase policy benefits over time. The benefits selected directly affect the cost of the policy; obviously the more coverage an applicant chooses the more the cost of the coverage. Policy Free-Look Period When a policy is issued and delivered to the applicant there is a 30-day free-look period that allows the insured to review the issued policy. This will be stated in the policy and may have a heading similar to 30-day Right to Examine Your Policy. If the applicant is not satisfied with the issued policy, or merely changes their mind for no reason at all, the contract may be returned for a full premium refund. This voids all coverage as though the policy was never issued at all (so the insurer would not be liable for any claims). The premium refund must be made within 30 days of cancellation. Unfortunately most people, including agents, never read the policy in its entirety. Insurance contracts are the number one unread best seller. Even though every issued policy tells the insured to review their policy, few people actually do so. Instead they rely upon their memory of what the agent told them during the sales presentation. That is why it is so important for agents to be complete in their policy presentation and to present the facts in a way the average consumer can easily understand. A copy of the original policy application will be included with the insurance policy. Both the agent and the applicant should review this for accuracy. Of course the name must be correctly spelled, but the listed medical information must also be reviewed since incorrect medical information could mean a denied claim. No policy covers everything and that includes long-term care policies. Long-term care policies might be very specific in their coverage, such as coverage only for nursing home admittances. Under the heading Notice to Buyer the insurance company will list the benefits that are provided by the issued policy. Page 13

15 Chapter 1: Long-Term Care Insurance The policy will have several sections to it. The Policy Schedule will list the insured s name and the options that were chosen and purchased at the time of application. Several items may be listed, including: 1. Elimination period (deductible expressed as time not covered); 2. Maximum daily home and adult day health care benefit; 3. Maximum daily nursing home facility benefit (or total benefit amount if it is an integrated policy); 4. Maximum lifetime benefit; and 5. The type of inflation benefit selected, if any. Most policies issued today are tax-qualified plans. Some professionals feel the non-tax qualified contracts had less restrictive language, so paid claims easier. That may be true since so many insurers have stopped issuing the non-tax qualified plans. On the other hand it may simply be a reflection of what consumers are buying. When policies are tax-qualified plans this will be stated on the front page of the longterm care contract. It will say something similar to: This is a tax qualified contract. This policy is intended to be a tax qualified long-tem care insurance contract under Section 7702B(b) of the Internal Revenue Code of 1986 (as amended by the Health Insurance Portability and Accountability Act of 1996 Public Law ). There may also be a Caution notice regarding the information provided on the application. It warns the insured that the issuance of the long-care contract was based on the responses to questions in the application and states that a copy of the original application is enclosed. The policy will state: If your answers are incorrect or untrue we may have the right to deny benefits or rescind the policy. It will also state: This policy is not a Medicare supplement policy. Guaranteed Renewable for Life Policyholders may renew their long-term care policy, if it contains a guaranteed renewable clause, for the duration of their life. Although premiums will not increase due to a change in their personal age, premiums may rise if everyone in their premium class receives the premium increase. Premium Class means a population segment classified by the actuaries as having similar characteristics, such as issue age, issue year, policy form number, rate classification or some other selected benefit option or criteria. Page 14

16 Chapter 1: Long-Term Care Insurance Premiums will not increase because the insured experienced a birthday or submitted claims for a covered condition. Of course, premiums must be paid on time; if the insured fails to pay a premium on time (and it is past the allowed grace period) the insurer is not obligated to reinstate the policy. When an increase in premium occurs the insurer will notify their policyholders at least 60 days in advance. Increases typically occur on policy anniversary dates since policies usually give a one year rate guarantee. Rates may increase due to increases in coverage offered under inflation clauses, depending upon the policy language. LTC Insurance Terms Every policy will contain a glossary of terms used in the policy. Every insurance policy is a legal contract so terms are an important part of the document. Policies typically capitalize the entire word or the first letter of the word anywhere the term appears in the contract. Activities of Daily Living: Bathing, Dressing, Toileting, Transferring, Continence, or eating. Applicant: In the case of an individual long-term care insurance policy, the person who seeks to contract for benefits; in the case of a group long-term care insurance policy, the proposed certificant holder is the applicant. Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub and shower. Certificate: Includes any certificate issued under a group long-term care insurance policy that has been delivered or issued for delivery in WA. Dressing: Putting on or taking off all items of clothing and any necessary braces, fasteners, or artificial limbs. Long-Term Care Insurance: An insurance policy, contract, or rider that is advertised, marketed, offered, or designed to provide coverage for at least twelve consecutive months for a covered person. Long-term care insurance may be on an expense incurred, indemnity, prepaid, or other basis, for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes any policy, contract, or rider that provides for payment of benefits based upon cognitive impairment or the loss of functional capacity. Long-term care insurance does not include life insurance policies that: Page 15

17 Chapter 1: Long-Term Care Insurance 1. Accelerate death benefits for one or more qualifying events of terminal illness, medical conditions requiring extraordinary medical intervention, or permanent institutional confinement; 2. Provide the option of a lump-sum payment for those benefits; or 3. Do not condition the benefits or the eligibility for the benefits upon receipt of long-term care. Long-term care insurance does include group and individual annuities and life insurance policies or riders that provide directly or supplemental long-term care insurance. Some contracts may be qualified long-term care insurance contracts under federal guidelines. Long-term care insurance policies are not basic Medicare supplements, basic hospital expense policies, basic medical-surgical expense plans, hospital confinement indemnity plans, major medical contracts, disability income, related income, asset protection, accident only, specified disease, specified accident, or limited benefit health contracts. Policy: includes a document such as an insurance policy, contract, subscriber agreement, rider, or endorsement delivered or issued for delivery in WA by an insurer, fraternal benefit society, health care service contractor, health maintenance organization or any similar entity authorized by the insurance commissioner to transact the business of longterm care insurance. Qualified Long-Term Care Insurance Contract or Federally Tax-Qualified Long- Term Care Insurance Contract: means either an individual or group insurance contract that meets the requirements of section 7702B(b) of the Internal Revenue Code of 1986, as amended, or the portion of a life insurance contract that provides long-term care insurance coverage by rider as part of the contract and that satisfies the requirements of sections 7702B(b) and (e) of the Internal Revenue Code of 1986, as amended. Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. Transferring: Moving into or out of a bed, chair or wheelchair. Continence: The ability to maintain control of bowel and bladder functions; or when unable to maintain control, the ability to perform associated personal hygiene, such as caring for a catheter or colostomy bag. Adult Day Care: a program of social and health-related services provided during the day in a community group setting for the purpose of supporting frail, impaired elderly or disabled adults who might benefit from care in a group setting outside of their home. Page 16

18 Chapter 1: Long-Term Care Insurance Adult Day Health Care Center: a facility that is licensed or certified to provide a planned program of adult day health care services by the state in which it operates. Such centers must operate pursuant to the law and meet the following standards: Provide Adult Day Health services in a protective setting under appropriate supervision that meets the needs of the functionally or cognitively impaired adults; Operate on a less than 24-hour basis; Keep written records of services for each person in their care; and Establish procedures for obtaining appropriate aid if a medical emergency arises. Assisted Living Facility: a facility that is engaged primarily in providing ongoing care and related services that has the appropriate state licensure and meets all of the following: It provides services and care on a continuous 24-hour basis sufficient to support the needs resulting from the inability to perform activities of daily living from a severe cognitive impairment. It has trained and ready-to-respond personnel actively on duty in the facility at all times to provide the services and care. It provides at least three meals each day and accommodates special dietary needs. It provides residential services and maintenance or personal care services in a single location. It has formal arrangements with a physician or nurse to furnish medical care in case of an emergency situation, and It has appropriate procedures to provide on-site assistance with prescription medications. An assisted living facility is not a clinic, hospital, or nursing home. Assisted living facilities provides necessary services that prevent an individual from going to a nursing home and this is probably a large reason they have been so well received by the public. If the patient needs special care, such as for alcoholism or drug addition, an assisted living facility may not be the appropriate place for care, and the facility will usually make a health and mental assessment before accepting a resident. Some facilities have multiple types of care available. For example, one wing may be for assisted living residents, another wing for nursing home care, and yet another wing for special needs, such as patients suffering from Alzheimer s disease. Basic Home Health Care: this means care or services provides in the recipient s home. Services include part-time or intermittent services provided by a nurse, support services, and home health aide services. Page 17

19 Chapter 1: Long-Term Care Insurance Chronically Ill: A chronically ill person has been certified by a licensed health care practitioner as: Being unable to perform, without substantial assistance from another person, at least two activities of daily living for a period of time that is expected to last at least 90 days due to a loss of functional capacity. Having a level of disability similar to the level of disability in accordance with any regulations prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services; or Requiring substantial supervision to protect oneself from threats to health and safety due to a severe cognitive impairment. In order to meet the definition of chronically ill under most insurance policies the individual must have been certified as such by a licensed health care practitioner within the previous 12-month period. Elimination Period: a period of time that applies to an issued insurance policy. It is the total number of days the insured remains chronically ill and covered under their policy before benefits will actually be payable by the policy. It is often referred to as a deductible expressed as time not covered. The elimination period begins on the first day the insured is ill and has expenses or receives services that would be covered under their long-term care policy. Each day that would have been covered under the policy terms counts towards the elimination period until the total days selected have been met; then the policy begins paying benefits. Molly purchased a long-term care nursing home policy. At the time of application she selected a 90-day elimination period. Therefore her longterm care benefits would begin on the 91 st day of covered services (the first 90 days are her elimination period the time period not covered). When she becomes ill and goes to a nursing home her elimination period will begin with the first day of covered confinement in the nursing home. On the 91 st day of covered services her policy will begin paying benefits on Molly s behalf. Elimination periods always deal with covered time periods. In other words, the type of care or services received must be covered under the policy that was purchased. The elimination period would not apply to types of care or services that were not covered under the purchased policy. Again, it works just like a deductible, only in terms of time rather than dollars. Page 18

20 Chapter 1: Long-Term Care Insurance Home: the place an individual lives; an independent residence rather than a group home or nursing home. Even if a confinement becomes long-term it never includes a hospital, nursing home, assisted living facility or any other institutional setting where the person is dependent upon other for assistance. Home Health Care: services performed in an individual s private home: Part-time or intermittent skilled services provided by a nurse; Services to support compliance with medication or treatment regimens; Home health aide services; Physical therapy, respiratory therapy, occupational therapy, speech therapy or audiology therapy; and Services provided by a specialist in the field of nutrition or the administration of chemotherapy. Hospice Care: care for the terminally ill, typically defined as having six months or less to live. Hospice care provides services designed to provide palliative care and alleviate the individual s physical, emotional and social discomfort associated with the last months of life. Maintenance Care: also called custodial care or personal care, it is the type of care that is personal in nature, such as helping with the activities of daily living while the person is chronically ill. It does not include services that would come under skilled or intermediate nursing care. A person with no medical training can provide maintenance care, although it is typically still under the supervision of a medical person, such as a nurse or doctor. It is common for a family member to provide maintenance care. Medical Necessity: care or services that are: Provided for acute or chronic conditions; Consistent with accepted medical standards for the insured s condition; Not designed primarily for the convenience of the insured or their family; and Recommended by a doctor who has no ownership in the long-term care facility or alternate care facility in which the insured is receiving care. Plan of Care: a written individualized plan of services prescribed by a licensed health care practitioner. Respite Care: the supervision and care of an individual while the family or other service individuals who normally provide substantial amounts of care take short-term leave. Severe Cognitive Impairment: a loss or deterioration in intellectual capacity that is comparable to (and includes) Alzheimer s disease and similar forms of irreversible dementia. It is measured by clinical evidence and standardized tests that assess mental impairment. Cognitive impairment typically includes such things as memory loss, loss of Page 19

21 Chapter 1: Long-Term Care Insurance orientation as to people, places, and time or problems with deductive or abstract reasoning. Substantial Assistance: either hands-on assistance or standby assistance. Hands-on Assistance is the physical assistance of another person without which the person would be unable to perform the activities of daily living. Standby Assistance means the presence of another person, within arm s reach, that is necessary to prevent injury while performing the activities of daily living. This injury is prevented by being physically close enough to the person to provide physical intervention, such as catching the person if he or she begins to fall. Terminally Ill: having six months or less to live, as certified by a qualified individual, such as a doctor. Out-of-State Policies Group long-term care insurance policies may not be offered to a resident of Washington under a group policy issued in another state to a group in this state unless the state of issue has substantially similar requirements. A determination would have to be made to determine that such requirements have been met Preexisting Health Conditions Insurers may not define preexisting condition more restrictively than allowed by Washington. They may define it less restrictively, but not more so. Washington defines preexisting condition as a condition for which medical advice or treatment was recommended by or received from a provider of health care services within the previous six month period (six months prior to application). The exception is a policy or certificate that applies to group long-term care insurance under RCW (6) (a), (b), (c). A long-term care insurance policy or certificate may not exclude coverage for a loss or confinement that is the result of a preexisting condition unless the loss or confinement begins within six months following the effective date of coverage. In other words, a medical condition that was noted as a preexisting condition is not covered during the first six months of the issued policy. This would include claims that are directly related to the preexisting condition. Obviously insurers want to have application questions that are designed to elicit the complete health history of an applicant so they may correctly underwrite the policy. Page 20

22 Chapter 1: Long-Term Care Insurance Unless otherwise provided under the terms of the policy, and regardless of whether the medical condition was disclosed on the application, a preexisting condition need not be covered until the waiting period expires. Even though a preexisting condition exists insurers cannot exclude coverage for that condition. It is prohibited whether by policy clause, waivers, or riders. Once the preexisting time period has passed, if the policy was issued the condition must be covered following the preexisting 6 month exclusion period. Coverage also may not be reduced or limited in any way. Again, once the preexisting period has passed, coverage must be the same for that particular condition as for any other medical situation that may develop Prohibited Policy Terms and Practices No long-term care insurance policy may: 1. Be canceled, non-renewed, or otherwise terminated on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder. 2. Contain a provision establishing a new waiting period in the event existing coverage is converted to or replaced by a new or other form within the same company, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder. 3. Provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care. 4. Condition eligibility for any benefits on a prior hospitalization requirement. 5. Condition eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care (they can t require an individual to first receive skilled care, for example, before custodial care is covered). 6. Condition eligibility for any benefits (other than waiver of premium, postconfinement, post-acute care, or recuperative benefits) on a prior institutionalization requirement. 7. Include a post-confinement, post-acute care, or recuperative benefits unless the requirement is clearly labeled in a separate paragraph of the policy entitled Limitations or Conditions on Eligibility for Benefits and the limitations must specify any required number of days of pre-confinement or post-confinement. Page 21

23 Chapter 1: Long-Term Care Insurance 8. Condition eligibility for non-institutional benefits on the prior receipt of institutional care. 9. A long-term care insurance policy may be field-issued if the compensation to the field issuer is not based on the number of policies or certificates issued. Fieldissued means a policy or certificate issued by the producer or a third party administrator of the policy pursuant to the underwriting authority by an issuer and using the issuer s underwriting guidelines Right to Return the Policy Long-term care insurance applicants have the right, as previously discussed, to a free look at the policy they purchased. Applicants may return their policy or certificate for any reason within thirty days after it was delivered. Their premium must be refunded in full. The notice of the right to return the policy for a full refund must be prominently printed on or attached to the first page of the policy. It must state that the applicant may return the policy or certificate within thirty days following delivery and receive their refund without question. The refund must be made within a thirty day period. Denials of refund must also be made within thirty days of the applicant s request. This would not apply to group policies Outline of Coverage An Outline of Coverage is given to the consumer prior to presenting an application or enrollment form. The outline must prominently direct the applicant s attention to the document and its purpose. The commissioner will prescribe the standard format, including style, arrangement, overall appearance, and the content of an outline of coverage. An issued policy will have an Outline of Coverage with the policy in addition to the copy that was presented at the time of application. Once the policy is approved it must be delivered within 30 days of approval. A policy summary will be delivered with the policy that provides long-term care benefits within the policy or rider Policy Summary A policy summary is delivered to the applicant with their issued policy or rider. The summary will include an explanation of how the long-term care benefit interacts with Page 22

24 Chapter 1: Long-Term Care Insurance other components of the policy including deductions from any applicable death benefits. An illustration of the amounts of benefits, the length of benefits, and the guaranteed lifetime benefits, if any, for each covered person. Exclusions, reductions, or limitations on policy benefits will also be listed. There will be a statement in the summary if any long-term care inflation protection options required by RCW are not available under the 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 long-term care costs of insurance charges and current and projected maximum lifetime benefits. The provisions of the policy summary can be incorporated into a basic illustration or into the policy summary that is required under the rules adopted by Washington s commissioner Acceleration of Death Benefits Life insurance policies sometimes have language allowing benefits to be paid towards a long-term care confinement. When a long-term care benefit is being funded through a life insurance policy (by the acceleration of the death benefit) a monthly report must be provided to the policyholder. The report must include a record of all long-term care benefits that were paid out during the month and an explanation of any charges in the policy that resulted from the long-term care payment. For example, it must show if there is a change in the death benefit or cash values due to the long-term care payment. The report must also show any long-term care benefits that remain Denied Claims All long-term care denials must be made within 60 days from receipt of the written request for benefits. All denials of long-term care claims by the issuer must provide a written explanation of the reasons for the denial and make available to the policyholder all information directly related to that denial Policy Rescission In relation to the numbers of policies issued, very few are rescinded but agents must be aware that it can happen under specific circumstances. Insurers have a two year window for policy rescission and claim denial on the basis of misrepresentation that pertains to Page 23

25 Chapter 1: Long-Term Care Insurance whether or not the policy would have been issued. If information on the original application is omitted or incorrect insurers may rescind the policy or deny an otherwise valid claim for benefits. Even if the information was given to the agent but not forwarded on to the insurer this may be true. That is why it is so important for the insured to review the copy of the original application for complete and accurate information in the newly issued policy. After two years from policy issue the insurer cannot rescind or deny an otherwise valid claim on the basis of misrepresentation alone. It could be contested only if the insured knowingly and intentionally misrepresented relevant facts relating to his or her health. If the insurance company paid some claims, then rescinded the policy or denied a claim it may not recover any previous benefit payments from the insured Nonforfeiture Benefit Option A long-term care policy may not be delivered or issued for delivery in Washington unless the policyholder or certificate holder has been offered the option of purchasing a policy that includes a nonforfeiture benefit. The offer may be in the form of a rider that is attached to the policy. If the policyholder declines the nonforfeiture benefit the issuer must provide a contingent benefit upon lapse that is available for a specified period of time following a substantial increase in premium rates. If a group long-term care insurance policy is issued, the nonforfeiture benefit option offer must be made to the master certificate holder, typically a business that is providing coverage to their employees. In some cases, if the policy is issued as group long-term care insurance the nonforfeiture option must be made to each proposed certificate holder. The commissioner will adopt rules specifying the type or types of nonforfeiture benefits to be offered as part of long-term care insurance policies and certificate, the standards for nonforfeiture benefits, and the rules regarding contingent benefit upon lapse, including a determination of the specified period of time during which a contingent benefit will be available upon lapse, and the substantial premium rate increase that triggers a contingent benefit upon lapse Suitability Standards While long-term care insurance products make sense for many people, such products are not necessarily right for every individual. Agents must determine whether a potential Page 24

26 Chapter 1: Long-Term Care Insurance client can assume the premiums for many years, for example. Holding a policy only a year or two is simply not beneficial in most cases. As of January 1, 2009, Washington law states: Issuers and agents must determine whether issuing long-term care insurance coverage to a particular person is appropriate, except in the case of a life insurance policy that accelerates benefits for long-term care An insurance company must develop and use suitability standards to determine whether the purchase or replacement of long-term care coverage is appropriate for the needs of the applicant or insured. Furthermore, they must train their contracted agents in the use of the issuer s suitability standards and maintain copies of its suitability standards, making them available for inspection upon request. In the past agents merely needed to appropriately explain the recommended policy and get the individual s signature on the dotted line. It is no longer that simple. Now agents must consider many elements of the applicant s financial situation to determine if such a policy represents a good buy for the consumer. The agent must consider: 1. The ability of the applicant to pay for the coverage for many years; most people do not use their long-term care policy for ten years or more so the premiums end up being a substantial sum of money over time. 2. The applicant s goals and needs with respect to long-term care and the advantages and disadvantages of purchasing the recommended policy to meet those goals and needs. 3. If an agent is recommending replacement of an existing policy he or she must determine if the values, benefits, and costs of the replacement policy is substantially better than any existing values, benefits and costs. The sale or transfer of any suitability information provided to the agent or the insurance company is prohibited. The commissioner may adopt forms of consumer-friendly personal worksheets that issuers and their agents must use for applications for long-term care coverage. Current insurer forms of suitability standards and personal worksheets may need to be filed with the commissioner Any person engaged in the issuance or solicitation of long-term care coverage may not engage in unfair methods of competition or unfair or deceptive acts or practices. This would include (but is not limited to) misrepresentation of facts or figures regarding existing policies or recommended policies Page 25

27 Chapter 1: Long-Term Care Insurance Violations and Fines A company or agent who violates a law or rule relating to the regulation of long-term care insurance or its marketing will be subject to a fine of up to three times the amount of the commission paid for each policy involved in the violation or up to $10,000, whichever is greater Rules (Effective January 1, 2009) The commissioner must adopt rules that include standards for full and fair disclosure setting forth the manner, content, and required disclosures for the sale of long-term care insurance policies, terms of renewability, initial and subsequent conditions of eligibility, non-duplication of coverage provisions, coverage of dependents, preexisting conditions, termination of insurance, continuation or conversion, probationary periods, limitations, exceptions, reductions, elimination periods, requirements for replacement, recurrent conditions, and definitions of terms. The commissioner must adopt rules to promote premium adequacy and to protect policyholders in the event of proposed substantial rate increases and to establish minimum standards for producer education, marketing practices, producer compensation, producer testing, penalties, and reporting practices for long-term care insurance. The commissioner will adopt rules establishing standards protecting patient privacy rights, rights to receive confidential health care services, and standards for an issuer s timely review of a claim denial upon request of a covered person. The commissioner may adopt reasonable rules to effectuate any provision of this chapter If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected Receiving LTC Benefit Payments Long-term care policies pay benefits when the terms of the insurance contract are met. It is important to read any policy that is purchased and become familiar with all the requirements in the contract. Certainly any agent recommending a policy needs to have done this prior to recommending any type of contract. While there may be variances (although all policies sold in Washington will meet state requirements) typically policies will state several conditions that must be met, which might include: Experiencing chronic illness, as defined by the policy; Page 26

28 Chapter 1: Long-Term Care Insurance A licensed health care practitioner has certified the insured is chronically ill; or Receiving a type of care the insurance policy covers, pursuant to a written plan of care or some other type of proof of care. The amount of insurance benefit received will depend, of course, upon the terms of the policy. The policy must be currently in force and there must be benefits available under the contract. Any elimination period, as previously discussed, must be met. In other words, if the insured chose a 30-day elimination period that period of time must pass before benefits are payable. In addition, the insured must be receiving care that would have qualified under the policy during the 30-day elimination period. The 30-day period just discussed is an example only. The actual elimination period may be anywhere from zero days up to 120 days, depending upon the period of time selected by the applicant at the time the policy was purchased. A zero day elimination period will understandably cost more than a 30-day to 120-day elimination period. Many people chose their elimination period based upon the cost of the policy, but the decision should be based upon multiple reasons, not just cost. The length of the elimination period selected will be shown in the Policy Schedule in the long-term care contract. If Medicare pays their skilled care benefit during the policy elimination period those days still apply. It is not necessary that the initial days of confinement be paid for by the insured; merely that the care received during that period of time qualifies for benefits under the issued policy. Of course, if Medicare paid benefits, the policy would not duplicate Medicare s payment. Only when Medicare ceased paying would the policy typically begin. Not all policy benefits are subject to the elimination period selected for the policy. Some benefits will be available without first satisfying it. For example, such things as respite care, hospice care or caregiver training benefits may be available without regard to the elimination period selected. As always, it is important to refer to the issued policy for details. In some cases, multiple benefits will be available in a single day under the long-term care policy. These multiple benefits might include: Home health care; Durable medical equipment; Medical alert system; Home modification benefits; and Caregiver training benefits. Page 27

29 Chapter 1: Long-Term Care Insurance Care Coordination Services Some policies will contain a care coordination benefit with the goal of identifying specific care needs. At one time, policyholders were concerned that this service was an effort to prevent benefit payment but that is seldom the case. Rather utilizing care coordination services allows the most efficient use of policy benefits. These services identify the specific needs of the insured and the services available in the area that can meet those needs. Care coordination services will help the insured s family members by providing an individual with knowledge and training who can help them determine the best way to care for their insured member. Generally these services are advisory only and are provided at no additional cost to the insured or their family. The insured is not required to follow their advice or use the providers they suggest or identify as able to provide the type of care required. However, some policies will not provide some specific benefits, such as additional home health care benefits or alternative care benefits, unless they are recommended by a care coordinator. The policy elimination period will not apply to the services provided by a care coordinator. Neither will using a care coordinator reduce the benefits available under the long-term care policy. Once policy benefits have been exhausted, the care coordinator may recommend a transition plan specifying how needs might be met after policy benefits end. Nursing Home Benefits Most long-term care insurance policies are specifically designed to cover costs in a nursing home. They may contain other types of benefits, such as assisted care and home health care but the primary purpose is to cover the catastrophic costs associated with care in a nursing home. Catastrophic is the key word. Care in a nursing home is very expensive, although costs do vary depending upon where one lives. In 2006 the average cost for a semi-private room in a nursing home, based on the average of all 50 states, was $171 per day. In Washington the 2006 average rate was $ per day or $6, per month. 2 Obviously this is an expensive form of care and rates continue to rise. A long-term care facility is an institution which: Is licensed by the state; 2 May 2007 GAO Long-Term Care Insurance Report Page 28

30 Chapter 1: Long-Term Care Insurance Provides skilled, intermediate or custodial nursing care on an inpatient basis under the supervision of a physician; Has 24 hour a day nursing services provided by or under the supervision of a registered nurse, licensed vocational nurse or a licensed practical nurse. Keeps a daily medical record of each patient; and May be either a freestanding facility or a distinct part of a facility such as a ward, wing, unit, or swing-bed of a hospital or other institution. In order for a long-term care policy to pay for care in a nursing home there must be a certified medical necessity for the care. In other words, it might be more convenient for the family if the insured was admitted to a nursing home, but unless it is medically required the policy will not cover the confinement. If the insured meets the eligibility requirements of his or her policy, benefits will be paid after the elimination period has been met. Covered expenses typically mean room and board, ancillary services, and patient supplies provided by the nursing home for the care of their residents. Covered expenses will not generally include prescription or nonprescription drugs. The policy will not pay for charges for comfort and convenience items, such as television, personal telephone service, beauty care, or entertainment, unless these are provided as part of the general per-day room rate. Such things as guest meals most certainly will not be covered by the policy even if the guest meals are for the insured s visiting spouse. The policy will pay based on the benefits purchased. If the policy covers a per day rate then they will pay up to that specified amount, but never more than actual charges. For example, Mildred has a long-term care policy that pays a daily benefit of $300 per day in a covered nursing home. She has met all policy requirements, including her elimination period. When her policy begins paying it will pay only actual charges. Her daily room rate is $210 so that is the amount her policy will pay, even though she has a daily benefit of $300 in her policy. As rates rise, her policy will still pay the daily rate as long as it never goes over the $300 per day stipulated in Mildred s contract. If Mildred bought an integrated long-term care policy there will not necessarily be a daily nursing home rate stipulated. Some integrated policies do still have a maximum daily rate that will be paid, while others do not include any maximum daily rate. Once again, it is necessary to refer to the issued policy for exact details. Integrated long-term care policies work with a pool of money. Once that pool is exhausted, all benefits end. In Mildred s case, if she had purchased an integrated long-term care policy, her benefits would continue until she used up all the benefits that had been purchased. If no daily payout amount was stipulated it may not matter what the per-day cost is, but she will still Page 29

31 Chapter 1: Long-Term Care Insurance have to use some common sense to prevent using up all her nursing care benefits prematurely. No policy pays for everything. There are nearly always some items that remain unpaid, whether it happens to be a personal telephone in the room for Mildred, prescription drugs, or just a new pair of pajamas. Policy benefits will end when the eligibility for payment is no longer met or the maximum lifetime benefit has been reduced to zero. Assisted Living Facility Benefits Assisted living facilities are perhaps one of the best things to come from the increased need for nursing home care. Generally people tend to respond better to assisted living confinements since they offer a more home-like setting. Not everyone qualifies since some types of care cannot be provided in assisted living facilities. In many cases, however, use of assisted living facilities prevents the need for a nursing home confinement. If an individual meets the eligibility requirements of their policy, the contract will cover qualified benefits in an assisted living facility. The policy will pay for room and board for a one-bedroom or studio unit (depending upon policy terms), ancillary services, and patient supplies provided by the assisted living facility for care of its residents. Again, the contract will not pay all costs, just as it will not for nursing home care. The policy will probably not pay for prescription drugs, comfort or convenience items, or beauty care, such as having one s hair washed and styled. The policy will pay the covered expensed that are incurred for assisted living facility care up to the maximum benefit stated in the policy. As it was for nursing home benefits, the exact maximum daily benefit will be stated in the policy on the Policy Schedule page. The benefit will end when the insured s eligibility for payment ends or when the maximum lifetime benefit has been reduced to zero. Some policies will continue to pay for the room and board, reserving the bed, when the patient is absent for a short period of time (for example, if Mildred went to the hospital for a few days). This is called a bed reservation benefit. Policies will state a maximum period for which they will do this, often 31 days per calendar year. Unused bed reservation days cannot be carried over into the next calendar year. The elimination period must have been previously met to receive this benefit. Page 30

32 Chapter 1: Long-Term Care Insurance Home Health Care Benefits Some policies will contain a Home Health Care benefit. If the insured meets the eligibility requirements of the policy for either basic home health care or professional home health care, a daily benefit will be paid by the policy. The policy will cover home health care services, maintenance or personal care services, homemaker services, and care in an adult day health care center, and sometimes transportation to and from the adult day health care center. Covered expenses for home health care benefits refer to fees charged by a home health care agency or an independent provider of some type; seldom would it pay the insured s family members for such care unless they were specifically trained to provide it. Covered services include: A nurse for a maximum time period stated within the policy; A physical therapist; A respiratory therapist; An occupational therapist; A speech therapist; An audiologist; A chemotherapy specialist; or A nutritional specialist. The policy will pay actual charges for covered expenses up to any maximums stated in the policy. Benefits will end when the insured no longer qualifies under the policy or when the maximum lifetime benefit has been reduced to zero. Caregiver Training Benefit Insurance companies and other professionals have recognized that a family member is often the best person to provide an individual s care. If the insured meets the policy s eligibility standards one of their family members may be trained to care for the insured individual, with the cost of that training covered by the policy. Often this benefit is available only if the insurer s care coordinator recommends such training. Therefore, the insured is wise to make use of the care coordinator s availability. Caregiver training would not apply to all situations. For example, it would not apply to care provided in a hospital setting (the insured is not going to send a spouse to nursing school, for example). It would apply only to caregiver training in the proper use and care Page 31

33 Chapter 1: Long-Term Care Insurance of therapeutic devices or other appropriate procedures for a chronically ill person. There will generally be a maximum benefit amount for caregiver training specified in the policy. The elimination period would not apply to this benefit. Alternate Care Benefit with Care Coordination Services Alternate care benefits are not automatic; generally they must be approved by the issuer of the long-term care policy. Issuers will approve an alternate care plan when it makes sense to do so from both a patient-care perspective and a financial perspective. The care coordinator must identify the alternate services, devices, or types of care that would be generally acceptable under current medical practices, in a written alternate plan of care for which no benefits would otherwise be payable under the terms of the policy. This would include new types of care. Assisted living facilities were often covered in past years by use of the alternate care benefit clauses in policies when that type of care first emerged. Since companies never know when another new type of care might emerge it makes sense to put such clauses in long-term care policies. When assisted living facilities first emerged it became clear that such care was less expensive than nursing home care and better received by their policyholders. For those who needed some type of care, but not necessarily the high degree offered in nursing homes, the option was acceptable from a medical standpoint and certainly acceptable from a financial standpoint. Generally the care coordinator, the insured or their representative, the insured s physician, and the insurer must all agree that the alternative service or treatment is appropriate to meet the patient s needs and are determined to be a reasonable alternative. When alternative care is appropriate the maximum lifetime limits of the policy will still apply and eligibility under the policy is still applicable. The alternate care benefits may be discontinued at any time without affecting the insured s rights to other coverages in their policy. Hospice Care Benefit Hospice care benefits refer to an insured that is terminally ill, usually with six months or less to live. When an individual enters hospice care policies will typically cover room and board, ancillary services provided by the Hospice Care facility, assisted living facility, or nursing home and patient supplies provided by the facility for the care of their residents. The elimination period does not apply to this type of care in most cases. Page 32

34 Chapter 1: Long-Term Care Insurance Prescription drugs will not be covered in hospice care. Nor will convenience items or other non-medical services be covered. Policies are likely to have maximums as well. Benefits will end when the insured is no longer eligible under the policy or when the maximum lifetime benefit has been reduced to zero. Respite Care Benefit Respite care is provided when normal caregivers need a break from their duties. If the insured meets the eligibility requirements of their policy their caregiver may receive temporary, short-term relief. The policy will only pay the person who takes their place; it will not continue to pay the normal caregiver while they are on break from their duties. Policies usually cover expenses in a nursing home, an assisted living facility or home health care if the individual can remain at home during this time. The elimination period will generally not apply. Restoration of Benefit In policies that restore previously used benefits, specific conditions will apply. Following a period of time during which the insured had been paying benefits some of the benefits will restore (up to the remaining maximum lifetime benefit) after the insured meets the qualification free period. The restored amount will not exceed the maximum lifetime benefit that is payable, subject to inflation protection increases if they apply. In many cases, restoration of benefits may occur more than once, but never past the policy s stated maximum lifetime benefit. If the coverage is being continued in accordance with the terms of any nonforfeiture benefit restoration of benefits provisions may not apply. Waiver of Premium Benefit The waiver of premium benefit allows an insured to cease paying their long-term care policy premiums at a specified time following institutionalization. Elimination periods must be satisfied and typically do not apply towards the time periods required for waivers of premium. Insurers waive the payment of premium that become due while the policy is in force and the insured meets the eligibility for payment of benefits under their contract. Page 33

35 Chapter 1: Long-Term Care Insurance It is important to note the words become due. The waiver of premium benefit will not refund previously paid premiums. Only those premiums that become due are waived. Inflation Protection Riders Perhaps one of the most important considerations when applying for long-term care policies is the inflation protection benefit. It is common for an individual to maintain a long-term care policy for many years before needing the benefits it provides. During this long period of time something happens: the cost of care rises. A policy purchased ten years ago may have seemed more than adequate at that time but ten years later it is far from adequate. Adding an inflation protection rider increases the amount of benefits at set intervals, usually policy anniversary dates. Industry professionals generally recommend inflation protection, but the cost can be high. Those who purchase at younger ages are especially encouraged to add this feature since the cost of long-term care is certain to increase over time. The cost of providing long-term care has been increasing faster than inflation. At older ages, the consumer will need to weigh the cost of the additional premium option with the amount of increase in benefits that will be produced. The rising cost of institutional care surpasses the increase in the Consumer Price Index. Over the next 30 years, we expect nursing home care to reach around $117,000 per year. Many areas will see higher rates. For retired people on a fixed income, such costs will probably be beyond their means. Many in the health care field state that the amount of increase is not adequate, but it will help to offset the rising costs of long-term care. The inflation protection, usually a 5 percent yearly increase, may eventually become part of all policies, but currently it is most likely to be just an option that the consumer must accept or reject. Some states require the consumer to sign a rejection form as proof that the agent offered the option. Simple and Compound Inflation Protection Inflation protection is offered in one of two ways: simple increases in benefits or compound increases in benefits. Like interest earnings, the benefits increase based on only the original daily indemnity amount or on the total indemnity amount (base plus previous increases). Some states mandate that all inflation protection options offered must be compound protection; others allow the insurers to offer both types. Under a simple inflation benefit, a $100 daily benefit would increase by $5 each year. Under a Page 34

36 Chapter 1: Long-Term Care Insurance compound inflation benefit the protection increases by 5 percent of the total daily benefit payment. This is called a compound inflation benefit because it uses the previous year's amount rather than the original daily benefit amount. This is the same basis used with interest earnings on investments. Compound interest earnings are always better than simple interest earnings. The following graph more clearly illustrates how compounding works with the inflation protection riders. Year 1 Year 5 Year 10 Year 15 Year 20 Base Policy $100 $100 $100 $100 $100 Simple $100 $120 $145 $170 $195 Compound $100 $121 $155 $197 $252 Required Rejection Forms The individual state insurance departments generally recommend inflation protection riders to their citizens. Inflation protection plans must continue even if the insured is confined to a nursing home or similar institution. Many states are now requiring a signed rejection form if the insured does not accept the inflation protection option. Although this is intended to be consumer protection, it is also agent protection. It assures that the family of the insured will not later try to sue the agent for failing to sell the inflation protection. Partnership Long-Term Care Policy Inflation Protection Requirements Partnership programs mandate inflation protection in their policies; there is no consumer choice. Inflation protection has gained recognition for its value as costs have sharply risen so those who determined Partnership requirements felt it must be included in all issued Partnership plans. An inflation provision stipulates that benefits will increase by some designated amount over time. Inflation protection ensures that long-term care insurance products retain meaningful benefits into the future. Because policies may be purchased well before they are needed, and long-term care costs are likely to continue to increase, inflation protection can be a key selling point for consumers interested in purchasing private LTC coverage. The DRA requires that Partnership policies sold to those under age 61 provide compound annual inflation protection. The amount of the benefit (e.g., 3 percent or 5 percent per year) is left to the discretion of individual states. Policies purchased by individuals who are over 61 but not yet 76 must include some level of inflation Page 35

37 Chapter 1: Long-Term Care Insurance protection, and policies purchased by those over 76 may, but are not required, to provide some level of inflation protection. There are two main types of inflation protection used in long-term care insurance plans: future-purchase options (FPO) and automatic benefit increase options (ABI). Under FPO protection the consumer agrees to a premium for a set amount of coverage. At specified intervals (such as every two years, for example), the insurance issuer offers to increase existing coverage for additional premium. If the consumer declines the increased benefits (or cannot afford to buy them) policy benefit levels remain the same, even though costs for long-term care services may be increasing. A policy purchased to pay a $100 daily benefit may not be adequate ten years later. On the other hand, it may be better to have a $100 per day benefit than none at all. With ABI, the amount of coverage automatically increases annually by a contractually specified amount. The cost of those benefit increases are automatically built into the premium when the policy is first purchased, so the premium amount remains fixed. Policies that have ABI protection are generally more expensive up front, but are more effective at ensuring that policy benefits will be adequate to cover costs down the road. Consumer advocacy organizations and some members of Congress maintain that the intent of the language in the DRA was to require automatic compound inflation protection for those under age 61, but some insurers believe that future-purchase option protections can also satisfy the requirement. As of this writing, the Centers for Medicare and Medicaid Services (CMS) have not issued guidance on this matter. Page 36

38 Chapter 2: Long-Term Care Services Long-Term Care Services Long term care services can be virtually any type of care provided over a period of time. The exact period of time varies, depending upon the context, but federal legislation stipulates no less than 90 days. In Washington long-term care policies must provide benefits for at least one year. If an individual in failing health or with a cognitive disability has family and friends who are willing to provide care, he or she will probably begin to initially receive services in their own home from those he or she knows. In the first stages, the individual will need help with only a few parts of daily living; perhaps housekeeping duties must be taken over by a daughter or grandchild or the elderly individual needs help bathing a couple of times a week. Gradually, as the individual worsens, more care will be required. There may be issues of safety, especially if cognitive impairment is part of the medical condition. If family members and friends can provide many hours of their time to the care of the individual it may not be necessary to seek any outside help for a long time, but eventually this does usually become necessary. Especially if medical conditions exist that make informal care dangerous it may be necessary to seek care from a nursing home or assisted living facility at some point. Long-term care can mean many different things but any chronic or disabling condition that requires nursing care or constant supervision can bring on the need for long-term care services. Long-term care means not only care in a nursing home but also nursing care in one s own home and help with the activities of daily living, such as dressing, eating, bathing and taking medicine. There are many different services that would fall under the definition of long-term care. These services include institutional care, i.e., nursing facilities or non-institutional care such as home health care, personal care, adult day care, long term home health care, respite care, and hospice care. Page 37

39 Chapter 2: Long-Term Care Services Defining Long-Term Care Services Nursing homes are licensed nursing facilities. There are other long term care services that provide people with an option other than nursing home care. These services are defined below: Home health care consists of services received in your home, and can include skilled nursing care, speech, physical or occupational therapy or home health aide services. Home care (personal care) consists of assistance with personal hygiene, dressing or feeding, nutritional or support functions and health-related tasks. Adult day care is for persons living at home, and provides supervision for elderly persons during the day when family members are not at home. It is a method of delivering a variety and range of services including social and recreational, and in some cases, health services, in a group setting. Assisted living facilities provide ongoing care and related services to support those needs resulting from a person's inability to perform activities of daily living or a cognitive impairment. An alternate level of care in a hospital is care received as a hospital inpatient when there is no medical necessity for being in the hospital and is for those persons waiting to be placed in a nursing home or while arrangements are being made for home care. Respite care includes services that can provide family members a rest or vacation from their care-giving responsibilities. It can be provided in a variety of settings including an individual's home or a nursing home. Hospice care is a program of care and treatment, either in a hospice care facility or in the home, for persons who are terminally ill and have a life expectancy of six months or less. Long-term care is very expensive; most people cannot afford to privately pay for longterm care services for very long. When friends and family are able to fully or partially provide the needed care it can mean the difference between maintaining financial security and completely loosing all assets, as they are used to pay for formal care. Home health care is also expensive. The average cost of home health care varies widely across the United States, with Washington being one of the more expensive places to receive such care. Assuming 20 hours of care per week, this represents average home health care costs of $10,000 to $22,000 per year. The actual cost will depend upon where Page 38

40 Chapter 2: Long-Term Care Services in the state one lives and the type of care that must be received. If informal or custodial care is all that is required an individual with no medical training can be hired to perform the services. If medical knowledge is required to provide the care, costs will be higher. The chance of needing some type of long-term care services is fairly high. It is estimated that over 40% of all persons who were 65 years old in 1990 will enter a nursing home during their lifetimes. 1 Medicare does not pay for most long-term care services. Individuals should not rely on Medicare to meet their long-term care service needs. Medicare does not pay for custodial care when that is the only kind of care needed. Even skilled nursing facility care is covered by Medicare only on a very limited basis. In order to obtain Medicare coverage of a skilled nursing facility stay, the following five conditions must be met: 1. Your condition must require daily skilled care which, as a practical matter, can only be provided in a skilled nursing facility on an inpatient basis. 2. You must have been in a hospital at least three days in a row (not counting the day of discharge) before you are admitted to a certified skilled nursing facility. 3. You must be admitted to the facility within a short time (generally within 30 days) after you leave the hospital. 4. You must have received treatment in a hospital for the condition for which you are receiving skilled nursing care. 5. You must receive certification from a medical professional that you need skilled nursing care or skilled rehabilitation services on a daily basis. If the skilled nursing facility stay continuously meets all of the above conditions, Medicare will provide benefits for up to 100 days of skilled care in a skilled nursing facility during a benefit period. During the first twenty days of care, all covered services are fully paid by Medicare. For the next 80 days of care, Medicare requires a copayment (the amount the patient must pay) per day. If a person needs skilled health care in their home for the treatment of an illness or injury, Medicare can pay for home health services furnished by a home health agency. The individual does not need a prior hospital stay to qualify for home health care. Medicare pays for home health visits only if all four of the following conditions are met: 1 Centers for Medicare and Medicaid Services Page 39

41 Chapter 2: Long-Term Care Services 1. The care needed includes intermittent skilled nursing care, physical therapy, or speech language pathology. 2. The individual is confined to his or her home. 3. The individual is under the care of a physician who determines home health care is required and sets up a plan for receiving care at home. 4. The home health agency providing services participates in Medicare. Once all four of these conditions are met, Medicare will pay for covered services as long as they are medically reasonable and necessary. Coverage is provided for the services of skilled nurses, home health aides, medical social workers and different kinds of therapists. The services may be provided either on a part-time or intermittent basis, not full-time. Medicare pays the full cost of medically necessary home health visits by a Medicareapproved home health agency. The individual does not have to pay a deductible or coinsurance for services. If the patient needs durable medical equipment, he or she is responsible for a 20% coinsurance payment for the equipment. Medicare will not pay for full-time nursing care at home, drugs, meals delivered to the home, or homemaker services that are primarily to assist the patient in meeting personal care or housekeeping needs. Medicare supplement insurance is designed to fill in some of the major gaps in Medicare coverage, but Medicare supplemental policies do not pay for long-term care needs. Other private health insurance that an individual might already have covers mainly acute conditions and probably does not cover custodial care. Medicaid, a governmental program for low-income individuals and families, is currently the major source of funding for long-term care services. In order to qualify for Medicaid coverage, persons must meet certain income and asset tests. Because of the high cost of nursing home care, more than half of those who enter nursing homes privately paying for their care reach this level in less than a year. Care Options When a person or the person s family realizes that some type of care must be acquired beyond what the family can provide there are care options, including: Page 40

42 Chapter 2: Long-Term Care Services 1. Adult family homes, which are licensed homes in residential neighborhoods. They provide housing and care for up to six people. 2. Boarding homes, which are licensed homes or facilities in residential neighborhoods. They provide housing and care for seven or more people. Exactly what is offered will depend upon the boarding home, but they may offer just a bedroom with access to other areas of the home or they may provide a private apartment. 3. Continuing Care Retirement Communities, which offer a broad range of services and levels of care in a retirement complex. 4. Home health care, which offers skilled nursing care or medical care in the home for a short time period. The patient s doctor must authorize the care and Medicare may pay a portion of the costs, depending upon eligibility requirements. 5. Hospice, which involves a team of professionals and volunteers who provided medical, psychological, and spiritual care for people who are terminally ill. Hospice care is often provided in the patient s home if the medical situation allows it without danger to the patient. Medicare pays most hospice costs. 6. Nursing homes, which is often referred to as skilled nursing facilities. Nursing homes provide 24-hour supervised nursing care, personal care, therapy, nutrition management, organized activities, room, board, and laundry services. Whatever type of care is ultimately decided upon, it is best to be prepared before the services are actually needed. As an individual begins to age either he or his family should consider their options and what those options will cost. Being prepared beforehand can make a difficult situation easier to live with. Some buying decisions are easy for consumers. A new car can be set in, driven, and admired. A long-term care nursing home policy, on the other hand, is an abstract decision. It cannot be seen or touched in the same way a new car can. Decisions to purchase such protection are based not on current ability to use the product, but rather on a mere possibility of future needs. As a result, this type of buying decision is made differently. Is Insurance Necessary to Cover Services? How does a person know if they will need some form of long-term care (and possibly long-term care insurance)? Statistically women are more likely to require formal longterm care than men and they are also more likely to buy a policy. Those who read extensively are more likely to buy a long-term care policy than those who do not. Those who have purchased other types of insurance on a regular basis are more likely to buy Page 41

43 Chapter 2: Long-Term Care Services coverage than those who seldom buy insurance products. These statistics say little about whether or not a person needs long-term care insurance, however. Any individual that buys long-term care products must understand what they are buying. Just as the automobile buyer wants to be able to sit in the vehicle and drive it around the block, insurance buyers want to understand the need and value of a recommended policy. Not only will this keep business on the books, but it also allows the consumer to have the peace of mind they are seeking. When a consumer does not understand what they have purchased, there will be constant hesitation and questioning of the product. The thought of being in a nursing home is not pleasant, but neither is spending all one s life savings on such care. It is a truth that each aging American must face: someday someone in their immediate family is likely to need the services of a nursing home or home health care agency. Half of all women and one-third of all men will spend some time in a nursing home, according to Elder Care: Choosing & Financing Long-Term Care. Ongoing Long-Term Medical or Personal Care Any type of ongoing medical or personal care may be referred to as long-term care. It can mean almost anything including nursing home care, home health care, communitybased care, adult daycare or in-home services. The book Long-Term Care & Its Alternatives written by Charles B. Inlander, Michael A. Donio and J. Lynee Dodson lists a wide variety of services available. For most people, the traditional care received is either in a nursing home facility or in their own home with the help of home care services, such as in-home nursing, hospice, or the help of family and friends. Even so, there are other alternatives. Some are well known while others are on the extreme and unlikely to be utilized by the general consumer. America has an aging population and this has likely contributed to the interest in longterm care products. We are simply living longer and, for the most part, healthier. In the 1950s, the average age of a person in a nursing home was 70; today the average age is more than 80. At one time it was illness or injury that landed a person in an institution. Today it is just as likely to be the frailty associated with aging. As we age, the needs we have increase because we are not able to do as much as we could when we were younger. Our eyesight, hearing and mobility may become impaired. In addition, our thinking and judgment may become clouded. As lack of judgment increases errors may be made that put the individual in physical danger. The elderly are also more likely to make financial errors as they lose their ability to think matters through. The elderly population is one of the fastest growing segments in our country. This simple fact alone has multiplied the need for nursing homes and nursing home financing. Page 42

44 Chapter 2: Long-Term Care Services When Medicare was passed in 1965 there were 18 million Americans aged 65 or older. Today we have more than 34 million Americans who are 65 years old or older. That has impacted Medicare tremendously and it has also impacted how we care for our increasing elderly population. The years to come will see a great financial burden on our younger taxpayers if individuals do not begin making personal financial plans to pay for their care in nursing institutions. We have begun to see the government address this problem through the passage of legislation. As of 1997, persons who qualify can deduct part or all of their premium dollars for nursing home insurance from their taxable income if they purchased a qualified plan or had a plan that was grandfathered in under the new legislation. To qualify, federal taxes must be itemized and total medical expenses must exceed 7.5 percent of the taxpayer's adjusted gross income (AGI). Only the amount in excess of 7.5 percent can be taken as a deduction. Consumers owning qualified policies will want to point this out to their accountants. No Durational Coverage Under Medicare Initially many people believed that social programs would cover their long-term care needs. It was thought that Medicare and Medicaid would pay whatever costs came along. Today agents certainly know that is not true and consumers are realizing it as well. As a result, long-term care contracts have become an accepted insurance product. Consumers often do not feel they want to spend what it costs to purchase a nursing home policy. Perhaps their children have even told them "I will never let you go to a nursing home." While children mean it at the time they seldom realize the scope of caring for a chronically ill or mentally incompetent parent. No one wants his or her parents in a nursing home. Probably no one really wants to go to one either. In some situations, however, there is simply no other logical alternative. Understanding this is the first step in choosing a policy that will allow the person to go to the facility of their choice when the time comes. Remaining At Home Most of us would rather remain at home when we are ill. No one really knows the true figures on how many people are cared for at home. It is thought that family and friends provides 70 percent of home care without receiving government paid services. Few families can afford to hire agencies to provide such care in the patient's home. They hire (at lower rates) non-licensed personnel to come in and care for aging parents or relatives. Those families who do take care of it on their own often desperately need help. If they knew of government programs that would help pay the cost, they would take advantage of it. Page 43

45 Chapter 2: Long-Term Care Services The spouse is the most common caregiver. Following the spouse, daughters are most likely to care for their elderly parents. This might be as simple as cooking their meals or as complex as moving in and providing full time care. Sons are much less likely to provide physical care, although they may help in some other capacity. Few daughters have the ability to leave their own family responsibilities to care for ailing parents. Since she cannot abandon her own family's needs, she must instead combine the duties of both. Doing so will mean eliminating virtually all of her own free time. This is especially true if she also holds a job. She is likely to give up hobbies and personal activities. Her own family will certainly feel the strain placed upon her. Few daughters can simultaneously care for their parents and their own family adequately, so feelings of guilt occur and sometimes depression becomes a factor as well. Since the first caregiver is typically the spouse, he or she is the first to feel the strain. Statistically, the wife is more likely to be taking care of the husband than the other way around. Women live longer and usually marry older men so this is not surprising. Whether the first one to become ill happens to be the husband or wife, however, the healthy spouse will be the initial caregiver. The success of home care will depend upon the severity and type of illness. In some situations, the spouse will do very well. In other situations, the ill health of one may eventually cause the caring spouse to become strained and ill themselves. Then, instead of one sick person, there are two that need care. Home Care Insurance Policies There are insurance policies that provide benefits for care at home. These policies vary, with some being extraordinarily good and others being quite inadequate. Certainly most people prefer to remain at home. Consumers often buy home care policies in the hope that they will not have to go to a nursing home when they become ill. They feel that their care will be more satisfying at home. It is true that a person's emotional health may remain stronger at home, although their physical health may not allow it. It is unfortunate but true that whether or not a person owns a home health care policy seldom is a factor when determining health care needs. There are many things that will determine where a person must receive their care, but insurance is not generally one of them. When the patient lives alone, home care often is not a solution, unless a friend or relative is available to move in with them. When home care is viable, there is a wide range of services available. In the past, most home care insurance policies have required that a Medicare certified agency provide the care. Many states no longer allow this. More care is given without benefit of a policy than with, anyway. As a result, it is impossible to know precisely how much home care is actually being received. In addition, with the issuance of integrated plans, home care and other alternative forms of care are seeing greater use since the policyholder has the Page 44

46 Chapter 2: Long-Term Care Services ability to use the long-term care funds in whatever manner is desired, as long as the care is appropriate for the medical condition. Medicare s Home Care Benefits Part A of Medicare will pay for some home health care services. There is often much confusion regarding home health care. Patients often feel it should be their decision, not Medicare's. However, Medicare follows specific rules of payment. Regardless of what a patient thinks, those rules will be followed. Part A of Medicare will pay the full cost of medically necessary home health visits if the beneficiary satisfies their definition of homebound. When that definition is satisfied, coverage includes: 1. Part time (not full time) skilled nursing care and home health aid services. The care received must always be skilled. Neither intermediate nor custodial care is covered. 2. Physical therapy 3. Occupational therapy 4. Speech-language therapy 5. Medical social services 6. Durable medical equipment such as wheelchairs, walkers, or oxygen 7. Medical supplies Any of these services may be received as long as the patient is homebound, as defined by Medicare. They must also be under the care of a doctor who has requested these services. It is important to remember that only skilled care qualifies, not custodial or intermediate care. There are gaps in Medicare's services for those needing care at home. Services not covered include: 1. Full-time home care services (only part-time services are provided); 2. Drugs and biologicals; 3. Meals delivered to the home, although other types of social services often provide this under certain conditions; 4. Homemaker services, such as cooking or cleaning; 5. General daily maintenance care, such as bathing or getting dressed (custodial & intermediate care). Page 45

47 Chapter 2: Long-Term Care Services Medicare Qualification The quantity of visits by home health care personnel is unlimited as long as the patient meets all of the qualifications set down by Medicare. The patient pays nothing since Medicare will cover all eligible costs. There are conditions, which must be met before Medicare will cover services. These conditions include: 1. A doctor must certify the need for home health care. 2. The treatment may only require part-time skilled nursing care, physical, speech or occupational therapy. Again, it must be stressed that only part-time care is given and only skilled care. Full-time care and custodial or intermediate care is not covered. 3. The patient must be homebound. This means he or she is unable to do a normal outside routine of shopping, yard care, or other routine chores. 4. A doctor must set up the home health care plan, which is provided by a Medicare contracted home health care agency. Of course everyone wants to remain at home. Especially when one is ill, home brings emotional comfort and security. It is not unusual for a person, who is beginning to experience bad health, to ask their children to promise to take care of them at home. This is an unfair request. Few children would have the heart to say "no." It puts the child in the position of handling the needs of their parent first while placing the needs of their own children and spouse second. There are other reasons that such a request is foolish: few children are equipped by training or experience to give the type of home care that may be necessary. As a result, they may actually be putting their recovery in jeopardy by requesting an untrained child supply care. Assessing Care at Home Home care does often work well. The viability of it must be individually assessed. When it is physically and medically possible, a caring family and network of friends are often what makes it work. The next door neighbor who is willing to pick up groceries; the granddaughter that helps with household chores, the son who maintains the yard, and the daughter who is willing to attend to personal needs all lend to its success. A successful recuperation from an illness or injury at home will depend upon cooperative help from many family members. Page 46

48 Chapter 2: Long-Term Care Services Some older long-term care insurance policies included some home health care benefits or adult day care benefits. Newer policies generally have additional benefits offered as a rider for additional premium. Although it is not the primary aim of the policy, these benefits do offset the family's costs. Most of the home health care benefits attached to long-term care policies that are not integrated plans are limited in some way based upon the benefit received in the nursing home. The most likely limitation is a ratio of home health care benefits to nursing home benefits (generally 50 percent). In other words, if the nursing home policy will pay $100 in an institution, it will pay $50 for care at home. These policies may require that a Medicare certified agency provide the care, although some states have prohibited such a requirement. When the policy requires a Medicare certified agency, it will not pay for care given by a neighbor, granddaughter, or other relative, unless they are hired through a Medicare certified agency. Since many states felt this unfairly limited the use of the policy, they prohibited such a requirement. As long as the care is given in an appropriate manner, these states require the policy to pay whether the caregiver is hired through such an agency or not. Gatekeepers No policy pays for everything. There are always gaps and gatekeepers. A gap is a hole in the coverage; a gatekeeper is a condition which must first be met before benefits are payable. The buying consumer needs to be aware of these conditions and gaps so that he or she may make the best choice possible when selecting benefits. The agent must be aware of them so that he or she can best advise their clients. Protecting Against Catastrophic Costs First Most health care specialists recommend consumers first purchase a long-term nursing home policy since institutionalization is the most expensive type of care. If they can afford the premium, home care benefits should be purchased secondly. Another option is the purchase of an integrated plan, which provides a specified amount of funds that may be used for any type of care relating to long-term care needs. Few individuals could adequately save or invest to pay personally for the cost of long-term nursing home care. Such care easily runs upward of $4,000 per month. Rates are climbing faster than inflation. How many people, even with good investments, could afford to pay $48,000 or more per year in nursing home costs for one person? It should be remembered that the healthy spouse still must pay his or her living costs. When Hillary Clinton, President Clinton's wife, was addressing reporters on their proposed national health care plan, she was asked what health insurance agents should do since she would be putting them out of business. She replied that they should investigate selling long-term care insurance. Hillary Clinton knew the importance of such insurance because she had been actively Page 47

49 Chapter 2: Long-Term Care Services studying the health care needs and choices of the United States. government had no plans to pay these costs. She knew the Page 48

50 Chapter 3: State and Federal Regulations/Requirements State and Federal Regulations and Requirements Medicaid Benefits Even though the states have general control of their Medicaid funds, they must also follow federal laws. Federal law requires states to provide a minimum level of services to Medicaid beneficiaries. Those services include such things as inpatient and outpatient hospital care, laboratory and X-ray services, skilled nursing home care and home health services for those aged 21 and older, examination and treatment for children under the age of 21, family planning and rural health clinics. About half of Medicaid spending goes for federally mandated services. States pay health care providers directly for patient services and almost invariably require doctors to accept the state fees as full payment. Doctors and other medical suppliers are legally required to accept the amount paid by Medicaid, which means they cannot bill their patients for any additional amount. Therefore, some medical providers may not accept Medicaid patients. Medicaid funding, as well as Medicare funding, has become a real concern. As the baby boom generation reaches retirement, adequate funding may not be available under current funding procedures. About 45 cents out of every dollar goes to pay for nursing home care to only about 8 percent of the beneficiaries. That means that approximately 8 people out of every 100 Medicaid enrollees use nearly half of the Medicaid funds. Funds under Aid for Dependent Children and their parents make up about 70 percent of Medicaid's caseload, but they only receive about 30 percent of the total funding. Many argue that the largest amount of money should be spent on the younger Americans rather than the older, less productive retired group. While we might like to do that, where would that leave the older generation? They must be cared for. This has brought about much debate but it has also brought about alternative development, such as assisted living facilities and community-based care programs that prevent institutionalization (which is the most expensive type of care). It is likely that the future will bring even newer developments as we try to sort out the financial aspects of a graying nation. All aspects of government have faced budget problems. Medicare and Medicaid perhaps face the greatest challenge since they must deal with the increasing elderly population. Rising medical costs also play a role. It is common to spend the most money on the last three months of our lives. Many of the medical procedures do nothing more Page 49

51 Chapter 3: State and Federal Regulations/Requirements than delay death. However, medical professionals are reluctant to do less that everything possible since lawsuits have become pervasive in the United States. Nearly every state has faced severe budget deficits in their Medicaid funding. Some states have actually put a ban on building additional nursing homes in an attempt to curb the rising costs. The federal and state governments have attempted to control the rising costs in some way. Fraud and abuse in the medical field has played a major role in the rising cost associated with Medicaid and Medicare. While Medicare has a single administrator (the federal government), Medicaid has 50 separate administrators, because each state is in charge of their own program. This makes it difficult to curb fraud and abuse of the Medicaid system. There is no doubt that part of the funds end up in the pockets of dishonest medical providers. Many elderly consumers believe the military will, in some way, provide for their nursing home needs. Due to a shortage of beds, even when the veteran might qualify, the chances of actually getting such coverage are small. It only takes a call to the military agency for them to confirm this. Comparing Qualified and Non-Qualified Plans HIPAA At one time there was little said about needing institutional care. It was assumed that family and friends would do whatever was necessary for ailing members of their family and community. Today even the federal government has recognized the need for funding long-term medical care. Funding the cost of institutionalization can be achieved through other means besides long-term care insurance, but for most individuals that is the most sensible avenue. In 1996, the U.S. Congress enacted the Health Insurance Portability and Accountability Act, generally referred to as HIPAA. It may also be known as the Kennedy-Kassebaum Bill. President Bill Clinton signed this act into law in August of There is still some question as to whether or not benefits from long-term care policies are taxable. An earlier House Resolution 3101 declared long-term care insurance the same as health and accident insurance with respect to its tax status. Until then, long-term care insurance was in a sort of tax limbo. No one was quite sure if the premiums and benefits were tax-favored like those of regular health and accident policies. Although HIPAA answered that question to some extent, there are still many disagreements regarding the taxation of premiums and benefits. Page 50

52 Chapter 3: State and Federal Regulations/Requirements Existing LTC Policies Tax-qualified long-term care contracts will not see their benefits taxed regardless of how the debates end. HIPAA legislation created the tax qualified plans. If a long-term care insurance contract meets the Act's requirements it will receive specific tax advantages. All other policies are considered to be non-tax qualified. There was an exception made for all long-term care policies issued before HIPAA had been state approved. These policies were "grandfathered" in. Therefore, they are considered to be tax-qualified even though they did not meet the requirements that were spelled out in the legislation. This was done to prevent mass replacement of policies for those who had favorable health, leaving only the sick on existing policies. That would, of course, create an adverse situation for companies that had issued these policies. If, however, the existing policies are altered, then the grandfathered tax-qualified status is lost. Benefits Triggers One might assume that all insureds would want to purchase only tax-qualified policies if they are to receive favorable tax treatment. In fact, this is not necessarily true. When the Act was passed, it set specific terms regarding tax-qualified benefits, benefit triggers, provisions and so forth. Perhaps the most dramatic difference between the qualified and non-qualified plans is the benefit triggers. A benefit trigger is the circumstance (typically medical in nature) that "triggers" the start of insurance benefits. For most types of insurance, the circumstance triggering benefit payment from the insurance company is fairly easy to understand. For example, in life insurance, when the insured dies, benefits are paid. While there may be variations that allow cash to be withdrawn, as a benefit trigger, this is pretty easy to understand. In health insurance, if the insured breaks a leg, benefits are paid by the insurance company after a deductible is met. When it comes to nursing home policies, however, benefit payments are not necessarily so easily understood. The non-qualified plans and the pre-qualified plans paid benefits when it was determined that it was medically necessary for the insured to receive a type of care that was covered under their policy. If the insured's doctor felt that it was necessary for his patient to be in a nursing home, his written statement was all that was required to trigger benefit payments. Some policies might also require an inability to perform some type of activity (called activity of daily living or ADL) such as bathing oneself without assistance. Another formal benefit trigger was cognitive impairment, the inability to reason or a loss of mental capacity due to some organic disorder such as Alzheimer's disease. Page 51

53 Chapter 3: State and Federal Regulations/Requirements Activities of Daily Living (ADL) Before anyone had ever heard of tax-qualified long-term care plans, insurance policies could require the inability to perform a certain number of activities of daily living (ADLs), which were spelled out in the policy. The actual number of ADLs sometimes varied since not all companies included the same amount. Typically, there were between five and seven listed. The number of ADLs, which could no longer be performed by the insured, could vary. Some policies required only one, while others required more than one. If a policy listed 7 ADLs and only required an inadequacy in performance of one, benefits were easier to obtain than one which listed 5 ADLs with an inadequacy in performance of one (1 out of 7 are better odds than 1 out of 5). Few consumers recognized the importance of this. In fact, agents often did not recognize it either. Today, most non-tax qualified plans list seven activities of daily living, while taxqualified plans list six. It is possible for some plans to have a different number of ADLs, unless the state has regulated them (and many have). This alone gives benefit triggers a better chance with the non-qualified plans since they include an additional ADL. The benefit trigger that has been eliminated in the qualified plans is ambulating. Ambulating is the ability to get around adequately without assistance. Definitions for the activities of daily living are important since they affect how benefits will be paid. The non-qualified plans will typically list seven. These include: 1. Eating, which means adequately reaching for, picking up and grasping a utensil or cup and getting the food or drink to the mouth. Some definitions also include the ability to clean one's face and hands afterwards. 2. Bathing: cleaning oneself using a tub, shower or sponge bath. This would include filling the sink or tub with water, managing faucets, getting in and out safely and raising one's arms to wash and dry their hair. 3. Continence, which means the ability to control bowel and bladder functions. This can also include the use of ostomy or catheter receptacles and the use of diapers or disposable barrier pads. 4. Dressing, which means putting on and taking off clothing, which is appropriate for the current season. Some definitions include the use of special devices such as back or leg braces, corsets, elastic stockings or artificial limbs and splints. 5. Toileting, which means getting on and off a toilet or commode safely. If a commode or bedpan is used, it also means emptying it. Toileting includes the ability to properly clean oneself afterwards. 6. Transferring, which means moving from one sitting or lying position to another. This would include getting out of bed in the morning and sitting down in a chair Page 52

54 Chapter 3: State and Federal Regulations/Requirements or getting up out of a chair. Some definitions include repositioning to promote circulation and prevent skin breakdowns. 7. Ambulating: walking or moving around inside or outside of the home, regardless of the use of a cane, crutches or braces. This is the ADL that has been eliminated from the tax-qualified plans. The elimination of ambulating is a serious change. This is especially true for some medical conditions that drain physical strength and affect the person s ability to move without assistance. The inability to move around means the person may not be able to fix meals, get to the bathroom, or even get up to answer a ringing telephone. The six ADLs that are included under HIPAA s federal guidelines include: 1. Eating, which means feeding oneself by getting food in the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. 2. Bathing, which means washing oneself by sponge bath or in either a tub or shower, including the act of getting into or out of a tub or shower. 3. Continence, which means the ability to maintain control of bowel and bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag). 4. Dressing, which means putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. 5. Toileting, which means getting to and from the toilet, getting on or off the toilet, and performing associated personal hygiene. 6. Transferring, which means the ability to move into or out of a bed, a chair or wheelchair. The definitions, you'll notice, are somewhat different although the meanings remain very close. The removal of ambulation from the federal tax-qualified guidelines may especially affect benefits for home care. The loss of ambulation is almost always part of the need for care in the home. Even so, the qualified plans do offer consumer protection requirements. As a result, there is a great deal of disagreement about which plan, qualified or non-qualified, should be sold. Page 53

55 Chapter 3: State and Federal Regulations/Requirements Understanding the Difference in Benefit Triggers Few policyholders purchased their long-term care policy to receive a tax deduction. They purchased their policy for health care protection. Therefore, if the ability to use the policy is limited when health care is needed, was it really worth having a tax benefit? Agents must be very careful about explaining the benefit trigger difference when presenting policies. Some of the states initially resisted approval of tax-qualified plans because they felt the benefit triggers were more restrictive than their state requirements. Such was the case in California, for example. It is vital that agents fully explain the differences between HIPAA s tax-qualified plans and their state s non-tax qualified plans. By fully explaining the difference at the point of sale, the agent is allowing the consumer to do several things: Decide whether the tax benefit of the premium deduction will benefit them personally; Decide whether the loss of the ambulating ADL could affect them personally (especially if home care benefits are important to them); and Fully understand the circumstances that will allow benefits to be paid under their policy. Most policyholders want to understand this and it is in the agent's best interest to be sure that they do. Federal Criteria The federally qualified (tax-qualified) plans do provide worthwhile benefits, even though ambulating is not an ADL. Federally qualified plans that provide coverage for long-term care services (nursing facility, home care, and comprehensive) must base payment benefits on the following criteria: 1. A licensed health practitioner independent of the insurance company must prescribe all services under a plan of care. The licensed health care practitioner does not necessarily have to be a doctor. It can also be a registered professional nurse or a licensed social worker. 2. The insured must be chronically ill by virtue of either: a. Being unable to perform 2 out of the 6 ADLs, or b. Having a severe impairment in cognitive ability. 3. The licensed health care practitioner must certify that either: a. The policyholder is unable to perform at least two of the six activities of daily living, without substantial assistance from another person, due to a loss of functional capacity for no less than 90 days or more, or Page 54

56 Chapter 3: State and Federal Regulations/Requirements b. The insured requires substantial supervision to protect themselves from threats to their health or safety due to a severe cognitive impairment, such as Alzheimer's disease. 4. The licensed health care practitioner must recertify that these requirements have been met every 12 months. The insurance company may not deduct the cost of the recertification from the policy benefit maximums. Although currently the insured must be either chronically ill by virtue of the ADLs or due to cognitive impairment, it is possible that the federal government could expand these requirements at some point. If that were to happen, each state would have to adopt the new triggers as well. Definitions are extremely important in policies and tax-qualified plans are no exception. Because certain phrases were used for specific meanings, IRS Notice has established guidance for many of these terms, including: Substantial Assistance in the ADLs means hands on assistance and standby assistance. Hands-On Assistance means the physical assistance of another person without which the individual would be unable to perform the activity of daily living (ADL). Standby Assistance means the presence of another person within arms reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the activity of daily living. The IRS Notice gives the examples of being ready to catch the person if they fall, or seemed to be ready to fall, while getting into or out of the bathtub or shower or being ready to remove food from the person's throat if the individual chokes while eating. Overall, standby assistance is just what it indicates: being near to help when necessary. Severe Cognitive Impairment means a loss or deterioration in intellectual capacity that is comparable to Alzheimer's disease and similar forms of irreversible dementia and measured by clinical evidence and standardized tests that reliably measure such impairment. The impairment may be in either their short-term or long-term memory. It would include the ability to know people, places, or time. It would include their deductive or abstract reasoning, as well. Substantial Supervision is used in reference to cognitive impairment. It means continual supervision, including verbal cueing, by another person that is necessary to protect the severely cognitively impaired person from threats to their health or safety. Such impaired people are prone, for example, to wander away. Substantial supervision is needed to prevent this. Page 55

57 Chapter 3: State and Federal Regulations/Requirements It is not possible to use the activities of daily living to measure severe cognitive impairment. Individuals with such impairment are often able to perform all of the ADLs without difficulty. Even so, they are unable to care for themselves due to their cognitive impairment. Therefore, the ADLs are not used when assessing this. State laws are not necessarily the same as federal requirements. In fact, it would be surprising if they were the same. Non-qualified plans will meet the state's requirements while qualified plans will meet the federal requirements. Because states do differ, it is not always easy to state the differences between qualified and nonqualified long-term care policies. Generally speaking, however, it is safe to say that federally qualified plans are harder to receive benefits under than are the state's non-tax qualified plans. Agent s Responsibility to Know the Laws Of course, any agent selling long-term care policies must know and understand their own state's policy requirements. This is true of any type of policy, not just long-term care contracts. Most insurance companies marketing LTC policies have printed guidelines for their agents. For example, it may look similar to this: Non-Tax Qualified 1. Medical necessity CAN be a benefit trigger. 2. Activities of daily living: a. 2 of 5 ADL's trigger benefits b. Defined as needing regular human assistance or supervision. 3. Cognitive impairment: a. Not described as "severe" b. Definition does not apply "substantial supervision" test. Tax-Qualified 1. Medical necessity CANNOT be a benefit trigger. 2. Activities of daily living: a. 2 of 6 trigger benefits b. Defined as "unable to perform (without substantial assistance from another individual)" c. Licensed health care practitioner must certify expected inability to perform ADL's for at least 90 days or more. 3. Cognitive impairment a. Described as "severe" b. Definition applies substantial supervision test. Policy Conversions Were Offered Most insurers who had previously issued non-tax qualified plans offered their policyholders the option of converting to qualified contracts. While there are differing Page 56

58 Chapter 3: State and Federal Regulations/Requirements opinions on this, many professionals felt that switching to a tax-qualified contract was a good idea since: 1. Some industry experts believe that benefits received under the current non-tax qualified policies may be taxed as ordinary income. The tax qualified LTC policies would not be. 2. If the insured qualifies, their premiums for tax-qualified long-term care insurance can be deducted up to certain limits. To do this, the insured must itemize their deductions. There are two separate tax issues involved in the tax qualified long-term care policies. The first involves the ability to deduct part or all of the premiums paid. This is possible only under specific conditions. The possibility of the deduction began with the 1997 tax year premiums for tax qualified long-term care plans. The premiums can be itemized as deductions for medical expenses the same as one does for other health care premiums. Of course, if the taxpayer does not itemize their returns, this does them little good. Even so, this is an important change in the tax code because it gives recognition to the importance of protecting oneself against the possibility of long-term nursing home confinements. For those who do itemize, they can deduct their regular medical expenses (including LTC premiums) if they exceed 7.5 percent of their adjusted gross income (AGI). For long-term care insurance, the maximum deduction a taxpayer can take for their premiums depends upon their age. The amounts that may be deducted are based on specific age brackets: age 40 and below, age 41-50, age 51-60, age 61-70, and age 71 and older. The specific dollar figures that may be deducted change periodically so we have chosen not to list the amounts in this course. Each advancing age bracket may deduct more than the previous one. The deduction is based on an individual, so a married couple would each be able to claim the deduction (if they itemize their year end federal taxes) applicable to their age. How will this affect those that do itemize their tax returns? It depends upon their tax rate. It is very important that agents not try to act as an accountant or tax advisor unless he or she definitely has the schooling or experience to do so. It is wiser, in the absence of schooling or experience to suggest the individual contact their personal tax consultant. Only those who itemize their federal taxes at the end of the year and whose medical expenses exceed 7.5 percent of their AGI will be able to take advantage of this premium deduction. Those who do not itemize or who do not have enough medical expenses (including the LTC premiums) will not benefit even though they bought a qualified LTC policy. Page 57

59 Chapter 3: State and Federal Regulations/Requirements Who Will Benefit from Tax-Qualified Plans? Obviously not every senior taxpayer will benefit from the allowed maximum deductions allowed for qualified long-term care premiums. First of all, they are maximum deductions. Some may qualify for only partial deductions rather than the maximum, depending upon their personal situation. To deduct the premiums, several conditions must exist. First of all, the taxpayer must itemize their deductions on their federal tax returns. Because qualified plans are based on federal legislation, deductions also apply only to federal tax returns. Many senior policyholders do not itemize because they do not have enough deductions to allow it. Nationally, less than 30 percent of all federal taxpayers itemize according to "Statistics of Income", Department of Treasury. This 30 percent reflects all taxpayers; even less itemize that are age 65 and older. Secondly, the amount of total medical expenses (counting the premium) must exceed 7.5% of the taxpayer's adjusted gross income (AGI). Since many of these taxpayers pay very little of their medical expenses, this is unlikely. Reimbursed expenses will not count towards this percentage amount. In the past, benefits from health care policies have not been reported as income, but it appears that the Internal Revenue Service would like to change this. If it does change, those with qualified long-term care policies will not be taxed on the benefits they receive. Those with non-tax qualified plans may have to declare the payment they received for qualified care as income. Of course, then they would also be able to declare the expenses they paid. Whether or not this will balance out will depend upon multiple individual factors. Defining Chronically Ill It is necessary to understand the definition of "chronically ill." A chronically ill person is one who has been certified within the previous year by a licensed health care practitioner as unable to perform at least two activities of daily living for a period of no less than 90 days due to a loss of functional capacity, or requiring substantial supervision to protect the person from threats to health and safety due to severe cognitive impairment. Qualifying Contracts for Tax-Favored Status To benefit from the tax-favored status, the contract must meet certain provisions. It must provide only coverage for qualified long-term care services and meet the following requirements: Page 58

60 Chapter 3: State and Federal Regulations/Requirements 1. The contract must be guaranteed renewable; 2. The contract can not provide for a cash-surrender value or other money that can be paid, assigned or pledged as collateral for a loan or be borrowed; 3. Refunds and dividends under the contract may be used only to reduce future premiums or to increase future benefits; 4. The contract must meet consumer protection provisions; 5. The contract generally does not pay or reimburse expenses reimbursable under Medicare. The deduction and benefit exclusions generally apply to contracts issued after December 31st, A grandfather rule provided that contracts issued earlier and that met the long-term care insurance requirements of the state where issued, would be treated as a qualified long-term care contract. Purchasing Contracts for Financial Protection Whether or not to purchase a long-term care insurance policy should never be made upon the tax implications of the purchase. Such a policy is intended to protect against the catastrophic losses of confinement to a nursing home or for losses due to prolonged illness at home. It would be hard to imagine anyone buying such a policy purely for the tax favorable status that might be available. Unfortunately, some agents have focused more on the tax benefits than on the desired financial protection such policies offer. The primary considerations are always the benefits offered or the overall protection available. Even so, tax status issues will be part of the discussion between the consumer and agent. At no time should an agent attempt to give advice on tax issues unless they have specific training in tax issues (such as a CPA would possess). Determining Tax Treatment Many companies have put out bulletins to their agents regarding tax issues. A single statement in a bulletin dated 05/20/97 from an insurer when tax debates first began is typical of most: "It is not known how non-qualified policies will be treated for tax purposes." Of course, we know that non-qualified policies cannot deduct the premiums from their itemized tax forms, but the questions go beyond that. What is not known is how the IRS will handle benefits received. Since insurers are required to issue 1099 forms to both the recipient of the benefits and the IRS, questions on taxation will continue. The 1099 form is specific to long-term care policies and will be labeled LTC. Both qualified and non-qualified policyholders will receive this form. The form Page 59

61 Chapter 3: State and Federal Regulations/Requirements states: "Amounts paid under a qualified long-term care insurance contract are excluded from your income." This statement would suggest that non-tax qualified contracts would have to claim such benefits. Even though the statement suggests this, however, it may not be true. Certified Public Accountants or tax attorneys should answer tax related questions never the agent. Recently these taxation debates seem to be on hold as primarily qualified plans are sold, but it is likely that the IRS will eventually come back to it and make specific determinations. Agents who were worrying about which plan to offer (qualified or non-tax qualified) just a few years ago now seem to be primarily marketing tax qualified plans. As a result, these tax worries seem to be forgotten for now. Apparently many agents felt that the possibility of taxation of benefits was strong enough to move in favor of tax-qualified policies. One insurer called the tax qualified plans a "safe harbor" providing protection if benefit taxation becomes a reality. On the other hand, the elimination of ambulation as an activity of daily living in tax-qualified plans is a definite disadvantage. This is especially true when it comes to home care benefits. It comes down to each person deciding for him or herself. It is probably best for agents to present both qualified and nonqualified options so that the consumer can make the choice. In that way, if the final choice is not satisfactory, the agent will not be at fault. It would probably be wise for each agent to document the products shown. Pre-1997 Long-Term Care Policies Pre-1997 policies were grandfathered in as tax qualified. Even though these pre-1997 policies were granted tax-favorable status, any material change revokes this status. It is the definition of "material change" that raises questions. Initially, even a premium change could have constituted a material change in the policy. If this were the case, insurance companies could have caused a material change simply by raising the premium rate. Consumers had the impression that they were guaranteed tax-favored status when their pre-1997 policies were grandfathered in as tax qualified plans. That was not actually the case since insureds still had to file an itemized statement and meet the 7.5 percent AGI requirement. The Kansas Insurance Department said in comments that if it was possible to lose the tax-favored status by virtually any change implemented it would have a serious impact on the long-term care market in their state. The federal law did not in any way indicate that a change in the contract language would result in a pre-1997 policy becoming nonqualified, the Kansas department said. The IRS stance is contrary to the intent of Page 60

62 Chapter 3: State and Federal Regulations/Requirements HIPAA, Kansas felt. This was not the only state to question the taxation status of longterm care policies. Actually HIPAA did not specify the circumstances in which changes to a contract would be so significant that they would cause a new policy to be issued. Insurance companies have historically decided which changes indicated a new policy rather than a modification to an existing policy. State law also provided guidelines. The aim is generally to preserve the pre-1997 grandfathered policy. Since consumers are not likely to be aware of these issues, they may make changes that would allow them to lose their tax-favored status. The American Council of Life Insurance, which said its member companies represent 80 percent of the long-term care insurance market, was extremely troubled by the very narrow interpretation of the grandfather rule contained in the IRS Notice The group called it inconsistent with statutory changes and would lead to the inappropriate loss of grandfathering of many policy contracts. The Treasury Responds with Exceptions Enough groups were concerned about the material modification issue that clarifications had to be made by the Treasury. They clarified what a material modification represented by applying "exceptions." This meant that specific changes were not considered grand enough to require a new policy; rather they were considered endorsements to the existing policy. These exceptions included: 1. Premium mode changes; 2. Class wide premium increases or decreases; 3. After issue application of a spousal discount; 4. Benefit reductions, with corresponding premium reduction, requested by the insured; and 5. Continuation or conversion of coverage following an individual's ineligibility for continued coverage under a group contract. It was also necessary to address the issues of alternate plans of care and benefit increases. An addition that does not increase premiums for alternate forms of care selected by the insured is not considered a material change. Therefore, the benefits paid for services included in an Alternate Plan of Care, but not specifically covered under the policy, would not be considered a material change to the policy. Page 61

63 Chapter 3: State and Federal Regulations/Requirements It also is not a material change if the insured purchases a rider increasing benefits of the grandfathered policy if the rider alone would be considered a qualified long-term care contract. Such riders would have to meet all of the requirements of HIPAA on its own, including the benefit triggers and any applicable Consumer Protection requirements. Some companies will be looking at the possibility of developing such riders to provide benefit increases for the grandfathered policies. If the policies are quite old, however, it is unlikely that such riders would be offered. All questions have not been addressed. Where specific questions apply, insurance industry professionals will be working with the Treasury for clarifications. Most of the tax questions raised, however, reflect concerns regarding non-qualified plans and how they could potentially be taxed when benefits are received. Some states have considered requiring insurance agents to present both qualified and non-qualified plans. California has passed such legislation. If agents are presenting both plans, they must be able to give some kind of explanation of taxation differences. At this time, that is impossible to do since we simply do not have a tax clarification from the IRS. Addressing Consumer Concerns Although taxation falls outside the realm of insurance regulation, state insurance departments and the senior counseling programs need to know how such policies will be taxed. They are often the agencies that people turn to for advice. The National Association of Insurance Commissioners (NAIC) has requested clarification from the Internal Revenue Service, but they have been no more successful than others who have requested it. Beginning in the tax year 1997, every insurance carrier is required to report to the Internal Revenue Service on Form 1099 any benefit paid under any contract that was sold, marketed or issued as a long-term care insurance contract. The insurer is not required to determine whether the benefits are taxable or not; they must simply report the benefits paid. Ironically, there are no instructions for the taxpayers themselves about their use of these 1099 forms. No one, not Certified Public Accountants, not the insurance legal departments, not the state insurance departments can tell the taxpayers if they need to do something with these issued forms. Basically, the HIPAA specifically addressed tax qualified long-term care contracts but totally ignored non-qualified. Therein lays the problem. Since non-qualified insurance contracts were not addressed, tax status is left up to anyone's guess. There are some possibilities: Page 62

64 Chapter 3: State and Federal Regulations/Requirements 1. The Treasury could rule that all health and accident benefits, which would include the non-tax qualified long-term care policies, are taxable as income. In such an event, only the tax-qualified plans would be exempt from benefit taxation. 2. The Treasury and the Congress can simply continue to ignore the entire issue. In this case, tax treatment would continue to be undetermined. To date, this is the avenue that has been taken. 3. Congress could clarify which benefits are excluded from income and which ones are included. In such a case, it is likely that the non-qualified plans would find their benefits taxed. 4. The Treasury could make a compromise ruling that requires some portion of the benefit payments of the non-qualified plans to be taxable, while allowing other portions to be nontaxable. All four suggestions are only conjecture. There is no way to know for sure what will happen. Therefore, it is important to read all industry bulletins that are received from insurance companies. Anything to do with taxation may see changes. It is vital that agents follow the most current information. Federal Tax-Qualified versus State Non-Tax (Non-Partnership) Qualified Policies For individuals who desire asset protection, there would be no consideration of non-tax qualified policies since all Partnership plans have tax-qualified status. The only reason an individual would be seeking a non-tax qualified plan would be for the additional ease of collecting benefits, based on use of additional ADLs in the policy. One might easily assume that everyone would want a tax-qualified plan, but that is not necessarily the best choice for every individual. Of course, if asset protection is the goal, there is no choice available it must be tax qualified. The major difference has to do with benefit triggers. Benefit triggers are the conditions that "trigger" benefit payment from the insurance company. If a person needs to enter a nursing home, but his or her policy will not pay because the policyholder has not met the criterion for collecting benefits, he or she will not be able to access their policy s benefits. The difference directly relates to the activities of daily living (ADL). In the non-tax qualifies policy forms, ambulation tends to be the primary difference. Ambulation is the ability to move around without help from another individual. This daily activity is often the first to deteriorate as we age. Page 63

65 Chapter 3: State and Federal Regulations/Requirements Tax-qualified plans come under federal legislation. Federally qualified long-term care policies providing coverage for long-term care services must base payment of benefits on certain criteria requirements: 1. All services must be prescribed under a plan of care by a licensed health care practitioner independent of the insurance company. 2. The insured must be chronically ill by virtue of either one of the two following conditions: a. Being unable to perform two of the following activities of daily living (ADL): eating, toileting, transferring in and out of beds or chairs, bathing, dressing, and continence, or b. Having a severe impairment in cognitive ability. There are differences in the tax-qualified and non-tax-qualified long-term care plan ADLS. These differences are important because they relate to the benefit triggers. Taxqualified plans have eliminated the ADL of ambulation (the ability to move around independently of others). Section 6021: Expansion of State LTC Partnership Program The Deficit Reduction Act of 2005 (effective in 2006) provided some statutory Requirements that are important to the expansion of long-term care Partnership policies. This would include: Dollar-for-Dollar Asset Protection Inflation Protection Plan Reporting Requirements In order to provide asset protection, states must make necessary statute amendments that provide for the disregard of assets when applying for Medicaid benefits. An individual applying for benefits must be a resident of the state when the coverage first became effective under the policy. The Partnership policy will be a tax-qualified plan that was issued no earlier than the effective date of the state plan amendment allowing use of such LTC policies. They must meet the October 2000 NAIC model regulations and requirements for consumer protections. Since most people will not use their long-term care benefits for many years after purchase, it is important to include inflation protection. Partnership plans have specific inflation protection requirements. The requirements were previously outlined in this course. Partnership plan insurers must provide regular reports to the HHS Secretary and include specific information, including: Page 64

66 Chapter 3: State and Federal Regulations/Requirements Consumer Education Agent Education State Amendments Where Required Reciprocity State Effective Dates Notification of when benefits have been paid and the amount of benefits paid. Notification of policy termination. Any other information requested by HHS. The state may not impose any requirements affecting the terms or benefits on Partnership policies that were not also imposed on traditional non-partnership plans. States may require issuers to report additional information beyond those listed and there may be differences among the states. It is the responsibility of each state to properly educate their consumers so they are aware of their asset-protection options. Most states will be imposing some type of continuing education requirements for those agents wanting to market Partnership plans. While these agent requirements will vary, many states are adopting an initial requirement of 8 hours, with 4 hours required each license renewal period thereafter. Policies are deemed to meet required standards of the model regulation or the model Act if the state plan amendment is certified by the state insurance commissioner in a manner satisfactory to the Secretary. States with Partnership contracts must develop standards for uniform reciprocal recognition of Partnership policies between participating states. This would include benefits paid under the policies (being treated equally by all states) and opt out provisions where states could notify the Secretary in writing if they do not want to participate in a reciprocity program. Qualified state long-term care Partnership policies issued on the first calendar quarter in which the plan amendment was submitted to the Secretary. Partnership plans, while preserving assets also have many other components. Just like a non-partnership policy, the applicant must make decisions regarding the type and quantity of benefits they wish to purchase. Just like traditional LTC policies the applicant must medically qualify for the Partnership plans. Since insurers underwrite the policies, even asset protection models must be an acceptable risk. Not every person will feel they need the same policy benefits in their long-term care insurance policy. While most states mandate some types of coverage, such as equality among the levels of care, there are other options that may be purchased or declined. A Page 65

67 Chapter 3: State and Federal Regulations/Requirements trained and caring agent can help the consumer understand those options and make wise choices. Making Benefit Choices Some choices are made for consumers by the insurers, such as the minimum daily benefit available. Other choices fall on the applicant, such as whether to purchase a $150 per day benefit or a $200 per day nursing home benefit. Regardless of the choices consumers make, all policies must follow federal and state guidelines. In fact, insurers will not offer a policy that does not meet minimum state and federal standards. For example, in some states insurers must offer no less than a $100 per day nursing home benefit and all three levels of care must be covered equally (skilled, intermediate and custodial, also called personal care). Policies following federal guidelines will be taxqualified. Non-partnership polices following state guidelines might be non-tax qualified plans. Many states mandate specific agent education prior to being able to market or sell non-partnership LTC policies. Agents selling Partnership policies must certainly acquire additional education in order to market partnership plans. In both cases, the goal is to have educated field staff relaying correct information to consumers. All policies offer some options, which may be purchased for additional premium. Of course, consumers may also refuse the optional coverage. When refusing some types of options, a rejection form must be signed and dated by the applicant. In some states, an existing policy may be modified; in others an entirely new policy would be required when changes are desired. When a consumer decides to purchase an LTC policy, several buying decisions must be made. These could include: 1. Daily benefit amounts: this is the daily benefit that will be paid by the insurer if confinement in a nursing home occurs. 2. The length of time the policy will pay benefits: this could range from one year to the insured s lifetime. Of course, the longer the length of policy benefits, the more expensive the policy will be. 3. Inclusion of an inflation guard: Non-partnership plans will not require this, while Partnership plans have inflation protection guidelines that must be followed. An inflation protection guards against the rising costs of long-term care by providing an increasing benefit according to contract terms. Partnership plans have two types: an increase based on a predetermined percentage and an offer at specific intervals allowing the insured to increase benefits without proof of insurability. Page 66

68 Chapter 3: State and Federal Regulations/Requirements 4. The waiting period, also called an elimination period, must be selected. This is the period of time that must pass while receiving care before the policy will pay for anything. It is a deductible expressed as days not covered. The option can range from zero days to 100 days. A few policies may have a choice of a longer time period. 5. Dollar-for-Dollar Partnership asset protection or Total Asset protection, if both are available. A Hybrid model may also be available. Not all states offer all options since DRA specifies all new LTC Partnership plans to offer only dollarfor-dollar models, in the hope of keeping premiums affordable for lower and medium income individuals. As every field agent knows, clients often prefer to have the agent make selections for them, but this is not wise. Although the agent will be valued for the advice he or she gives, the actual benefit decisions need to be made by the consumer. This means the agent must fully explain each option so that the consumer can make informed choices. In a way, it is similar to the cafeteria insurance plans where employees have an array of choices in benefits. The difference is that the long-term care policies have no limits on the choices that the consumer can make. If he or she is willing to pay the price, absolutely everything available can be selected. Typically an agent will go from available benefit to available benefit, explaining each option, and getting a decision from the applicant before moving on to the next decision. Benefit choices are primarily the same as for non-partnership policies in that there is a daily or monthly benefit, elimination or waiting periods, a home health care and adult day care benefit level, an inflation feature, and a benefit period with a lifetime maximum generally offered. Those who choose the lifetime Partnership benefit have apparently decided that they never want to use Medicaid funding. This is not surprising since people often believe Medicaid funding leads to inferior care, although statistically that has not been validated. There is something else about Partnership policies that mirror non-partnership contracts: underwriting. Just as insurers underwrite traditional long-term care policies, they also underwrite Partnership contracts. Therefore, the applicant must medically qualify in order to purchase such a plan. Perhaps that explains the younger ages that seem to be applying for and buying Partnership long-term care plans. Daily Benefit Options While there are many policy options, the daily benefit amount is usually the first policy decision, with the second one being the length of time the benefits will continue. Both of these strongly affect the cost of the policy, but they also affect something else that is very Page 67

69 Chapter 3: State and Federal Regulations/Requirements important: the amount of assets that will be protected from Medicaid spend-down requirements. The total benefit amount (daily benefit multiplied by the length of benefit payouts) determines the amount of assets protected in dollar-for-dollar Partnership plans. The type of policy being purchased will affect how the daily benefit works; for example a non-partnership policy may be purchased that covers home health care only (not institutionalized care). The daily benefit is based upon the type of policy selected. Policies that cover institutional care in a nursing home will have options that may vary from policies that cover only home care benefits. Integrated policies will vary from those that pay a daily indemnity amount. Many states have mandatory minimum limitations ($100 per day benefits for example). Insurance companies will determine the upper possibilities. Obviously, the consumer cannot select a figure higher than that offered by the issuing company. Nor can an insurer offer a daily indemnity amount that is lower than those set by the state where issued. At one time insurers offered as low as a $40 per day benefit in the nursing home. By today s standards, that would be extremely inadequate for nursing home care. This daily benefit can have variations. Some policies will specify an amount (not to exceed actual cost) for each nursing home confinement day. Other policies (called integrated plans) offer a more relaxed benefit formula. These policies have a "pool" of money, which may be used however the policyholder sees fit, within the terms of the contract. As a result this pool of money could be spent for home care rather than a nursing home confinement, as long as the care met the contract requirements. Benefits will be paid as long as this maximum amount lasts regardless of the time period. The danger in having a pool of money, however, is that the funds may be used up by the time a nursing home confinement actually occurs. If the funds have been previously used up, there will be no more benefits payable. Since people prefer to stay at home, this may work out well, but it can also quickly deplete funds in a wasteful manner. The amounts paid will usually vary depending upon whether they are going towards a nursing home confinement, home health care, adult day care, and so forth. The "pool of money" type is gaining popularity where offered, since consumers see it as a way to make health care choices more freely. Integrated policies are generally more expensive than indemnity contracts. As in all policy contacts, integrated plans have benefit qualification requirements, exclusions, and limitations; they do not simply hand the insured money to be used in any manner desired. While sales can and do vary from state to state, California reported that the average daily amount purchased in Partnership plans was $150 (2003 GAO figure) with a lifetime benefit period. Indiana reported an average daily figure purchased as $130 per day, which may reflect the difference in state costs. Californians can expect to pay about $230 per day in a nursing home while Indianans will pay around $170. New Yorkers were Page 68

70 Chapter 3: State and Federal Regulations/Requirements buying an average of $200 per day benefit, but they also have some of the nation s highest nursing home rates. Agents May Not... Insurance agents (known as insurance producers as of July 1, 2009) have specific responsibilities regarding their profession. Certainly insurance producers are required to know and understand the federal and state requirements. Long-term care is complicated and it is important that anyone marketing them understand the contracts. Some producer actions are actually prohibited. These include: 1. Completing the medical history of an applicant. Often it seems easier to write what the applicant relates to us, but this is not permitted on a long-term care application. Applicants must complete their own health history; this eliminates unintentional errors. 2. Knowingly selling a long-term care policy to any person on Medicaid. Obviously if the individual qualifies for Medicaid they do not have sufficient assets or income to purchase an insurance policy, especially when that policy would simply duplicate what Medicaid is already providing. 3. Using or engaging in unfair or deceptive acts in the advertising, sale or marketing of long-term care contracts. This education is required, in part, to educate agents so they do not engage in activities that are illegal. Insurance producers must obtain education to understand what they may and may not do in the sales field. Long-term care policies can be complicated. If the agent does not understand the longterm care insurance products how can we expect our citizens to understand them? Insurance producers must take this required education seriously not only to prevent engaging in prohibited practices but also to lend greater understanding to the products they are representing. By having a better understanding they will be better able to communicate their knowledge to long-term care insurance applicants. Page 69

71 Chapter 3: State and Federal Regulations/Requirements Asset Protection in Partnership Policies A primary reason for purchasing a Partnership long-term care policy is the asset protection it provides. There were initially two asset protection models, although a third variety developed: 1. Dollar-for-Dollar: Assets are protected up to the amount of the private insurance benefit purchased. If policy benefits equal $100,000, then $100,000 of private assets are protected from the required Medicaid spend-down once policy benefits are exhausted and Medicaid assistance is requested. 2. Total Asset Protection: All assets are protected when a state-defined minimum benefit package is purchased by the consumer. In this case, as long as the individual buys the minimum required benefits under the state plan, all his or her assets are protected from Medicaid spend-down requirements even if the assets exceed the total policy benefits purchased. Only New York and Indiana have this option. Total asset protection will not be offered in any of the new Partnership plans. 3. Hybrid: This Partnership program offers both dollar-for-dollar and total asset protection. The type of asset protection depends on the initial amount of coverage purchased. Total asset protection is available for policies with initial coverage amounts greater than or equal to a coverage level defined by the state. Indiana introduced a hybrid model in Consumers have purchased more long-term care insurance coverage to get total asset protection than they have the less expensive coverage for the dollar-to-dollar program. This would indicate that consumers are willing to pay a higher premium for the better asset protection offered by the Total Asset model. To trigger total asset protection in 2005 policyholders had to buy a policy benefit valued at $196,994 or greater. Prior to 1998, only 29 percent of the policies purchased had total coverage amounts large enough to trigger total asset protection. When compared with just the first quarter of 2005, 87 percent of policies purchased had total coverage amounts large enough to trigger total asset protection. As you know, under the Partnership program the state will disregard the policyholder s personal assets equal to amounts paid out under a qualifying dollar-for-dollar model insurance policy or it will disregard all assets under the Total Asset Model. Policy Structure We have seen much legislation by the states directed at long-term care policies. Even the federal government has been involved in this with the tax-qualified plans. It is Page 70

72 Chapter 3: State and Federal Regulations/Requirements important to note that tax-qualified plans always come under federal legislation whereas non-tax qualified plans come under state legislation. Each state will have specific policy requirements. Partnership plans come under federal requirements and will be taxqualified. The states will assign descriptive names in an effort to identify policies in a way that consumers can comprehend. Such terms as Nursing Facility Only policy, Comprehensive policy or Home Care Only policy will be used. Each state will have their specific way of labeling policies. Long-term care policies often do not pay benefits for years after purchase. An error on the part of the agent can have devastating consequences. Home Care Options While it is very important to cover the catastrophic costs of institutionalization in a nursing home, most Americans would prefer to remain at home. It is often possible to obtain both nursing home benefits and home care benefits in the same policy. In such a case, home care is typically covered at 50 percent of the nursing home rate. Therefore, if the nursing home benefit is $100, the home care rate will be $50. This may not be adequate funding for home care. If home care is a primary concern, it may be best to purchase a separate policy for this if financially possible. Some home care policies carry additional benefits such as coverage for adult day care. Inflation Protection Industry professionals generally recommend inflation protection, but the cost can be high. Those who purchase at younger ages are especially encouraged to add this feature since the cost of long-term care is certain to increase over time. The cost of providing long-term care has been increasing faster than inflation. At older ages, the consumer will need to weigh the cost of the additional premium option with the amount of increase in benefits that will be produced. The rising costs of institutional care surpass the increase in the Consumer Price Index. As of 2006 figures, a year of nursing home care in New York City costs approximately $146,000 on the high end (Washington also ranks above the national average for LTC care). Indiana residents pay around $62,000 per year. There is little doubt that costs are rising. Few retired people can afford to pay such high costs, so they turn to nursing home policies. Since such policies can be expensive, consumers may not purchase features that are designed to keep the coverage adequate. While traditional policies still give the applicant the choice of having or not having inflation protection, Partnership policies are structured differently. Page 71

73 Chapter 3: State and Federal Regulations/Requirements Partnership policies have specific inflation protection requirements under the Deficit Reduction Act of 2005: Applicants under 61 years old must be given compound annual inflation protection, Applicants 61 to 76 years old must be given some level of inflation protection, and Applicants 76 years old or more must be offered inflation protection, but they do not have to accept it. Traditional long-term care plans continue to make inflation protection an option, which may be rejected by the applicant. Many in the health care field state that the amount of increase offered is not adequate, but it will help to offset the rising costs of long-term care. The inflation protection, usually a 5 percent compound yearly increase, may eventually become part of all policies, but currently it is most likely to be just an option that the consumer must accept or reject. Some states require the consumer to sign a rejection form as proof that the agent offered the option. Simple and Compound Protection Inflation protection based on percentages is offered in one of two ways: simple increases in benefits or compound increases in benefits. Like interest earnings, the benefits increase based on only the original daily indemnity amount or on the total indemnity amount (base plus previous increases). Some states mandate that all inflation protection options offered must be compound protection; others allow the insurers to offer both types. Under a simple inflation benefit, a $100 daily benefit would increase by $5 each year. Under a compound inflation benefit the protection increases by 5 percent of the total daily benefit payment. This is called a compound inflation benefit because it uses the previous year's amount rather than the original daily benefit amount. This is the same basis used with interest earnings on investments. Compound interest earnings are always better than simple interest earnings. The following graph more clearly illustrates how compounding works with the inflation protection riders: Year 1 Year 5 Year 10 Year 15 Year 20 Base Policy $100 $100 $100 $100 $100 Simple $100 $120 $145 $170 $195 Compound $100 $121 $155 $197 $252 Page 72

74 Chapter 3: State and Federal Regulations/Requirements Required Rejection Forms The individual state insurance departments generally recommend inflation protection riders to their citizens. Inflation protection plans must continue even if the insured is confined to a nursing home or similar institution. Many states are now requiring a signed rejection form if the insured does not accept the inflation protection option. Although this is intended to be consumer protection, it is also agent protection. It assures that the family of the insured will not later try to sue the agent for failing to sell the inflation protection. Elimination Periods in LTC Policies In auto insurance and homeowner s insurance, higher deductibles are recommended as a way of reducing premium cost. The point is catastrophic coverage not coverage of the small day-to-day losses. The same is true when it comes to health insurance. In longterm care contracts, there are a variety of waiting or elimination periods available in policies. Basically, a waiting or elimination period is simply a deductible expressed as days not covered. The choice is made at the time of application. Policies that have no waiting period (called zero elimination days) will be more expensive than those that have a 100-day wait. Fifteen to thirty elimination days are most commonly seen, although the zero day elimination periods have gained popularity. As one might expect, the longer the elimination period, the less expensive the policy; the shorter the elimination period, the more expensive it is. Therefore: Zero day elimination = higher cost. 100 day elimination = lower cost. All the variables between the two extremes will have varying amounts of premium; 30 day elimination period will cost less than a 15 day elimination time period, and so on. When considering which elimination period is appropriate, one should consider the consumer's ability to pay the initial confinement. For example, if thirty-day elimination is being considered at $100 per day benefit, by multiplying $100 by 30 days, it is possible to see what the consumer would first pay: $3,000 before his or her policy began. If this is something the consumer is comfortable with, then it may be appropriate to choose a 30- day elimination period. Again, a larger elimination (deductible) period will mean lower yearly premium costs. Page 73

75 Chapter 3: State and Federal Regulations/Requirements Policy Type The specific type of policy to be purchased can be a harder question. Many of the nursing home policies are basically the same, with differences being hard to distinguish. It is very important that the agent fully understand what those differences are before presenting a policy. Some policies will offer coverage only in the nursing home while others offer a combination of possibilities. The insurer will mark their policy types in some specific way. The agent is responsible for understanding the differences. Many policies offer extra benefits, which agents often refer to as "bells and whistles" since they give additional features, but those features are not vital to the effectiveness of the policy. Even so, consumers may find value in them. Restoration of Policy Benefits Some policies have a restoration benefit in their policy. This means that part or all of used benefits renew after a specific length of time and under specific circumstances. During this period of time, the policyholder must be claim free. Preexisting Periods in Policies Obviously as we age it is more likely that our health will not be perfect. High blood pressure, arthritis, or other ailments are likely to develop. It is possible that conditions existing at the time of application could present claims soon after the policy is issued. Because of this, companies have what is called a preexisting condition period. A preexisting condition is one for which the policyholder received treatment or medical advice within a specified time period prior to policy issue. Under federal law, that period of time prior to application is six months. Failure to disclose conditions that were known to the applicant can result in claims being denied when benefits are applied for or result from that condition. Medication, it should be noted, constitutes treatment. In some cases, the insurance company will even rescind the policy due to failure to disclose all requested medical history. Some policies will cover all conditions that were disclosed but apply the preexisting period to any that were not listed as a means of encouraging full disclosure. When the preexisting period has passed, all medical conditions are then covered. Not all policies will impose a preexisting period; as long as the condition was disclosed at the time of application, all claims will be honored in such policies. Other policies do impose preexisting periods, but usually no more than six months from the time of policy issue Page 74

76 Chapter 3: State and Federal Regulations/Requirements (which may be mandated by state statute). Policies tend to specifically list preexisting conditions in a separate paragraph in the policy. Prior Hospitalization Requirements for Skilled Care Under Medicare, hospitalization must have occurred for the same or related condition in order to receive Medicare s skilled care benefits (additional criteria for skilled care also exists). With traditional LTC policies, sometimes prior hospitalization is required to collect nursing home benefits and sometimes it is not. Washington does not allow a prior hospitalization requirement in LTC polices. In states that allow prior hospitalization, policies may still offer a non-hospitalization option for extra premium. When prior hospitalization is required in a policy, typically the patient must have been there for three or more days. They must also have been admitted to the nursing home for the same or related condition for which they were hospitalized. The nursing home admittance may have to be anywhere from 15 to 30 days following discharge from the hospital. Nonforfeiture Values State regulators are giving nonforfeiture values a hard look. With rising premiums, many long term clients are finding they can no longer afford to keep their policy. When a consumer has held a long-term care policy for many years, never claiming any benefits, a lapse of the policy means wasted premium dollars, which have been paid out over several years. It obviously means that insurers have benefited while consumers have merely wasted premium dollars. If they are forced, through rising costs, to abandon their policies as they approach the age of needing the benefits insurers have benefited unfairly. Federal law requires that companies at least offer a nonforfeiture provision to the prospective policyholder in tax-qualified plans. Non-tax qualified plans do not need to offer this additional benefit, unless state law requires it. The importance of Nonforfeiture values are often overlooked by consumers in favor of lower policy premiums. Even agents often fail to realize the importance of nonforfeiture values. Waiver of Premium Waiver of premium is offered in most policies. Some make this benefit part of the policy for no added premium while others view it as an option that must be purchased. Waiver of premiums occurs when the policyholder is in the nursing facility or other contractually covered facility, as a patient. At a given point, he or she no longer needs to Page 75

77 Chapter 3: State and Federal Regulations/Requirements pay premiums, but policy benefits continue. The point of time when the waiver kicks in will depend upon policy language. Some policies specify that the waiver starts counting only from the time the insured actually qualifies for policy benefits; other policies let it begin from the first day of confinement. This is an important point unless the policyholder has selected a zero elimination period. If a zero elimination period were selected there would be no difference between the two types. If the policy waiver of premium begins from the day the policyholder actually qualifies for benefits and the policy contains a 30-day elimination period, it would look like this: 30 elimination days + benefit days = waiver of premium satisfaction. While the period of time can vary, it is common to begin after 90 benefit days. Therefore, it would be 30 days plus an additional 90 benefit days before the waiver actually became effective. If the confinement stops, the premiums are reinstated, but the policyholder would not have to pay premiums for the previously waived time period. If the policyholder is paid ahead, most companies will not refund premium, even though the waiver of premium has kicked in. The policyholder would have to wait until premiums were actually due to utilize this feature. Some of the newer policies will, however, make refunds on a quarterly basis for paid-ahead premiums during qualified waiver of premium periods. Unintentional Lapse of Policy As people age forgetfulness is common. Many states now have provisions for unintentional lapses of policies. Both regulators and insurers have realized that this may especially be a problem in the older ages and especially when illness has developed. A long-time policyholder, without meaning to, can allow a policy to lapse for nonpayment of premiums. It can happen when coverage is most needed because illness or cognitive impairment has developed. Therefore, many states have provisions that allow the policyholder to reinstate without having to go through new underwriting. Of course, past premiums will need to be paid. The length of time that may pass while still allowing reinstatement varies. Typically, insurance companies allow a 30-day grace period anyway, but some reinstatement periods can be as long as 180 days (again, past due premiums must be paid). It is the waiver of new underwriting that is most important since illness or cognitive impairment may be a factor in the lapse. Obviously, having to underwrite a new policy could mean rejection for the insured. The existing policy is simply reinstated as it was before the lapse. Page 76

78 Chapter 3: State and Federal Regulations/Requirements Policy Renewal Features It is now common for nursing home policies to be either guaranteed renewable or noncancelable. Guaranteed renewable means the insured has the right to continue coverage as long as they pay their premiums in a timely manner. The insurer may not unilaterally change the terms of the coverage or decline to renew. The premium rates can be changed. Non-cancelable means the insured has the right to continue the coverage as long as they pay their premiums in a timely manner. Again, the insurer may not unilaterally change the terms of coverage, decline to renew, or change the premium rates. Please note noncancelable policies may not change premium rates. Such LTC policies would be rare, if available at all. Washington Limitations and Exclusions: WAC (2) Long-term care policies and certificates may not be issued if they limit or exclude coverage by type of illness, treatment, medical condition or accident, except for the following permitted exclusions: 1. Preexisting conditions and diseases; 2. Alcoholism and drug addiction; 3. Illness, treatment or medical conditions resulting from war or an act of war; 4. Participation in a felony, riot or insurrection; 5. Service in the armed forces or units auxiliary to them; 6. Suicide, whether judged sane or insane; this includes attempts at suicide or intentionally self-inflicted injuries; 7. Aviation in a non-fare-paying capacity; 8. Treatment in a government facility (unless required by law), services available under Medicare, or other government program; 9. Expenses paid for by another insurance policy; 10. In qualified LTC insurance policies, expenses for services and items that will be reimbursed under Title XVIII of the Social Security Act or would be reimbursable if not for a deductible or coinsurance amount. Insurers may not prohibit, exclude, or limit services based on the type of provider or limit coverage if services are provided in another state except: 1. When the other state does not have the provider licensing, certification, or registration required in the policy. The policy may have requirements that must be satisfied in lieu of licensure certification or registration. Page 77

79 Chapter 3: State and Federal Regulations/Requirements 2. When the other state issues licenses, certifications or registrations under another name than the one used in Washington. Issuers may exclude or limit payment for services provided outside the United States or permit or limit benefit levels to reflect legitimate variations or differences in provider rates. Issuers must still cover services that would be covered in the state of issue irrespective of any licensing, registration or certification requirements for providers in the other state. If the claim would be approved were it not for the licensing issue, the claim must be approved for payment. Extension of Benefits If an insured is receiving benefits and for some reason the policy cancels, most states have provisions that require benefits to continue. This is called Extension of Benefits. It does not cover an individual whose benefits under the policy simply run out or are exhausted. Standardized Definitions As is so often the case, definitions need to be standardized to avoid misunderstandings. No policy may be advertised, solicited or issued for delivery as a long-term care Partnership contract which uses definitions more restrictive or less favorable for the policyholder than that allowed by the state where issued. Minimum Partnership Requirements Long-term care Partnership policies do, of course, have minimum standards, which must be met. Standards are based on the state where issued. Since each state may have different state requirements, plans may vary from state to state. In all states, an agent would be acting illegally if he or she told a prospective client that the policy he or she was demonstrating for sale was a Partnership policy when, in fact, it did not meet partnership criteria. The minimum standards set down by each state are just that: minimums. They do not prevent the inclusion of other provisions or benefits that are consumer favorable, as long as they are not inconsistent with the required standards of the state where issued. Page 78

80 Chapter 3: State and Federal Regulations/Requirements Benefit Duplication It is the responsibility of every insurance company and every agent to make reasonable efforts to determine whether the issuance of a long-term care Partnership policy might duplicate benefits being received under another long-term care policy, another policy paying similar benefits, or duplicate other sources of coverage such as a Medicare supplemental policy. The insurance company or agent must take reasonable steps to determine that the purchase of the coverage being applied for is suitable for the consumer's needs based on the financial circumstances of the applicant or insured. Partnership Publication Every applicant must be provided with a copy of the long-term care Partnership publication (which was developed jointly by the commissioner and the department of social and health services) no later than when the long-term care Partnership application is signed by the applicant. On the first page of every Partnership contract, it must state that the plan is designed to qualify the owner for Medicaid asset protection. A similar statement must be included on every Partnership LTC application and on any outline or summary of coverage provided to applicants or insured. Partnership Versus Traditional Policies It appears that those who buy Partnership plans are first-time long-term care insurance buyers. Partnership policies are most likely to be purchased for their asset protection qualities, which traditional policies do not provide and never will provide. It is not the insurers that provide asset protection. Insurers provide the benefits within the policies; the states provide asset protection, which is why insurers cannot charge additional premium when issuing Partnership plans. A report to Congressional Requesters by the United States Government Accountability Office (GAO) in May, 2007 came to many conclusions regarding the effectiveness of the Partnership plans and if and how they might save the states money by preventing use of Medicaid funds. According to their report, Partnership Programs include benefits that protect policyholders but are not likely to provide substantial Medicaid savings. Partnership programs allow individuals who purchase Partnership long-term care insurance policies to exempt at least some of their personal assets from Medicaid Page 79

81 Chapter 3: State and Federal Regulations/Requirements eligibility requirements. In response to a congressional request, GAO examined three things: 1. The benefits and premium requirements of Partnership policies as compared with those of traditional long-term care insurance policies; 2. The demographics of Partnership policyholders, traditional long-term care insurance policyholders, and people without long-term care insurance; and 3. Whether the Partnership programs are likely to result in savings for Medicaid. To examine benefits, premiums, and demographics, GAO used 2002 through 2005 data from the four states with Partnership programs California, Connecticut, Indiana, and New York and other data sources. To assess the likely impact on Medicaid savings, GAO (1) used data from surveys of Partnership policyholders to estimate how they would have financed their long-term care without the Partnership program, (2) constructed three scenarios illustrative of the options for financing long-term care to compare how long it would take for an individual to spend his or her assets on long-term care and become eligible for Medicaid, and (3) estimated the likelihood that Partnership policyholders would become eligible for Medicaid based on their wealth and insurance benefits. California, Connecticut, Indiana, and New York require Partnership programs to include certain benefits, such as inflation protection and minimum daily benefit amounts. Traditional long-term care insurance policies are generally not required to include these benefits. From 2002 through 2005, Partnership policyholders purchased policies with more extensive coverage than traditional policyholders. According to state officials, insurance companies must charge traditional and Partnership policyholders the same premiums for comparable benefits, and they are not permitted to charge policyholders higher premiums for asset protection. Since it is the states rather than the insurers who provide this asset protection, there would be no reason for an insurer to charge higher rates for Partnership plans. Partnership and traditional long-term care insurance policyholders tend to have higher incomes and more assets at the time they purchase their insurance, compared with those without insurance. In two of the four states, more than half of Partnership policyholders over 55 have a monthly income of at least $5,000 and more than half of all households have assets of at least $350,000 at the time they purchase a Partnership policy. Available survey data and illustrative financing scenarios suggest that the Partnership programs are unlikely to result in savings for Medicaid, and may increase spending. The impact, however, is likely to be small. About 80 percent of surveyed Partnership policyholders would have purchased traditional long-term care insurance policies if Partnership policies were not available, representing a potential cost to Medicaid. About 20 percent of surveyed Partnership policyholders indicate they would have self-financed Page 80

82 Chapter 3: State and Federal Regulations/Requirements their care in the absence of the Partnership program, and data are not yet available to directly measure when or if those individuals will access Medicaid had they not purchased a Partnership policy. However, illustrative financing scenarios suggest that an individual could self-finance care, thus delaying Medicaid eligibility, for about the same amount of time as he or she would have using a Partnership policy, although the GAO identified some circumstances that could delay or accelerate Medicaid eligibility. While the majority of policyholders have the potential to increase spending, the impact on Medicaid is likely to be small, reported the GOA, because few policyholders are likely to exhaust their benefits and become eligible for Medicaid due to their wealth and having policies that will cover most of their long-term care needs. Information from the four states may prove useful to other states considering Partnership programs. States may want to consider the benefits to policyholders, the likely impact on Medicaid expenditures, and the income and assets of those likely to afford long-term care insurance. HHS disagreed with the Government Accountability Office s (GAO) report; they commented that the study results should not be considered conclusive because they do not adequately account for the effects of estate planning efforts, such as asset transfers with the goal of Medicaid qualification. While some Medicaid savings could result from people who purchased Partnership policies rather than transferring their assets to others, they are unlikely to offset the costs associated with those who would have otherwise purchased traditional policies. Abbreviations As the student reads this course, he or she will see many abbreviations. To fully understand the long-term care program, it is necessary to understand the abbreviations commonly used: ADL = Activities of daily living ACS = American Community Survey CBO = Congressional Budget Office CMS = Centers for Medicare & Medicaid Services DOI = Department of Insurance DRA = Deficit Reduction Act of 2005 GAO = The United State s Government Accountability Office Page 81

83 Chapter 3: State and Federal Regulations/Requirements HHS = Department of Health and Human Services HIPAA = Health Insurance Portability and Accountability Act of 1996 HRS = Health and Retirement Study IADL = Instrumental activities of daily living LTC = Long Term Care NAIC = National Association of Insurance Commissioners OBRA 93 = Omnibus Budget Reconciliation Act of 1993 RWJF = The Robert Wood Johnson Foundation UDS = Uniform Data Set NAIC 2000 Model Act No one has argued against purchasing a long-term care policy to protect against the costs of receiving care for an extended period of time. However, like so many things, these early policies had many initial flaws that were not consumer friendly or, in some cases, even ethical. Regulation is often necessary to correct industry flaws that were not corrected by the industry itself. The long-term care insurance market needed consumer protection to protect against product flaws, some intentional and some merely a result of issuing products in a new market place with little statistical data to guide the underwriters. The regulation reflected many issues, including consumer expectations, insurer pricing, and any number of other circumstances. The focus brought about recommendations by the National Association of Insurance Commissioners (NAIC), called the model laws and regulations. The National Association of Insurance Commissioners is a non-profit organization made up of the insurance regulators from the 50 states, the District of Columbian and the four United States territories. They have worked with regulators, legislators, the insurance industry, and consumers to create a comprehensive uniform model law, often referred to as the NAIC Act, and related regulations for long-term care insurance. State laws can vary widely, but the Model Act and Related Regulations are generally adopted in some form (the state either adopts them as they are or includes language from the model). Page 82

84 Chapter 3: State and Federal Regulations/Requirements Initially, it was the premiums that brought about the attention to this new market of long-term care insurance policies. Health insurance policies had many years of trial and error to smooth out the pricing so it was fair to both the consumers and the insurance companies covering the risks. Health insurance can be adjusted yearly as the insurers see the claims come in. Long-term care policies are issued without immediate access to claims experience. Usually these policies are not accessed for ten to twenty years after issuance. Initially, they were priced to remain constant for many years. Unfortunately, some agents actually marketed them as never increasing in price. Since one in three purchasers of long-term care insurance is under the age of 65, long-term pricing becomes necessary. 1 While most policies did not increase with increasing age, they do contain a clause allowing for premium increases if all similar policies are increased (they may not be increased individually due to advancing age or deteriorating health). Premiums in Partnership plans may not increase individually or due to the characteristics of an individual policyholder (due to claims, for example), but policies may be increased if all such policies are increased. It was difficult for underwriters to accurately price long-term care policies since so little data existed. Additionally, a larger number of policyholders maintained the coverage than was expected. Why is this important? Because it meant that premiums companies expected to keep, without paying out claims, did not materialize. Since the policyholders kept their policies they could be expected to eventually collect benefits. Any new insurance market may experience premium rating difficulties, but the longterm market was especially prone to this, due to the length of time between purchase and benefit submissions. In August of 2000 the NAIC adopted new regulatory requirements intended to encourage stronger state legal protections for the long-term care policyholder. The NAIC worked with various groups, including consumer groups and the insurers to develop regulation that would serve as a model for everyone. It was called the NAIC Long-Term Care Insurance Model Act and Regulation. A major goal of the NAIC model act was premium stability. As amended in August of 2000, the NAIC model act and regulation financially penalizes companies that intentionally under-price policies (often called low-balling) and, furthermore, allow state regulators to prohibit insurers that repeatedly engage in such behavior from selling policies in their state. The new model required greater disclosure of premium increases and provided policyholders with more options when premiums did increase. We might assume that an insurance company would not want to under price their policies, but in fact that can be a competitive strategy to lure in customers with relaxed underwriting and low premiums. At some point, the insurers know they will raise their premium rates. Since long-term care benefits are not accessed quickly (as major medical 1 Georgetown University March 2004 Issue Brief Page 83

85 Chapter 3: State and Federal Regulations/Requirements plans are, for example) insurers can low-ball policy issuances without fear of being hit financially. This is extremely bad for those who buy the policies since they pay in premiums for a policy they may have to lapse when premiums rise beyond their means. Level Premium Does Not Mean Unchanging Rates Many states have addressed the term level premium since this can mislead the consumer into believing that policy rates will never change. Rates can and do change in long-term care policies. This term means that rates will not be increased due to advancing age or increased claim submission. Financial Requirements for Rate Increases The NAIC model provided measures that would discourage under-pricing of policies, which would inevitably increase in premium at some point. Rules were established regarding the loss ratio (the share of premium the insurer expected to pay in claims). These were based on estimates of future revenues and future claims over the life of the policy for all those who purchased this particular policy form. Under the NAIC model, projected claims must account for at least the sum of: (a) 58 percent of the revenues that would be generated by the existing premium, and (b) 85 percent of the revenue generated by the premium increase. Setting a higher loss ratio requirement for the premium increase than applies to the initial premium creates what is essentially a penalty for increasing rates. It is hoped it will discourage under-pricing from the beginning of the policy. Rate Certification from the Insurer s Actuary The Model Act requires insurers to obtain certification from an actuary that initial premiums are reasonable. When an insurer requests a premium hike the model also requires the actuary to certify that no further premium rate schedule increases are anticipated. Reliance on this actuarial certification must assume, of course, that the actuary will use acceptable actuarial practices when evaluating the available data. It must further assume that unethical companies cannot find an actuary willing to make a certification that was inaccurate. Page 84

86 Chapter 3: State and Federal Regulations/Requirements Consumer Disclosure The NAIC model requires insurers to disclose rate increase histories for the past ten years for long-term care policies of similar type. Since this has been such a forwardmoving industry it is unlikely that the exact policy will have been issued for a steady ten years. There may be some cases where this is not required, as in the case of insurer mergers. It is hoped that this disclosure will help consumers select the policy they wish to purchase as well as the company they wish to deal with. The purchaser must also sign a form stating that he or she understands that premiums may increase in the future (this should prevent agents from stating that premiums will remain the same). LTC Personal Worksheet Insurers use a long-term care worksheet called the Long-Term Care Insurance Personal Worksheet. This is provided to applicants during the solicitation of a long-term care policy. The worksheet and rate information are provided to the Insurance Department s Office for review in most cases. Is the Policy Suitable for the Buyer? A policy that is purchased and then lapsed a year or two later has benefited no one not even the insurer in some cases since underwriting has costs associated with it. The selling agent is in the best position to determine whether or not the buyer is financially suitable for the policy they are buying. In other words, if the buyer has no assets to protect (income cannot be protected by Partnership policies or any other type of policy) it may not be wise to purchase a long-term care policy in the first place. Agents must attempt to document whether or not an individual should purchase a longterm care insurance policy, whether that happens to be a traditional long-term care contract or a Partnership contract. Washington requires companies to develop suitability standards (which agents must follow) to determine if the sale of long-term care insurance is appropriate. These standards must be available for inspection upon request by the Insurance Commissioner. How does an agent know if a policy is suitable? Simple questions can determine that: Is insurance appropriate for this individual? Can the applicant afford the premiums year after year, especially if the rates increase? Does the policy actually address the applicant s potential needs and desires? Page 85

87 Chapter 3: State and Federal Regulations/Requirements Insurance companies are required to develop and use suitability standards. Furthermore they must train their agents in their use. Copies of the suitability forms must be maintained and available for inspection. Consumer Publications There are consumer publications that enable the buyer to determine themselves if a long-term care purchase is wise for their particular circumstances. Things You Should Know before You Buy Long-Term Care Insurance is a consumer publication. Also available is the Long-Term Care Insurance Suitability Letter for consumers. The agent must provide a Long-Term Care Shopper s Guide to all prospective buyers of long-term care insurance, whether a traditional long-term care policy or a Partnership long-term care policy. This publication or a similar publication will have been developed by either the individual state or by the National Association of Insurance Commissioners for prospective applicants. Post Claim Underwriting Most policies underwrite the applicant at the time of application. The long-term care industry has not always done so. At one time some companies quickly issued the longterm care policy and delayed underwriting until a claim was submitted. Obviously, this was not good for the insured. No one wants to find out their policy is useless when a claim has been presented. Most states prohibit post-claim underwriting since it is anti-consumer and encourages insurers to find a reason to invalidate the policy (since a claim has been submitted). Especially in long-term care policies it is important that the contract be underwritten at the time of application. In this way, the applicant can be sure that his or her policy is valid and will pay covered claims when they occur. Additionally, many states mandate that applications contain clear and unambiguous questions on the application regarding the applicant s health status. Of course, the consumer must honestly answer the insurer s questions. A question that could be misunderstood puts the applicant in the position of possibly having their policy rescinded or an otherwise valid claim denied due to misrepresentation if the health questions are not worded in a manner that is easily understood. Page 86

88 Chapter 3: State and Federal Regulations/Requirements Tax-Qualified Policy Statement If it is a Partnership plan, then it is tax-qualified. If the insured files long-form for their federal taxes he or she may deduct the premiums of his or her long-term care policy. Policies must include a statement regarding the tax consequences of the contract so that the insureds do not have to guess whether or not the policy meets the tax requirements. The statement must be included in the policy and in the corresponding outline of coverage. The Outline of Coverage is a freestanding document that provides a brief description of the important policy features. Usually the statement would read similar to: This policy is intended to be a federally tax-qualified long-term care insurance contract under section 7702(b) of the Internal Revenue Code of 1986, as amended. Benefits received under the policy may be taxable as income. Replacement Notices When an application is taken for long-term care insurance, the agent must determine whether or not it will replace an existing long-term care contract. The method of determination is very specific. A list of replacement questions must be on the application forms and replacement notices. If replacement will take place, there is a specific format for the replacement process. When a policy is replaced by another, the replacing insurer must waive the time period applicable to preexisting conditions and probational periods to the extent similar exclusions have been satisfied under the original policy. In other words, once a probational or preexisting medical period has been met under one policy, any subsequent contracts that replace the original must recognize the previous satisfaction of these conditional periods. Policy Conversion It may be possible to convert a recently issued tax-qualified policy over to a Partnership policy if the issuing company offers Partnership policies. If this is the case, it is likely that there will be specified time limits for doing so. The insurer will mail out notices to their policyholders notifying them of this possibility. Some insurers may allow any taxqualified policyholder to convert to a Partnership plan; benefits will remain the same since only asset protection will be added by the conversion. Page 87

89 Chapter 3: State and Federal Regulations/Requirements When a policy is converted from one form to another states nearly always have conversion rules that apply. Typically the insurer may not impose new or additional underwriting, nor may they impose a new or extended preexisting period for claims. An Overview The Model Act provides guidelines for qualified long-term care policies, including: Policies may not limit or exclude coverage by type of illness, such as Alzheimer s disease. Policies cannot increase premiums due to advancing age. In other words, premiums may not increase when a policyholder has a birthday. Premiums may increase simultaneously for all who hold similar policies. Policies cannot be cancelled because of advancing age or deteriorating health. Policies must offer a nonforfeiture benefit that, if purchased, ensures the consumer that a lapsed or cancelled policy means some benefits would still be available for a specified period of time. Policies must offer an inflation protection that, if purchased, ensures benefits keep pace with inflation. This is especially important for those purchasing their policies at younger ages. The Model Act Applies to All All 50 states and DC have adopted the NAIC Model Act. The states have adopted the NAIC Model Regulation in some form, although they have not necessarily adopted all of the provisions. The Model Act applies to all long-term care insurance policies and even to life insurance policies that have an acceleration benefit that may be used for long-term care services prior to the insured s death. 2 Any policy or rider that is advertised, marketed, or designed to provide coverage for no less than 12 consecutive months on an expense incurred, indemnity, prepaid or other basis is considered a long-term care policy if it is providing for one or more necessary long-term care services in a non-hospitalization setting. 2 Act 2, Reg. 3 Page 88

90 Chapter 3: State and Federal Regulations/Requirements So, what is a qualified long-term care insurance contract? For our purposes, it would include any insurance contract if: 1. The only insurance protection provided under such contract is coverage of qualified long-term care services; 2. Such contract does not pay or reimburse expenses incurred for services or items to the extent that such expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount; 3. Such contract is guaranteed renewable; 4. Such contract does not provide for a cash surrender value or other money that can be paid, assigned, or pledged as collateral for a loan, or borrowed. 5. All refunds of premiums, and all policyholder dividends or similar amounts, under such contract are to be applied as a reduction in future premiums or to increase future benefits, and 6. Such contract meets the requirements of subsection (g). Policy Renewable Provisions These long-term care policies must have renewable provisions and include a statement of how they are renewed. If the policy contains a rider or endorsement, there must be a signed acceptance by the policy owner. Payment Standards must be Defined Standards that refer to the payment of benefits must be defined. Such terms as usual, customary, and reasonable must be defined in a clear, unambiguous manner. In this definition, for example, the policy must state how the usual, customary, and reasonable charge is determined. Is it based on the local areas? How often are the fees updated to reflect current costs? Preexisting Standards Preexisting conditions limitations will be in most of the long-term care policies, but there are restrictions as to how they limit benefits. For example, the preexisting period may be no more than 6 months following policy issue. There can be no exclusions or Page 89

91 Chapter 3: State and Federal Regulations/Requirements waivers, such as exclusion on a particular heart condition of the insured. The applicant must be accepted or denied for coverage. Policy Type Must Be Identified The policy must clearly state whether it is a tax-qualified or a non-tax qualified longterm care policy. All Partnership policies will be tax qualified. ADLs Policies must describe the ADLs in a clear unambiguous manner. Policies may not be no more restrictive that using three ADLs or cognitive impairment for benefit payments. Of course, policies may be more lenient in allowing payment of benefits, but they may not be more restrictive than that. Benefit triggers, the conditions that begin the benefit payment process, must be explained in the policy and the policy must specify whether or not certification is required. There must be a description of the appeals process should a claim be denied. Life Insurance Policies with Accelerated Benefits While many professionals feel it is best to keep benefits for death and benefits for longterm care separate, there are life insurance policies that will accelerate death benefits for use for long-term care services. When this is the case, disclosure of tax consequences of life proceeds payout must be in the policy. How is one to know if the life policy has the option of accelerated benefits? Treatment of coverage provided as part of a life insurance contract, except as otherwise provided in state regulations, generally apply if the portion of the contract providing such coverage is a separate contract. While it is always necessary to refer to the actual policy, the term portion means only the terms and benefits under a life insurance contract that are in addition to the terms and benefits under the contract without regard to long-term care insurance coverage. Nonforfeiture Provisions Generally a nonforfeiture provision must meet specific requirements: Page 90

92 Chapter 3: State and Federal Regulations/Requirements 1. The nonforfeiture provision must be appropriately captioned. 2. The nonforfeiture provision must provide for a benefit available in the event of a default in the payment of any premiums and the amount of the benefit may be adjusted subsequent to being initially granted only as necessary to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying contracts approved by the appropriate State regulatory agency for the same contract form. 3. The nonforfeiture provision must provide at least one of the following: a. Reduced paid-up insurance. b. Extended term insurance. c. Shortened benefit period. d. Other similar offerings approved by the appropriate State regulatory agency. Extension of Benefits When policies include extension of benefits, these must be available without prejudice regarding benefits that have already been paid for prior institutionalization or care. Home Health & Community Care Minimum standards and benefits must be established for home health and community care in long-term care insurance policies. Additional Provisions for Group Policies Many companies are curtailing insurance benefits in major medical coverage so it is doubtful that group long-term care coverage will be offered to any great extent. However, where it is, there must be provisions for individuals to continue their coverage when they leave the group plan. Individuals who are covered under a discontinued policy must be offered coverage under a replacement contract. Outline of Coverage In Washington an Outline of Coverage must be provided at the time of the initial solicitation. As it pertains to the agent, it must be presented during the completion of the application. There is a prescribed standard format for the Outline of Coverage in a long- Page 91

93 Chapter 3: State and Federal Regulations/Requirements term care policy. The content of the Outline of Coverage is also stipulated. Use of specific text and sequence is mandatory as is a list of categories that include: Benefits and coverage; Exclusions and limitations; Continuance and discontinuance terms; Change in premium terms; Any policy return and refund rights; The relationship of cost of care and benefits; and Tax status. There must also be consumer contacts within the Outline of Coverage. Policy Delivery Once the policy has been approved and issued, the buyer must receive it within 30 days of approval. The policy must also include a policy summary. No Field Issued LTC Policies There was a time when long-term care policies could be field issued by the agent because underwriting was completed when a claim was filed rather than at policy issuance. Field issued policies are not allowed under the Model Act and Regulation since it is not good for the consumer. Policies must be underwritten prior to policy issuance. Policy Advertising and Marketing Prior to advertising a policy for long-term care benefits, whether it will be viewed on television, heard over the radio, or read in print, it must be approved by the state s insurance commissioner s office. Any company marketing long-term care policies have standards that must be followed. There must be marketing procedures established and state training requirements for agents must be followed. The NAIC is recommending that states adopt a Partnership training requirement of eight initial hours of continuing education, followed by four hours each licensing renewal period thereafter. The point of training agents is to ensure that marketing activities will be fair and accurate. Training will hopefully prevent a single person from over-insuring as well. Page 92

94 Chapter 3: State and Federal Regulations/Requirements No Policy Covers Everything As we previously discussed in this text, no policy covers everything. LTC policies must prominently display a notice to buyers that the policy may not cover all the costs associated with long-term care services. Even when agents have discussed what will not be covered, most claims will occur ten or twenty years later. It would be unlikely that the buyers would remember what the agent said and it certainly makes sense to state this in the policy as well. Prior to the Sale Agents and insurers have pre-sale responsibilities. They must provide the applicant with copies of personal worksheets and potential rate increase disclosure forms. They must also identify whether or not the applicant has long-term care insurance or coverage elsewhere. If there is existing coverage, the agent must find out if the applicant intends to replace the existing LTC policy with the new coverage. The insurer must establish procedures for verifying compliance with the requirements. Written notice must be given that senior insurance counseling programs are available and provide contact information. Such terms as non-cancelable or level premium may be used only when the policy conforms. There must be an explanation of contingent benefits upon policy lapse. Shopper s Guide A Shopper s Guide must be given to the consumer prior to the application for longterm care coverage. If it is a direct solicitation, it must be provided at the time of application. It s Just Plain Illegal Some practices are just plain illegal. This would include what is referred to as twisting, which means using facts to suit the agent s own needs rather than the consumer s needs. A person who is twisting may be changing facts to suit themselves or providing some facts, but omitting others in order to complete the sale. It includes omitting information that should be disclosed, or stating facts in a way that will lead the consumer to wrongly assume something that is not true. Often twisting is used to make an existing policy appear unfavorable, when in fact the policy is appropriate for the consumer. Page 93

95 Chapter 3: State and Federal Regulations/Requirements High pressure tactics are not new to the insurance industry, but it is illegal. Agents who pressure people into buying are not really helping themselves anyway, since these individuals are very likely to cancel the policy (which means lost commissions). Of course, any misrepresentation of the policies, the insurers, or any aspect related to the sale of insurance is illegal. Association Marketing There are also requirements for those who market to association members. Marketers must provide objective information, disclosures, and compensation arrangements; certainly all brochures or advertisements must be truthful as well. Following the Sale The consumer s rights continue after the sale has been made. They have the right to return the policy if it does not meet their needs or even if they just plain change their minds. No reason for returning the policy needs to be given by the insured. As long as it is returned within 30 days a full refund will be received. If the applicant failed to provide full information an incontestability provision exists. For material misrepresentation, the time period for rescinding the policy is six months. For a misrepresentation pertaining to both material information and medical conditions the time period is two years for policy rescission. Information that was knowingly and intentionally misrepresented may cause a policy rescission for more than two years. When a policy is rescinded, previously paid benefits may not be recovered. Failure to Pay Premiums When a policy is in danger of lapsing due to nonpayment of premiums, the insurer has some obligations. It must notify the insured 30 days after the premium is due and unpaid. After 5 days of mailing the notice, it can be assumed that the insured has received it. Termination would be effective 30 days after the notice was given to the insured and the designated third party. In Conclusion Page 94

96 Chapter 3: State and Federal Regulations/Requirements Long-term care insurance has been closely observed by the NAIC since the product s introduction. The NAIC developed its Long-Term Care Insurance Model Act and Regulation in the 1980s with the intent of promoting the availability of coverage, protecting applicants from unfair or deceptive sales or enrollment practices, facilitating public understanding and comparison of coverages, and facilitating flexibility and innovation in the development of long-term care insurance. Generally, the NAIC Model Act and Regulation establish: 1. Policy requirements: (a) requiring a standard format outline of coverage; (b) requiring specific elements for application forms and replacement coverage; (c) preventing cancellation of coverage upon unintentional lapse in paying premiums; (d) prohibiting post-claims underwriting; (e) prohibiting preexisting conditions and probationary periods in replacement policies or certificates; and (f) establishing minimum standards for home health and community care benefits in long-term care insurance policies. 2. Benefit requirements: (a) requiring the offer of inflation protection; (b) requiring an offer of nonforfeiture benefits; (c) requiring contingent benefit upon lapse if the nonforfeiture benefit offer is rejected; and (d) establishing benefit triggers for nonqualified and qualified long-term care insurance contracts. 3. Suitability requirements: (a) explaining and reviewing a personal worksheet with applicants; and (b) requiring that insurers deliver a shopper s guide to buying long-term care insurance to applicants. 4. Insurer requirements: (a) reporting requirements; (b) licensing requirements; (c) reserve standards; (d) loss ratios standards where applicable; (e) filing and actuarial certification requirements; and (f) standards for marketing. 5. Penalties and disclosure requirements. Page 95

97 Chapter 4: Changes or Improvements in LTC Services Changes or Improvements in LTC Services Our grandparents did not anticipate ever needing care in a nursing home. If they lived to be very old or became ill it was likely that a family member, often a daughter, would take care of them for the last years of their life. Times have changed. Today our daughters work outside of the home and may live in another state. Families also tend to have fewer children to share the responsibilities associated with caring for an elderly or sick family member. As families found themselves needing to care for an elderly member, they began to turn to paid care in private homes and eventually this evolved into facilities offering such care. Care for an elderly or sick member is expensive. Nursing home care is the most expensive, but care in assisted living or in other facilities is not far behind. Today families need to consider long-term health care needs along with their planning for a financially secure retirement. If an individual fails to consider the costs of health care in their final years, they may find all the financial planning they did is quickly eroded by long-term nursing care costs. Financial planning is only complete when health care issues are fully considered. With the baby boom generation reaching Medicare age and the cost of services going up, paying for long-term care is an issue of pressing importance for policymakers who fear Medicaid applications will outpace the program s financial ability. While some individuals can count on friends and family to assist with the activities of daily living, many others must determine how to pay for extended home-health services or a potential stay in a nursing facility. The high costs nursing home care make up the largest part of long-term care costs in the United States. Almost $122 billion was spent on services provided by free-standing nursing homes in 2005, with an additional $47.5 billion spent on home-health care. Medicaid accounted for the largest share at 43.9 percent of the total spent on nursing facilities. Consumers covered an additional 26.5 percent of nursing home costs out-ofpocket and private insurance covered another 7.5 percent. 1 1 Centers for Medicaid and Medicare Services (CMS), National Health Expenditures. Page 96

98 Chapter 4: Changes or Improvements in LTC Services The likelihood of needing nursing home care is significant. A 65-year-old man has a 27 percent chance of entering a nursing home at some point in his life; a 65-year-old woman faces a 44 percent probability of doing so. While costs vary from state to state, and even from region to region within states, the average nursing home stay costs more than $70,000 per year (or nearly $6,000 per month). The financial stakes are high for both state and federal governments. On average, states spend 18 percent of their general fund budgets on Medicaid. Individuals must spend nearly all their non-housing assets before they qualify for Medicaid assistance, so financially it is devastating to everyone. Defining Long-Term Care It is important to define long-term care since it relates to insurance contracts and federal and state guidelines. Long-term care is not hospital care although some hospitals may have long-term care sections. Long-term care specifically applies to care in a nursing home, home health care setting, or other institution providing non-hospitalization benefits. When hospitals provide such care the wing of the building is called a nursing unit rather than a hospitalization unit. Various laws will define long-term care based on their interpretation or intent. Partnership states will define long-term care based upon Partnership requirements. Federal law considers long-term to mean care provided for 90 days or more. Additionally, most long-term care definitions relate to the inability to perform the general activities of living, called activities of daily living or ADLs. These activities include eating, toileting, transferring to and from beds and chairs, bathing, dressing, and continence. Non-tax qualified state plans may include ambulating as an ADL, the ability to move around independently. When ambulating was omitted from federal requirements, many long-term care professionals felt the omission reduced their client s ability to collect insurance policy benefits. A cognitive impairment is also used as a measure for collecting policy benefits. A cognitive impairment would be the inability to take care of oneself due Alzheimer s disease, dementia or some other mental incapability. A long-term care policy will cover multiple types of care: custodial or personal care, intermediate nursing care, and skilled nursing care. Medicare only covers skilled care, and only for a specified time period. No individual should rely on Medicare for their long-term care needs. Custodial or personal care is the least technical since it covers help with the daily activities of living. Skilled care is the highest level of technical care and can only be provided in the appropriate setting. The Medicare & You handbook, published by the Department of Health & Human Services, defines skilled nursing facility care as: a semi-private room, meals, skilled nursing and rehabilitative services, Page 97

99 Chapter 4: Changes or Improvements in LTC Services and other services and supplies (only after a 3-day minimum inpatient hospital stay for a related illness or injury) for up to 100 days in a benefit period. To get care in a skilled nursing facility, you must need skilled care like intravenous injections or physical therapy. Medicare doesn t cover long-term care or custodial care in this setting. While no one can precisely predict who will need long-term care we do know that the risk is high. As we live longer and healthier lives we may need a nursing home simply because we become frail, not necessarily because we are ill. At one time family members provided this care but, for many reasons, that is increasingly not the case today. While purchasing an insurance policy is not the only solution it is perhaps the most logical choice. Statistically, the people most likely to end up in a nursing home are female, elderly, increasingly frail, and living alone, although any person of any age can end up in a nursing home. Many would find it surprising that 40 percent of those in a nursing home are between the ages of 18 and Medicaid is the major payor of long-term care services. It is because of the increasing costs of covering those who have spent all their own assets (ending up on Medicaid) that the Partnership Program began. While asset conservation is a goal of the Partnership Program, another goal is reduced Medicaid spending. A May 2007 GAO report stated it was unlikely Medicaid would actually realize any savings since those that are buying Partnership policies generally have sufficient assets to have funded a nursing home stay without applying to Medicaid. In two of the four initial Partnership states, more than half of Partnership policyholders over the age of 55 have a monthly income of at least $5,000 and more than half of all households have assets of at least $350,000 at the time they purchased their Partnership policy. In many cases, these individuals (80%) would have bought a traditional long-term care policy if Partnership plans had not been available, reports the Government Accountability Office (GAO). 3 Not everyone agrees with the GAO suggestion that Medicaid will not realize any real savings from Partnership plans. HHS commented that the study results should not be considered conclusive since it does not adequately account for the effect of estate planning efforts, such as asset transfers (although the period of time to do so has been increased to five years rather than the previous three years). It is the Health & Human Services (HHS) position that these individuals would have moved their assets, enabling them to qualify for Medicaid, had the Partnership Program not been available. Whether or not those who would have repositioned their assets would still have purchased a traditional long-term care policy is not known, of course, but one could theorize that 2 Health & Human Services 3 Long-Term Care Insurance, GAO Report to Congressional Requesters, May 2007 Page 98

100 Chapter 4: Changes or Improvements in LTC Services high-income, high asset households often tend to be more aware of their options than those with less income and assets. Therefore, even if they did not reposition their assets, they may have sought other measures to protect their assets (income cannot be shielded from nursing home contribution requirements). The GAO report looked at: 1. The benefits and premium requirements of Partnership policies as compared with those of traditional policies; 2. The demographics of Partnership policyholders, traditional long-term care insurance policyholders, and people that had no long-term care insurance coverage; and 3. Whether the partnership programs are likely to result in savings for Medicaid. Data from the four initial Partnership states was used from 2002 through The four initial Partnership states are California, Connecticut, Indiana, and New York. The Evolution of a Major Industry While there were some policies prior to the 1970s that claimed to cover expenditures for long-term care, for all practical purposes the long-term care policy was developed in the ten years between 1970 and Of course, there have been many changes since then. Today s policies barely resemble those of the 70 s and 80 s. For a policy type that takes twenty or more years to develop reliable profit and loss statistics, this industry has emerged very quickly. The long-term care policy was developed because consumers recognized the need for such a policy to prevent the depletion of their own assets. It goes without saying that the industry also promoted the product. As with all types of products, they evolve because a need, and consequently a market, becomes obvious. There was a time when consumers did not believe that they personally would ever go to a nursing home. They believed that their children would manage to care for them at home. Today, many less people hold on to that belief. Many actually realize that their children are not likely to be able, by training or experience, to deliver the type of medical care that may be needed. We would certainly not feel secure have a mechanic or accountant provide our medical care; why would we want our children to? With today s high medical technology, only those with experience or training should do so. Many would argue that simple maintenance care requires no special skills and to some degree that is correct. Certainly those who love us would perhaps have something to Page 99

101 Chapter 4: Changes or Improvements in LTC Services offer that a stranger would not compassion. The problem with this argument is the length of time that such care may be required. While a child or children may start out with the best of intentions, and certainly compassion for their aging parents, as time wears them down physically and emotionally that compassion may turn to frustration, stress, and even anger at their parent for putting them in such a position. There will also be feelings of guilt due to the emotions that have developed. Most experts agree that children should take an active part in their parents care, but they should not attempt to totally provide it themselves. Even something as simple as adult day care five days a week may ease the stress of trying to totally care for an aging parent. That is assuming that finances allow it. Children as Caregivers When it comes to our parents and aging, the numbers tell the story: Percentage of caregivers who are female: 60% Percentage of caregivers who are married or living with a partner: 66% The average age of the caregiver: 46 years old The average age of the care recipients: 77 years old Percentage of caregivers who have children under the age of 18 still living at home: 41% The percentage of caregivers who are employed full time: 52% The caregiver s out-of-pocket monthly expenses associated with the care: $221 The median family income of the caregiver s household: $35,000 4 Gary Barg, editor in chief of Today s Caregiver magazine based in Florida states that about a fourth of U.S. households care for an aging relative in some way. 5 Few Americans expect to do this (it will always happen to someone else they think). Unfortunately, few families prepare for it either. The U.S. Census Bureau says that by 2050, the percentage of Americans 65 and over will grow to 21 percent of the population from the current 12 percent. Approximately 19 million elderly are expected to need some type of long term professional care. If the family cannot afford alternatives, such as assisted living, it is likely that the children will provide the care themselves, whether they have prepared themselves adequately or not. Deputy Director of the National Center on Caregiving at Family Caregiver Alliance in San Francisco, Lynn Friss Feinberg, says: It affects everyone. She reports that it is a myth that the majority of our elderly go to nursing homes. It s not what the baby boomers want, she says. 4 National Alliance for Caregiving USA Today Newspaper February 17, 2004 Page 100

102 Chapter 4: Changes or Improvements in LTC Services Gail Gibson Hunt, the executive director of the National Alliance for Caregiving, reports that many caregivers feel isolated and alone. While family caregivers are facing everything from mild supervision of their family members to full time care, legislation addressing the situation is still mainly in its infancy. In 2000, Congress established the National Family Caregiver Support Program in which the government provides funding to each state for caregiver services, such as respite care, education and training. But the 2003 budget for the entire country was only $155.2 million, which Hunt calls a drop in the bucket. Funding for 2004 was $159 million. A few states have passed legislation. In 2002, California led the nation in passage of a paid-family-leave law. Hawaii passed a law in 2003 that allows employees to use sick leave for family purposes. Congress has considered various initiatives but nothing solid has yet come. While many families cope well with caring for an elderly parent, others do not. Primarily it will depend upon the support they receive from their family and their community. While caring for elderly parents is similar to raising children, the process goes in reverse. Children grow and learn and become increasingly independent whereas the elderly become more and more dependent upon their caregivers. It is this increasing dependence, at a time when adult children have raised their own families and expected to have the freedom that brings, that can most difficult. Can Families Make It Through? There are families that do completely care for their elderly members, but most families say success depends upon community services to help them and provide periods of rest. Most communities have some form of help, though not necessarily for free. The families that will handle it best are those lucky enough to have personal financial resources to pay for outside help. There are some places to turn for information, whether financial resources exist or not. These resources include: Eldercare Locator: or Family Caregiver Alliance/National Center on Caregiving: or caregiver.org National Alliance for Caregiving: caregiving.org Alzheimer s Association: or Faith In Action: or fiavolunteers.org National Academy of Elder Law Attorneys: or National Association of Professional Geriatric Care Managers: or caremanager.org Caregiver.com, Today s Caregiver magazine Page 101

103 Chapter 4: Changes or Improvements in LTC Services Paid Home Care Next to the spouse and children, paid home care is the most commonly used method to remain at home. Many of the paid home caregivers do not show up in statistics because the family pays for it out of their own pocket. The caregiver is not licensed, in these cases, with any medical agency. 6 These unlicensed and medically untrained caregivers provide an important service. They do the daily routines necessary to keep the individual at home (called activities of daily living). The type of care non-medical people provide is called personal care. Better Health Equates Into Longer Life As our population experiences longer life, and even a healthier life in many ways, the problems associated with aging will continue to be something we must deal with. In fact, a healthier life actually contributes to the need for nursing home care since many of those who require care are simply frail, not ill. Eventually they are too frail to care for themselves. Americans did not always gracefully accept the need for a nursing home. Of course, our nursing facilities were not always model institutions either. Changes in our families made nursing home acceptance important. Daughters gradually became unavailable. During World War II, many women entered the workplace. Even when the war ended, many of the women remained workers. Beyond that, as our country's economic climate changed, women found it necessary for them to work. The two-check family is now part of our culture. Families can no longer spare one of the wage earners, even when it involves caring for elderly or ill parents. As insurance products go, long-term care policies are the new kid on the block. Nursing home policies primarily emerged in the '70s although their popularity did not begin to rise until the '80s. Today they are one of the primary health care products sold. In 1996, President Clinton signed a bill allowing a tax deduction for such policies effective in January 1997 for those who qualify. This indicates that even our government is hoping that such policies will become commonplace. This is not surprising. Since nearly half of all nursing home expenses are paid by Medicaid, the government's medical program for the poor, whether or not Americans can cover the cost is an issue even our government has a stake in. Obviously, it is important to the federal and state governments to shift some of the long-term care burden to other areas (such as insurance policies). Today s insurance policies for long-term care are far better than they were in the past. Early policies generally paid for only skilled care benefits. Coverage for intermediate 6 Home or Nursing Home? Elder Web, March 2000 Page 102

104 Chapter 4: Changes or Improvements in LTC Services and custodial care were either excluded or severely limited. While some of the improvement is due to government regulation, much of it is the result of competition. As companies fought to enter this new marketplace, they continually improved the policies offered. Where improvement did not come from competition, the states mandated legislation that forced it. Between the two, today's policies offer broad protection for those willing to pay the premium rates. Unfortunately, today s policies are seeing great increases in cost. Even existing policies, whose premium rates were expected to remain stable at the time they were sold, have risen dramatically. In some cases, previously issued LTC contracts have actually doubled in cost in a single rate increase. Consumers are left feeling betrayed when this happens. They pay for years on a product they won t need until they are elderly only to have it priced out of their reach before receiving any benefits. In such cases, they are left wishing they had merely put the premium cost away into a savings account. Sudden dramatic rate increases can happen anywhere, so agents should feel no false security when selling a long-term care product. That is why so many states have now required that agents access the buyer s ability to continue paying premiums, absorbing rate increases, for several years. Policy Benefits Improve Over Time Policies purchased in the 1980s were vastly different from those of today. Any policy purchased prior to 1990 may have: 1. A skilled care requirement prior to receiving intermediate or custodial benefits. 2. Coverage for only skilled care. 3. No coverage for Alzheimer's disease or other mental disorders. 4. A "medically necessary" gatekeeper. Such a restriction could prevent benefits from being paid for simple old age or frailty. 5. Dollar or time limits on some or all of the benefits received. 6. No allowances for inflation, as today's policies do. Consumers who have purchased policies many years ago should review their policy to be sure benefits will be paid as expected. Some insurance companies offer updates to current policyholders, but there may be time limitations for doing so. It should be noted that upgrades would probably be based on current issue ages. Therefore, the premium cost is affected. Page 103

105 Chapter 4: Changes or Improvements in LTC Services All 50 states now have some type of regulations regarding long-term care policies, although these regulations are not uniform. Many states follow the National Association of Insurance Commissioner s guidelines. People are living longer lives, yet fewer children are born to care for them in their old age. It has been traditional that daughters or daughters-in-law take on the burden of caring for parents and parents-in-law. As we have changed our family roles, however, those female children now are in the work force along side of their brothers. Additionally, the nature of the family itself is changing. For every two marriages, there is one divorce. More than half the children born in the 80's will not spend their childhood with both parents in the home. This aspect will bring even greater change to the way we deal with elderly parents in the future. Doctors now routinely warn children to avoid unsatisfactory care arrangements with their parents. They point out that trying to care for parents personally is not a workable solution and recommend placement in long-term care facilities instead. Because children often feel placing a parent in a long-term care facility is likely to be a permanent situation, they often reject the idea initially. Children often come to view their parents as the cornerstone of the family. When they become old and ill, the children have difficulty coping with this change in family structure. They received care from their parents. To have that situation reversed is difficult, especially if a cognitive disability is present. Remaining At Home Children also prefer to keep their elderly or frail parents at home, so they may initially try to care for them at home. Sometimes they assume they can hire help with Medicarepaid benefits. Reality soon sets in. Medicare only provides care at home for those who qualify. Qualification is not based on desire, but rather on a specified list of conditions. At some point, the family must come to terms with the fact that Medicare often will not provide home care since the recipient of care may not meet their benefit criteria. It is possible that care at home and types of community care may become more widely available under specific circumstances. Since Medicaid is the major payer of nursing home benefits, it would be financially beneficial to keep people at home if medically possible. As new forms of alternative care are developed we do expect to see government funded home care for those that have depleted their own assets and qualify for Medicaid. Qualifying for Medicare Funded Home Care Page 104

106 Chapter 4: Changes or Improvements in LTC Services There are specific criteria involved when it comes to Medicare funded home care. Home health care involves part-time or intermittent skilled nursing care and home health aide services, physical therapy, occupational therapy, speech-language therapy, medical social services, durable medical equipment, medical supplies, and a few other medical services. 7 The largest reason a person would not receive Medicare funded home health care has to do with the requirement that the care be both skilled and part-time. To qualify for skilled Medicare benefits, the nursing facility must be licensed to give such care. Many facilities are licensed to give skilled care, as well as intermediate and custodial care. In a skilled nursing facility, Medicare will cover skilled (and only skilled) care from the first day through the 100th day to some degree. The first 20 days do not carry a co-payment, but the 21 st through the 100 th day does. The amount of that copayment typically increases each year. After the 100th day, there is no coverage or benefits at all under Medicare. Obviously, 100 days of care cannot be considered long term care. Medicare pays only for part time home care. For many, this is not enough, since the beneficiary cannot be left alone. Policies that pay for home care can offer additional help, although they are not allowed to duplicate benefits already being provided by Medicare or Medicaid. If Medicare is allowing part-time help (since full-time is not available), family members and friends often must help out if care is to be continued at home. How Does Medicare Determine a Covered Service? At times, Medicare makes a national coverage decision about whether a medical service or medical equipment is covered after reviewing information about how a service or equipment improves health or helps manage a health problem. There must be a financial or medical benefit to doing so. When Medicare makes a decision that applies to people with Medicare, it is called a National Coverage Determination. The Medical Director at a Fiscal Intermediary or Medicare Carrier sets rules for the way Medicare claims in each local area are reviewed. This is not the same as a decision made regarding national coverage. These rules are also followed to decide whether a claim in a particular locality will be paid or not. All local rules must be consistent, scientific, and meet Medicare s guidelines. Local rules are not allowed to disagree with a National Coverage Determination, but they may vary from locality to locality. As a result, what worked for Aunt Edith in Tennessee may not apply to Uncle Bob in Washington. Local determinations are called Local Medical Review Policies (LMRP). To determine what 7 Medicare & You handbook Page 105

107 Chapter 4: Changes or Improvements in LTC Services is covered in a specific locality, go to on the web. Select Your Medicare Coverage and supply the service in question. If a local determination is not favorable, it can be appealed. The Medicare Summary Notice received by the beneficiary lists the directions for doing so. Finding a Home Care Provider When it has been determined that no family member is available to care for an ailing parent, an outside person must be found to provide the care. Most often someone from the neighborhood is hired, but any person the family trusts is appropriate (as long as their experience or training is adequate). Finding a person the family is comfortable with is not always easy. Although children often plan to help pay for the care, they have a family and personal obligations, so the cost has to be within their budget. If the beneficiary is financially able to cover the cost of their care, there may be more options as to the type of care sought. Rather than part-time care, for example, it may be possible to hire someone full time. It can be difficult to find a person the family is comfortable with. Even when a suitable person is found for an eight-hour shift, around-the-clock care would require three such people. Most people hire only one person and fill in the other time themselves. This often becomes a tremendous chore. Inevitably, one or two children end up doing most of the work. Daughters are the typical caregivers. This is not to say that sons are not willing to help out; many are. Women simply tend to be most comfortable in the caregiving role. The physical aspects of caring for an ill or disabled person are not always pleasant. It involves bed changing, physical body washing, and other aspects that men are not always prepared to handle. As the children become emotionally and physically stressed, an assisted living facility or a nursing home becomes more appealing. This often brings the additional burden of guilt. Even though the children realize that a nursing home makes sense, they may feel they are letting their parents down. It is not unusual for parents to place an additional burden on their children. They ask their children to promise not to institutionalize them under any conditions. Of course, most children (having no idea of the realities) agree making promises that are nearly impossible to keep. The parents probably have no idea themselves of what they are requesting. They vision nursing homes of the past with all the problems that existed there. Today there are so many options that were not previously available. Knowledge can often make a large difference in the choices made; investigating all possibilities prior to illness allows a family to make wise choices. Elder family members can see firsthand what is available to them and help make their own medical choices prior to need. Page 106

108 Chapter 4: Changes or Improvements in LTC Services Doctors often advise families not to attempt care at home. Besides the stress caused to the family, they often are not equipped by training or education to do an adequate job. Physicians and other health care providers know that over-involved children may not make sound decisions regarding their parent's care. They realize that children may feel guilty, or sometimes even angry, about their parent's situation. In fact, they realize from past experience that when one or two children become less involved, other children are likely to become more involved. If all children become equally involved, decisionmaking is more likely to be sound and carry less individualized guilt. Recognizing the Need (and the Market) Long-term care insurance is now becoming one of the fastest growing insurance markets. The coverage offered, however, can be very confusing, even though states have mandated specific requirements to clear up confusion regarding benefits. America has undergone what is being called the "graying of America." That means we are increasingly becoming a nation of elderly citizens. In 1900, 3.1 million Americans were 65 years of age or older, which equated to 1 person out of every 25 Americans. By 1980, the number had increased to over 25 million or 1 in 8 people. In 1990, the ratio of elderly to non-elderly became about 1 in 5. By 2025, it is expected to be about 1 person 65 or older out of every 3 people. This will have staggering tax consequences for America. Since working Americans support the retired through their payroll taxes, it will mean increasing those taxes as the elder population continues to grow. Every person will have to provide increasingly more money to support the programs that support those not working, as well as the taxes that support schools, roads, and other national programs. With this in mind, it could be said that the younger people have a greater stake in selling long-term care insurance than the agents themselves do. There are two major problems facing our country: more elderly people and longer life spans. Both contribute greatly to the growing trend (and the growing payroll taxes). Continually more elderly people are entering nursing homes due to old age, rather than illness or injury. We are expected to continue living longer lives. States will continue to mandate consumer legislation, making benefit payment more uniform, but as premiums continue to rise there is no guarantee that Americans (even those who want it) will be able to purchase long-term care policies. Page 107

109 Chapter 4: Changes or Improvements in LTC Services Insurers Determine Risks in LTC Insurance In the past decade or so, more than 130 insurance companies have come up with some type of long-term care product. Initially many financial planners and other professionals viewed these policies with mistrust. One book, How to Protect Your Life Savings From Catastrophic Illness and Nursing Homes by Harley Gordon, Attorney At Law, actually stated: "Smelling profits to be made from worried seniors, the insurance industry has been designing scores of long-term care policies and hustling their agents to sell them." 8 In fairness to the author, he did also say that nursing home policies do make sense for some people. Mr. Gordon stated that a nursing home policy can buy a consumer time allowing them to fund their confinement while transferring assets elsewhere. Even so, the main thrust seemed to be protecting assets while shifting the cost to some other entity. We know what that other entity is, of course: the taxpayers (through government funded programs). The various states have been tightening the laws that allowed a person to transfer assets to family members, with the goal of transferring payment of their health care to the federal and state governments. There is now a look-back period that relates to asset transfer. This author was not the only person who viewed long-term care in terms of transferring assets. Unfortunately there is the mentality that someone else (the government primarily) should pay for our health care. This attitude has changed some as Americans recognize that "government sponsored" actually means "taxpayer sponsored." When an elderly American attempts to hide their assets, he or she is really saying that their grandchildren owe them financial support through taxation. Obviously grandparents do not want their grandchildren s financial support; they simply must realize that transferring assets will accomplish that. Most elderly Americans have always paid their own way; prided themselves on doing so. They want to continue doing so to the end of their lives, but that will take some type of financial planning for long-term care needs. It was not until the 1990 s that insurers finally had a handle on underwriting long-term care policies. No one had any experience in underwriting this type of coverage and the type of benefit statistics required took years to accumulate (since benefits were not generally paid out for many years after policy issue). Understandably, those designing the early policies had little knowledge of what benefits were needed. Their primary focus, however, was to make a profit. No insurer designs any product that they expect to lose money. It took time to feel comfortable designing, underwriting, and marketing long-term care products. There were few agents educated in the needs or products of long-term care in the 1970s and 1980s. The products were new and there were few, if any, brokers offering training on them. The primary problem was simply ignorance. Even the companies issuing these 8 Copyrighted 1991 Page 108

110 Chapter 4: Changes or Improvements in LTC Services policies were struggling with policy language because it was so new. Certainly, the agents in the field reflected this. Consumers were routinely given misleading or downright wrong information regarding the coverage they were buying. Unfortunately, the consumer never learned of the errors until claims arose. Cost was not always an indicator of quality, although the more expensive ones certainly tended to offer the most benefits. Since the regulations of each state must be followed there were variances in products. That sometimes added additional confusion. A consumer who bought a policy because of the wonderful benefits a relative received in another state was often disappointed when their policy did not perform the same way. Because insurance companies were fearful of losses in the early policies, they tended to write in wording that allowed them to disallow claims if they became excessive. In this way, the company might initially pay certain types of claims that were later disallowed. It was this and other related practices that prompted many states to define precisely certain terms and payment conditions in their regulations. In many ways, the history of long-term care products can be traced through publications, such as Consumer Reports magazine. In May of 1988 they published "Who Can Afford a Nursing Home?" In this article, they pointed out that the majority of policies were expensive for the average buyer, difficult to understand, and severely limited in the coverage offered. They were right. The policies in 1988 had many restrictions on the very types of care needed most: custodial care. In October 1989, Consumer Reports printed an article titled "Paying for a Nursing Home." This article pointed out something that was eventually identified by the states as a consumer problem: post-claims underwriting. The insurer considered it a method that allowed them to quickly issue the policy without underwriting (based solely on the application medical answers). When a claim was submitted, the insurer underwrote the policy. Unfortunately, this meant the claim could be denied if the insured failed the company s underwriting standards. The insurer liked this method of underwriting for several reasons, but primarily because it saved them money. If the consumer turned down the policy upon delivery, the insurance company was not out the cost of underwriting. As Consumer Reports magazine pointed out, however, many consumers ended up with a nasty surprise when they submitted a claim. It also delayed payment on the first claim since underwriting had to take place prior to payment. Since many agents did not fully understand LTC policies, they may or may not have been aware of the consequences of post-claims underwriting. For the most part, if they did know, it was not explained to consumers. Consumers thought they had an issued policy. What they really had was a contractual promise to underwrite the policy when a claim was filed and possibly pay them. Those who turned in claims, only to find out they could be denied, turned to the state insurance departments for help. Since post-claims Page 109

111 Chapter 4: Changes or Improvements in LTC Services underwriting was legal, there was no help available. Even consumers who disclosed absolutely everything they were aware of could be trapped by this practice if the agent failed to write down everything on the application or if medical conditions were not fully recognized, therefore reported, by the consumer. If the agent ignored underwriting guidelines, applications were written on obviously unacceptable applicants. Eventually, states banned post-claims underwriting. In a perfect world, consumers would fully disclose every known medical condition and scrutinize the application for accuracy. In a perfect world, agents actively seek to record each known medical condition. Alas, we are seldom perfect. Therefore, it is important that insurers be required to fully underwrite every policy prior to issue. Only obvious fraud would cause a policy to be rescinded (voided). In June of 1991, Consumer Reports magazine again reviewed nursing home policies. They seemed to have expected policies to be greatly improved, but in their opinion, this was not the case. The authors felt that insurance companies simply got better at adding gatekeepers; those restrictive clauses that allow companies to "close the gate" on benefit payments. The magazine also presented another problem: untrained or dishonest agents. It probably doesn t matter which an agent is (untrained or dishonest) since an untrained agent is just as dangerous as a dishonest one. Whichever it happened to be, many consumers found that the policies they purchased would not pay the benefits they had been promised. Policy restrictions were almost never explained. Rate increases have also plagued many of the long-term care policies. As insurance companies found their costs going up, they applied for and received rate increases from the states. Few policies allowed the consumers to receive any of their premiums back if the policy was dropped. Refunds were seldom possible even if the consumer died before the end of their premium term. This was true even if they had never applied for or received benefits. The rationale was simple: in automobile policies you do not get a refund if no accident occurs. Why should a person who never filed a long-term care claim receive a refund? Of course, there is one major difference: long-term care policies are not likely to pay benefits for up to 20 years or more after the date of purchase. If premiums continually rise, pricing the policy beyond the consumer s means, is this a bait and switch tactic? Are the insurers luring the consumer in with low rates at early ages when claims are unlikely and then simply raising the rates beyond their means by the time they approach use of the policy? It would be impossible to ever prove the insurers were intentionally doing so, and probably unlikely as well. It is more plausible that they failed to realize how the policies would perform and pay benefits over time. Even so, since the recent tendency to price long-term consumers out of their policies has become obvious, Page 110

112 Chapter 4: Changes or Improvements in LTC Services consumer advocates are hoping the states will step forward with some type of insurer restraints or solution to the problem. There were approval problems at state levels early on. The early policies had no regulated format. States were initially overwhelmed by the quantity of companies and policies coming across their desks for approval. Additionally, those who approved policies at state level had little knowledge or background in the area being insured. As a result of these problems, the first policies out had little state intervention. The LTC Marketplace Long-term care insurance sales demand a knowledge that is specialized. It should never be considered a side line career. While the senior market is often better educated in insurance (simply through experience) than their younger counterparts, long-term care products are like no other insurance line. Few elder Americans will have specialized knowledge so the agent must be prepared to fully discuss all aspects of the policy. As people age, some types of disabilities may occur. Any agent who suspects that the applicant is unable to make a logical decision due to impairment, whether caused by medication or a medical condition, should discontinue the presentation immediately. If possible, a family member should be encouraged to attend the insurance presentation. Dramatic Policy Improvement, But Also Rising Premium Rates There is no doubt that the quality of the long-term care products, including home care, has greatly improved over the last ten years. However, there cannot be improved benefits without higher premium costs. Most insurance products have some basic costs: they must cover potential future claims, past and present claims, commissions to their sales staff, expenses, and generate a profit for their company and, depending upon the type of insurer, perhaps for their shareholders, too. As Michael Ebmeier stated: you ve undoubtedly heard the cliché, a win-win proposition. A good insurance product must be a win-win-win. The consumer, the agent, and the insurance company [all] need to win. 9 There has to be enough incoming money to deliver the type of product demanded, while still remaining a solvent company. Those who purchased their policies five or ten years ago will be the hardest hit by the rising premium rates because they won t likely have made provisions for them. More recent buyers will be coming in after the rate 9 Insurance Marketing, April/May 2004 edition, Page 20 Page 111

113 Chapter 4: Changes or Improvements in LTC Services adjustments. It is hoped that the rising premiums will not continue so that the current purchasers will have a steadier rate over the duration of their policies. Few states have addressed this. California recently passed legislation requiring companies to provide statistical information proving realistic premiums that are likely to remain steady for a period of twenty years. Long-term care products are the current insurance frontier. There are many opportunities for rewarding careers. To succeed, however, the field agent must make it their responsibility to be fully educated. Education is not something that is done once and forgotten about. Changes continue to occur at a rapid pace and the successful career agent knows that on-going education is essential to professionalism. History of the Partnership for Long-Term Care A new kind of long-term care policy is coming. We have heard about them; Washington even had legislation pertaining to them (although no policies ever became available): they are Partnership long-term care policies. Partnership plans are now gaining attention as all the states have the option of adopting such plans. We are likely to see many insurance companies submitting Partnership plans, including Washington. In the late 1980s the Robert Wood Johnson Foundation (RWJF) supported the development of a new LTC insurance model, with a goal of encouraging more people to purchase LTC coverage. The program, called the Partnership for Long-Term Care, brought states and private insurers together to create a new insurance product that would encourage the uninsured to purchase long-term care coverage. It was hoped that moderate-income individuals, who faced the greatest risk of future reliance on Medicaid, would cover long-term-care needs through insurance policies. The Partnership program was designed to attract consumers who might not otherwise purchase this type of insurance. States offered the guarantee that if benefits under a Partnership policy did not sufficiently cover the cost of care, the consumer could apply and qualify for Medicaid under special eligibility rules while retaining a pre-specified amount of assets (though income and functional eligibility rules would still apply). Consumers would be protected from having to become impoverished to qualify for Medicaid, and states would avoid the entire burden of long-term-care costs Issue Brief Long-Term Care Partnership Expansion: A New Opportunity for States Page 112

114 Chapter 4: Changes or Improvements in LTC Services In 1987 the Program to Promote Long-Term Care Insurance for the Elderly was authorized. The Robert Wood Johnson Foundation (RWJF) was charged with providing states with resources to plan and implement private/public partnerships for funding longterm care needs. A primary goal of the Partnership Program was estate preservation, but also to promote an awareness of long-term health care needs faced by individuals as they age. The partnership programs joined the private insurance sector already offering longterm care insurance with the goal of developing high-quality insurance options that would prevent asset depletion and dependence on Medicaid. Partnership programs protect assets (not income) from the high costs of home care, community care, and nursing home care. Income would still need to be used for the individual s care, but assets would be protected. No policy protects income once benefits are used up and the insured goes on Medicaid. Between 1987 and 2000, a total of 104,000 applications had been taken and more than 95,000 policies had been sold in the four program states, which were California, Connecticut, Indiana, and New York. Analysts in the health care industry first recognized the need to develop and promote long-term care policies in the early 1980s. This was about the same time that government realized a need to seek ways to fund the care of those who were ending up on Medicaid. By the mid-1980s insurance companies were marketing private long-term care policies, although these early policies had several flaws in coverage. Many were surprised to learn that it was not the so-called poor who were ending up dependent upon state and federal aid for their long term health care needs; the middle class were finding themselves quickly impoverished once they entered a nursing home. It took less than one year for many individuals to become poor enough to qualify for Medicaid. The situation is not expected to improve unless the general population accepts their responsibility by purchasing insurance or providing some financial avenue to pay for long-term care needs. Concern about the financing of long-term care is based on set predictions: the population of chronically ill elderly will inevitably increase with the population of those older than age 80 and with medical advances that enable those with chronic diseases to survive longer. According to a study published by the New England Journal of Medicine, 43 percent of all Americans will enter a nursing home at some time before they die. 11 Of these, 55 percent will stay at least one year and 21 percent will stay at least 5 years. The average stay will last two and a half years. By 2010 the average cost is expected to be around $83,000 per year. Medicare will pay less than 9.4 percent 11 Program to Promote Long-Term Care Insurance for the Elderly, July 2007, Robert Wood Johnson Foundation Page 113

115 Chapter 4: Changes or Improvements in LTC Services of the long-term care costs since that program was never designed to cover care in a nursing home beyond a very short period of time. Medicaid, the program that ends up paying the costs once a person becomes impoverished, is one of the largest items in state budgets. The elderly and disabled population represents less than one-third of the total Medicaid caseload, but consumes over two-thirds of the total program funding for care in nursing homes. Obviously, this is a situation that has the potential of totally draining state budgets as the baby-boomer set becomes elderly. A number of studies and commissions at the federal and state levels have reported the need for long-term health care insurance development is urgent. Additionally, some broad agreements have been reached, including: Delaying the moment at which patients qualify for Medicaid could avoid financial disaster for the patient and their families. Preventing financial spend-down, and subsequent qualification for Medicaid benefits, would save public funds. Elderly consumers would benefit if risk pooling could be implemented by state legislatures specifically designed to provide a safety net for medically uninsurable people. Even though these agreements are generally accepted little action has been taken by the public sector. Private long-term care insurance represents more than a $200-million industry, but the coverage is often limited and premium costs are high. As a result, sales of private long-term care coverage have not been as good as analysts hoped for. Only a small segment of the population have actually purchased such coverage; of the total costs of long-term care services, less than 1 percent are covered by private insurance. Our tax dollars still cover the largest part of long-term care costs. Why haven t more people bought long-term care policies? Most people do not want to go to a nursing home and this may be part of the problem. Some may believe owning such coverage will encourage their family members to use it, versus caring for them at home or in a family member s home. This equates into a lack of education regarding health care at this stage of life. Even when family members are willing to provide care for a long period of time it is not always prudent for them to do so. Often it is more appropriate for the patient to receive professional care. As the financial crisis became more evident, the idea of financing long-term care through some type of public-private cooperation gained favor. As a result of state government and insurance company meetings and discussions during the 1980s, a partnership for long-term care needs developed. The Robert Wood Johnson Foundation Page 114

116 Chapter 4: Changes or Improvements in LTC Services was attracted by its win-win-win potential. Who wins? Consumers, Medicaid, and private insurers all had the potential to win. RWJF authorized the national program in The Robert Wood Johnson Foundation (RWJF) had specific goals: 1. Avoiding impoverishment for elderly individuals by guaranteeing some measure of asset protection; 2. Providing access to quality long-term care that is appropriate for the individual s medical situation; 3. Providing coverage for a full range of home and community-based services; 4. Development of a case management infrastructure in which the gatekeeper bears some financial risk in order to prevent excessive or inappropriate utilization (they did not want family members to be able to use this program inappropriately for their ill or frail member); and 5. Assurance of equity and affordability in the long-term-care-insurance program for lower-income individuals. Partnership Policies are Created The national program office is located at the University of Maryland Center on Aging. Their primary responsibilities were to provide leadership and technical assistance for grantee institutions during the planning and implementation stages. They would also offer information to other states that were interested in replicating the public-private partnership programs, or even pursue alternative programs that might appropriately address the situation. Additionally, they wanted to develop and implement some type of media relations strategy that would increase policy sales. Obviously, if consumers did not buy the partnership policies, they would not solve the problem. The planning phase of Partnership long-term care policies was authorized in 1987 with funding of $3.2 million. The national program office contacted states that had demonstrated a commitment to reforming long-term care financing. Grants were awarded to California, Connecticut, Indiana, Massachusetts, New Jersey, New York, Oregon, and Wisconsin. These eight states collected and analyzed data from nursing homes, the elderly population, state Medicaid files, and insurers to help them design and price their products and to assess products impact on costs. Based on the Brookings/ICF long-term care financing model, which simulates utilization and financing of long-term care services through the year 2020, it was Page 115

117 Chapter 4: Changes or Improvements in LTC Services estimated that a national Partnership program involving all 50 states could result in a 7 percent drop in Medicaid s share of the total long-term care bill between 2016 and Currently not all 50 states are participating but they are being added gradually as the Department of Health & Human Services invites them to submit their applications. Since the Partnership program will protect assets (not income), it is expected to be well received in those states that begin to utilize Partnership long-term care programs. Some interesting initial Partnership facts: The average age of Partnership respondents was 58 and 59 years old (depending upon the state). Respondents listed their health as primarily excellent. The average age of Partnership policyholders ranged from 58 to 63, depending upon the state. California, for example, reported an average age of 60. Women have purchased more Partnership policies than have men. The majority of Partnership policy owners are married. For most, this is the first time they have bought a long-term care policy of any type. In California, Connecticut, and Indiana, the majority of policyholders have income greater than $5,000 per month and total non-housing assets of more than $350,000. The purchase of Partnership policies have increased significantly since the program began, although there were some down periods in sales. Two states reported that they did not feel the decline in sales had anything to do with Partnership plans since all long-term care policy sales were down. Most Partnership policies written were comprehensive, covering both nursing home care and home and community-based care. Medicaid is the Largest Nursing Home Payor Medicaid is the largest payor of nursing home bills for the elderly. Medicaid is a joint federal-state program that is financed (on average) 57 percent by the federal government and 43 percent by the states. The individual states administer the program in their state 12 Robert Wood Johnson Foundation s Program to Promote Long-Term Care Insurance for the Elderly, July 2007 Page 116

118 Chapter 4: Changes or Improvements in LTC Services according to their Medicaid state plans, which are set up within broad federal guidelines. States can make changes or innovations that go beyond current state parameters, which is the case with Long-Term Care Insurance for the Elderly initiatives in Partnership participating states. States must have the federal governments permission to have the federal parameters or requirements changed, even when it benefits consumers. One approach has been to use waivers of federal requirements. A waiver of Medicaid requirements can be obtained in different ways: 1. Federal legislation: a federal legislative waiver is essentially a congressional mandate that gets written into public law. 2. Administrative approval: the Health Care Financing Administration (HCFA) of the U.S. Department of Health & Human Services administers Medicaid and can grant an administrative waiver of Medicaid requirements. Administrative waivers come in three types: a. Freedom-of-choice waivers; b. Home- and community-based-services waivers; and c. Research waivers, which are typically used to test innovative ideas on a portion of those eligible for Medicaid. Administrative waivers typically have a time limit on their duration and have special reporting requirements. Another approach, the one used for the Partnership program, is through a state amendment to its Medicaid state plan. A state plan amendment may be used in lieu of waivers. States submit their plan amendments to the HCFA requesting permission to alter their Medicaid programs. In this case, the federal role is to approve the modifications (rather than waive compliance with the law) within the existing federal statutory authority. When such amendments are approved the changes become part of the state plan until either the state makes another amendment or until the statutory requirements are changed. Where administrative waivers have a set durational time limit, state plan amendments have no time restrictions and there may be no special reporting requirements. The first Partnership models required waivers, but later models did not. Models were amended to minimize the need for federal waivers. The plans initiated in early 1988 required a Federal waiver. Early legislative activity for the waivers included introducing bills specifically aimed at Partnership plans, along with attempts to include waiver language in various budget Page 117

119 Chapter 4: Changes or Improvements in LTC Services reconciliation bills. Those efforts never reached the floor of Congress for a vote because a congressional conference eliminated from consideration all budget-neutral items, which included the Partnerships. This decision reflected the need to undo a logjam in the 1989 budget reconciliation process. Subsequent efforts to revive waiver legislation met with strong opposition led by Democratic Congressmen Henry Waxman of California, Chair of the House Subcommittee on Health and the Environment, which controls legislation involving the Medicaid program, and John Dingell of Michigan, chair of the House Energy and Environment Committee. They had specific concerns, including the belief that: 1. The standards implicit in the waiver request were too lenient; 2. Private insurers needed to improve consumer protections substantially before playing a major role in public-private partnerships; 3. Medicaid dollars should go to help only the poor and nearly-poor rather than those with enough assets to purchase long-term care policies; and 4. The direct link between the public and private sectors should be made only with great caution, since direct links might imply extensive public responsibility to ensure the fairness, viability, and quality of the private insurance product. After the political opposition blocked the initial attempts in the late 1980s, the state Partnership program teams shifted to a Medicaid state plan amendment strategy to obtain the required approvals. This was not a fast process. Delays occurred for various reasons, including: 1. Insurance regulations governing partnerships in several of the states had to be modified to reflect the Medicaid state plan amendments; 2. State legislatures usually had to approve the regulation changes and then HCFA had to approve the state plan amendments. In the end, the four states that implemented their partnerships, California, Connecticut, Indiana, and New York, received HCFA approval of their Medicaid state plan amendments. Due to the delays caused by the Medicaid state plan amendment process and HCFA s separate process needed to approve them, the Robert Wood Johnson Foundation (RWJF) awarded implementation grants to the states one at a time, from August 1987 through December Normally the national program procedure is to authorize all project sites at once. Page 118

120 Chapter 4: Changes or Improvements in LTC Services The states that had planned to have a Partnership program, but did not implement it, cited political opposition, fiscal constraints, and regulatory barriers as the primary obstacles to doing so. California, Connecticut, and Indiana based their Partnership plans on a dollar-for-dollar model, although Indiana changed its model in Under the dollar-for-dollar model, for each dollar of long-term care coverage purchased by the insured from a private insurance carrier participating in the partnership, a dollar of assets was protected from the spend-down requirements for Medicaid eligibility. Therefore, if Joe buys a policy that provides $50,000 in benefits, he is protecting the same amount ($50,000) of his personal assets from the spend-down requirement. Partnerships do not protect Joe s income, just the assets he has acquired. For asset protection, the consumer purchases an insurance policy that stipulates the amount of coverage that he or she wishes to have. That figure purchased is the amount the insurer will pay out in benefits under long-term care coverage in a nursing home, assisted living, or other qualified service. Once the purchased benefit amount has been fully paid out by the insurer, Medicaid can assume coverage, following application and approval for Medicaid eligibility. The policyholder, as previously stated, would contribute income towards his or her care since only assets are protected by Partnership policies. Traditional long-term care policies still offer valid benefits, but since they do not protect assets, Medicaid coverage could only begin after the insured had depleted their assets down to approximately $2,000. In other words, after the non-partnership insurance policy had paid out all available benefits, the individual would still have to use all their assets before Medicaid would step in and pay anything towards their medical care. With Partnership policies, special Medicaid eligibility regulations allow the policyholder to keep assets (not income) up to the level of long-term care benefits they purchased. Since assets are protected only to the level of insurance benefits purchased, the amount of coverage needs to be given great thought. If the Partnership policy benefits expire with the policyholder having assets greater than those protected by the Partnership policy, the insured will be required to spend-down the excess assets prior to qualifying for Medicaid. This does not necessarily mean that he or she should have purchased greater benefits, but it is certainly something to be considered. Whatever non-housing assets the insured has, he or she will be allowed to keep an amount of assets equal to the amount of long-term care coverage that was purchased through the Partnership program (plus the $2,000 in assets that everyone is allowed to keep). Any income, including Social Security income, pension income, or any nonhousing income that is received must be contributed to the policyholder s medical care expenses. Page 119

121 Chapter 4: Changes or Improvements in LTC Services In any dollar-for-dollar Partnership program, the spending of assets would look like the following: Partnership Policy Benefits Purchased: Policyholder Assets Upon Medicaid Application: Required Asset Spend Down for Medicaid Eligibility: $100,000 $100,000 None $100,000 $150,000 $50,000 Traditional non-partnership policy purchased No Policy Purchased of any type. $100,000 $100,000 $100,000 $100,000 Even though a traditional, non-partnership policy does not protect assets, such policies still have value. The benefits provided by non-partnership policies still allow the insured to keep assets that might otherwise have been spent for medical care if enough traditional insurance benefits were purchased they might fully cover the care preventing Medicaid application entirely. Even so, it would seem prudent (if the choice is available) to purchase Partnership policies since extra protection for assets come with them. When the first states introduced Partnership plans, New York chose a different approach. Rather than offer dollar-for-dollar benefits, they chose a program called the total-assets protection model. Under this program, certified policies had to cover three years in a nursing home or six years of home health care. Once the benefits were exhausted, the Medicaid eligibility process did not consider any assets of the insured at all. Protections were granted for all assets, even those far above the amount of protection purchased. Income still had to be contributed to the individual s health care, just as in the dollar-for-dollar plans. Total Asset Partnership plans are more expensive than dollar-fordollar plans. The Deficit Reduction Act specifies that new long-term care Partnership programs offer dollar-for-dollar models only, not total asset models. States participating in Partnership plans all conducted extensive promotional and educational campaigns designed to inform the public about the availability of these insurance policies with the goal of increasing sales (which would ultimately relieve the state of some portion of their Medicaid expenditures). RWJF contributed to some of the promotional campaigns by providing contracts with public relation firms. Participating states collected and analyzed sales and marketing data and used the information to evaluate the Partnership programs, making any changes they felt necessary. Page 120

122 Chapter 4: Changes or Improvements in LTC Services Program Performance In 1998, RWJF issued a grant to the Laguna Research Associates to coordinate the writing of a book on the implementation and future prospects of the Partnerships for Long-Term Care. Additionally the national program office convened yearly meetings for Partnership states. These results were published in 6 journal articles, various discussion papers and data reports. The program did see growth: By 2000, 104,000 applications had been taken and more than 95,000 policies had been sold in the four program states of California, Connecticut, Indiana, and New York. Program redesigns were seen in Connecticut, Indiana, and California, which produced increases in applications ranging from 324 percent to 540 percent. New York experienced the highest sales, perhaps due in part to their generous asset protection benefits. These sales came in spite of restrictive language embedded in the Omnibus Budget Reconciliation Act (OBRA) of 1993 that effectively curtailed one of the program s primary goals: replicating the partnerships in other states. Although OBRA grandfathered the four initial program states, it also required states obtaining a state plan amendment after May 14, 1993, to recover assets from the estates of all persons receiving services under Medicaid. As a result of the restrictive language the Partnership asset protection component was only in effect while the insured was alive. Since one of the attractive aspects of Partnership policies was the possibility of passing assets on to heirs, OBRA removed a major selling attraction of Partnership plans, which then defeats the purpose of them promoting insurance sales. Both the Illinois and Washington programs failed to protect purchasers from estate recovery since they were created after OBRA s May 14, 1993 deadline. Eight states (Colorado, Florida, Georgia, Michigan, Missouri, North Dakota, Ohio, and Rhode Island) passed legislation that would facilitate Partnership policies but implementation had to wait for the overturn of the sections of OBRA pertaining to estate recovery. Originally the state where the Partnership plan was purchased was the only place the policy could be used for asset protection; if the insured moved to another state the plan would still pay policy benefits, but no assets were protected from Medicaid s spend-down requirements. Connecticut and Indiana sought to have that changed. These two states wanted reciprocal agreements by which qualified holders of Partnership policies could be eligible for care in either state. Page 121

123 Chapter 4: Changes or Improvements in LTC Services New Federal Legislation: The Deficit Reduction Act of 2005 In the spring of 2006 President George W. Bush signed the Deficit Reduction Act of 2005 (DRA 2005) allowing long-term care insurance Partnership models to be used in all 50 states. This Act makes it harder for individuals to give away money and property (lengthening the time period available for asset repositioning from three to five years) before asking Medicaid to pay for their nursing home care, but it also increased the incentives to purchase long-term care insurance. Policies in the new programs must meet specific criteria, such as federal tax qualification, specified consumer protections and inflation protection provisions. The Deficit Reduction Act of 2005 included a number of reforms related to long-term care services. Of interest to many states is the lifting of the moratorium on Partnership programs. Under the DRA all states can implement LTC Partnership programs through an approved State Plan Amendment, if specific requirements are met. The DRA requires programs to include certain consumer protections, most notably provisions of the National Association of Insurance Commissioners Model LTC regulations. The DRA also requires that polices include inflation protection when purchased by a person under age Questions that Remain Unanswered Some of the concerns that prompted Congress in 1993 to halt further implementation of additional Partnership programs in other states remain relevant. Do Partnership programs really save state Medicaid funds or do only the wealthy buy them? What consumer protections are needed to ensure that policies will provide meaningful benefits when they are needed 20 years in the future? Will existing Partnership and non-partnership policies still be affordable in ten to twenty years? We are finding that some currently issued nonpartnership policies have become so expensive that policyholders are allowing them to lapse even though premiums have already been paid for many years. OBRA 1993 DRA 2005 Provisions 13 Robert Wood Johnson Foundation May 2007 Long-Term Care Partnership Expansion Page 122

124 Chapter 4: Changes or Improvements in LTC Services The Omnibus Reconciliation Act of 1993 contained language with direct impact on the expansion of Partnerships for long-term care. The Act recognized the initial four states operating Partnership programs as well as the future program in Iowa and the modified program in Massachusetts. These six states were allowed to operate their Partnership programs as planned since their state plan amendments were approved by HHS prior to May 14, States seeking a state plan amendment after May 14th had to follow the conditions outlined in OBRA '93. There are three sections with specific language pertaining to Partnership programs. The requirements in each section are as follows: Sec 1917(b) paragraph 1 subparagraph C Section 1917(b) paragraph 1, subparagraph C requires any state operating a Partnership program to recover funds from the estates of all persons receiving services under Medicaid. The result of this language is lost asset protection occurring as soon as the insured dies; only while he or she is living are their assets protected from Medicaid recovery. This means assets do not pass on to the insured s heirs. After the participant dies, states must recover what Medicaid spent from the estate, including protected assets under Partnership policies. Sec 1917(b) paragraph 3 This section prevents any state from waiving the estate recovery requirement for Partnership participants even if they want to in order to promote Partnership plan sales. Sec 1917(b) paragraph 4 subparagraph B This section requires a specific definition of "estate" for Partnership participants. Estates: A. shall include all real and personal property and other assets included within the individual's estate, as defined for purposes of State probate law; and B.... any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust or other assignment. The above definition may vary from the current definition used by a state for estate recovery. States implementing a Partnership program may find themselves in the position of having to use a more encompassing definition for Partnership participants alone. These Page 123

125 Chapter 4: Changes or Improvements in LTC Services post OBRA Partnership states may even have to seek legislative approval to implement the required recovery process for Partnership participants. Promoting Partnership Long-Term Care Plans Several organizations are promoting Partnership plans, including the Center for Health Care Strategies, the National Association of State Medicaid Directors and George Mason University. The new long-term care options are made available through the Deficit Reduction Act of There is no doubt that as the numbers of elderly Americans increase, long-term-care (LTC) needs and costs will grow. Many professionals believe that private long-term-care insurance can and should play a more significant role in the financing of home care, community care, and nursing home services. The hope is that greater use of individually purchased insurance policies will reduce the burden on Medicaid to some degree, although not all believe this is the case. State Medicaid programs are the largest payer of nursing home costs, since they often serve as the default financier of long-term care services. One vehicle for encouraging consumers to invest in LTC insurance is the expansion of the Partnership for Long-Term Care, a unique insurance model developed in the 1980s with support from the Robert Wood Johnson Foundation (RWJF). Through the Partnership program states promote the purchase of private LTC insurance by offering consumers access to Medicaid under special eligibility rules should additional LTC coverage (beyond what the policies provide) be needed. Partnership policies encourage individuals to take responsibility for financing their own initial phase of long-term care through use of private insurance. About 80 percent of those surveyed in the Partnership program said they would have purchased long-term care whether the Partnership program was available or not, since they consider such policies a valuable financial planning tool. The other 20 percent indicated they would have self-financed long-term care if the Partnership plans had not been available (so they would not have bought non-partnership policies) since the need of such care may or may not occur. They purchased the Partnership policies primarily on the basis of asset conservation. Program Growth Page 124

126 Chapter 4: Changes or Improvements in LTC Services Four states implemented Partnership programs in the early 1990s (California, Connecticut, Indiana and New York) and the assumption was that other states would follow. That is not what happened, however. Citing concerns about the appropriateness of using Medicaid funds for this purpose, Congress enacted restrictions on further development of the Partnership in the Omnibus Budget Reconciliation Act (OBRA) of The four states with existing Partnership programs were allowed to continue, but the OBRA provisions ended the replication of the Partnership model in new states. There were two different models used for asset protection: dollar-for dollar and asset protection. California, Indiana and Connecticut chose the dollar-for-dollar model. Under dollar-for-dollar, the amount of insurance coverage purchased equals the amount of assets protected from consideration if and when the consumer needs to apply for Medicaid benefits. For example, a consumer who bought a policy with $100,000 in benefits would receive up to $100,000 worth of qualified long-term care insurance benefits. Once the insurance benefits were exhausted, if further care was necessary, the individual would be able to apply for Medicaid coverage, while still retaining $100,000 worth of assets. New York elected to use the more generous total asset protection model, where consumers were required to buy a more comprehensive benefit package, as defined by the state. The state initially mandated that Partnership policies cover three years of nursing home or six years of home-health care. Consumers purchasing such a policy could protect all of their assets when applying for Medicaid. In 1998 Indiana switched to a hybrid model, whereby consumers could choose between dollar-for-dollar or total asset protection. New York also recently added a dollar-fordollar option for consumers. As of 2005 more than 172,000 consumers in the four demonstration states had active Partnership policies. Because the program is fairly young and policies are generally purchased well before they are used, relatively few of the policyholders have actually needed long-term-care coverage. However, of those that have accessed their benefits, the Government Accountability Office reports that: More policyholders have died while receiving long-term-care insurance (899 policyholders) than have exhausted their longterm-care insurance benefits (251 policyholders), which could suggest that the Partnership for Long-Term Care program may be succeeding in eliminating some participants need to access Medicaid. Partnership Participation Page 125

127 Chapter 4: Changes or Improvements in LTC Services The successful implementation of Partnership programs has involved several parties, which includes state policymakers, private insurers and, of course, individuals to purchase the policies. The process always begins with the state who is the convener of any Partnership effort. This typically involves many aspects of state government. The Medicaid agency, Governor s office, state budget office, state unit on aging, state legislature, and the state s Department of Insurance all provide input on the design of the program. If a state passed enabling legislation prior to the DRA, then modifications to that legislation may be needed to conform to the requirements of the federal statute. The private insurance industry also needs to be involved in the development of a Partnership program from the very beginning. Consumer input is valuable since a policy that no one buys accomplishes nothing. Although the DRA mandates a number of consumer protections for Partnership programs, consumer input can be invaluable in helping states determine the best way to implement those protections and whether to offer additional provisions, such as premium protection and non-forfeiture clauses. Consumer groups may be helpful in designing public awareness or educational campaigns. The insurance industry plays a key role in underwriting Partnership policies. Insurers and the independent agents with whom they work may have extensive experience in the long-term care insurance market. Experienced field agents may have insight that policymakers lack. As such, they may be able to provide states with programmatic and fiscal projections, as well as advice on effective marketing strategies for LTC insurance products. Public Education The success of Partnership programs in reducing state long-term care expenditures depend on the program s ability to encourage people to buy them. The consumers they most wish to target are those with moderate incomes and assets. These are the consumers most likely to need Medicaid benefits since they will quickly deplete their assets and their incomes are not high enough to fund the cost of private care. If the Partnership program merely provides substitute insurance for wealthier individuals, who could otherwise afford to pay out-of-pocket or purchase other private LTC insurance, then state savings will not be realized. As states consider the best way to attract those individuals who would not otherwise purchase LTC insurance, the experience of the demonstration states play a major role. The two models, dollar-for-dollar and total asset protection, seemed to attract consumers with different levels of assets. To qualify for total asset protection, New York mandated a relatively comprehensive benefit package. This increased the premiums and attracted Page 126

128 Chapter 4: Changes or Improvements in LTC Services consumers who were financially better off. A Congressional Research Service report notes that some Partnership state directors in the original states felt that the dollar-fordollar model promoted more affordable policies than the asset protection models. It is no surprise that affordable policies will attract persons with less wealth. The DRA specifies that all new LTC Partnership programs use the dollar-for-dollar methodology since they seem to attract those with less income and assets. To keep premiums affordable, states should create benefit options that appeal to people with varying levels of assets: less coverage (and associated asset protection) for those with limited income and assets; more generous coverage for those with more to protect. In finding a successful balance between coverage and costs, it will be necessary for the states to develop and implement programs that alert their residents to the possibilities offered through Partnership long-term care programs. This would include educating consumers about the benefits they are purchasing, the level of benefits that will be provided, and what protection might be best for them. Consumer and Agent Education Given the complexity of the long-term care insurance industry, and the additional benefits of Partnership programs, many people felt it was necessary to include not only consumer education, but also agent education in the new state Partnership programs. Long-term care policies have so many options, gatekeepers, and limitations that even experienced agents may not be fully educated on these contracts. The DRA addresses some issues related to education for both consumers and agents: 1. The secretary of Health and Human Services (HHS) is required to establish a National Clearinghouse for Long-Term Care Information that will educate consumers about the need for long-term care and the costs associated with these services. HHS will provide objective information to help consumers plan for the future. A Website, was established to aid in consumer education. 2. Partnership programs must include specific consumer protection requirements of the 2000 National Association of Insurance Commissioners (NAIC) LTC Insurance Model Act and Regulation. If the NAIC changes the specified requirements, the HHS secretary has 12 months to determine whether state Partnership programs must incorporate the changes as well. 3. State insurance departments are responsible for ensuring that individuals who sell Partnership policies (insurance agents) are adequately trained and can demonstrate understanding of how such policies relate to other public and private options for long-term-care coverage. Page 127

129 Chapter 4: Changes or Improvements in LTC Services Education for both consumers and insurance agents are closely aligned. Insurance agents play a vital role in ensuring that consumers understand their policy options, policy terms, and benefit conditions of any given policy. Of primary importance is guaranteeing that consumers understand the criteria that will allow them to become eligible for both private LTC coverage and, if necessary, Medicaid. Simply having a Partnership policy does not guarantee that Medicaid benefits will be available after exhausting Partnership policy benefits. Each individual must still qualify for Medicaid based on their state s income and functional eligibility criteria. Consumers should also be aware that, although a Partnership policy may cover home-based care, Medicaid coverage may (depending on the state) only entitle them to care in a nursing facility. The DRA specifies that: any individual who sells a long-term-care insurance policy under the Partnership receives training and demonstrates evidence of understanding of such policies and how they relate to other public and private coverage of long-term care. It is important to note that this is a training requirement, not a state continuing education requirement. Therefore, the training is required to sell Partnership plans, but that training does not necessarily go towards state education requirements. Agents who want the CE to apply to their state must be sure the course is also state approved. To ensure that insurance agents are well schooled in the intricacies of long-term care and the Medicaid program, states may require a specific number of hours of training on each. Current Partnership states require LTC insurance agents to undergo a number of hours of initial training specifically devoted to the Partnership program, in addition to other general training and continuing education requirements. Policy Benefits The type of benefits available in a long-term care policy will depend in part on what the individual chooses at the time of application. He or she determines the types and extent of the policy s coverage. The more benefits chosen, the more expensive the policy will be. Inflation Protection Inflation protection has recently gained recognition for its value as costs have sharply risen. An inflation provision stipulates that benefits will increase by some designated Page 128

130 Chapter 4: Changes or Improvements in LTC Services amount over time. Inflation protection ensures that long-term care insurance products retain meaningful benefits into the future. Because policies may be purchased well before they are needed, and long-term care costs are likely to continue to increase, inflation protection can be a key selling point for consumers interested in purchasing private LTC coverage. The DRA requires that Partnership policies sold to those under age 61 provide compound annual inflation protection. The amount of the benefit (e.g., 3 percent or 5 percent per year) is left to the discretion of individual states. Policies purchased by individuals who are over 61 but not yet 76 must include some level of inflation protection, and policies purchased by those over 76 may, but are not required, to provide some level of inflation protection. There are two main types of inflation protection used in long-term care insurance plans: future-purchase options (FPO) and automatic benefit increase options (ABI). Under FPO protection the consumer agrees to a premium for a set amount of coverage. At specified intervals (such as every two years, for example), the insurance issuer offers to increase existing coverage for additional premium. If the consumer declines the increased benefits (or cannot afford to buy them) policy benefit levels remain the same, even though costs for long-term care services may be increasing. A policy purchased to pay a $100 daily benefit may not be adequate ten years later. On the other hand, it may be better to have a $100 per day benefit than none at all. With ABI, the amount of coverage automatically increases annually by a contractually specified amount. The cost of those benefit increases are automatically built into the premium when the policy is first purchased, so the premium amount remains fixed. Policies that have ABI protection are generally more expensive up front, but are more effective at ensuring that policy benefits will be adequate to cover costs down the road. Consumer advocacy organizations and some members of Congress maintain that the intent of the language in the DRA was to require automatic compound inflation protection for those under age 61, but some insurers believe that future-purchase option protections can also satisfy the requirement. As of this writing, the Centers for Medicare and Medicaid Services (CMS) have not issued guidance on this matter. Reciprocity Between States In 2001 Indiana and Connecticut implemented a reciprocity agreement between them allowing Partnership beneficiaries who have purchased a policy in one state (but move to Page 129

131 Chapter 4: Changes or Improvements in LTC Services the other) to receive asset protection if they qualify for Medicaid in their new locale. Prior to this agreement asset protection did not transfer outside of the state where the policy was purchased, although the Partnership insurance benefits were portable. The asset protection specified in the agreement are limited to dollar-for-dollar, so Indiana residents who purchase total asset protection policies would only receive protection for the amount of LTC services their policy covered if they moved to Connecticut. An individual who has not yet retired may not know where he or she will reside in future years so reciprocity is an attractive feature. The DRA requires the HHS secretary (in consultation with National Association of Insurance Commissioners, policy issuers, states, and consumers) to develop standards of reciprocal recognition under which benefits paid would be treated the same by all such states. States will be held to such standards unless the state notifies the secretary in writing that it wishes to be exempt. Looking into the Future Interest has remained steady in implementing Partnership programs. Before the passage of the DRA, 21 states had anticipated a change in the law and proposed or enacted authorizing legislation. A recent survey of state Medicaid directors found that out of a total of 40 states, 20 indicated that they planned to propose a Long-Term Care Partnership program within the year. As momentum behind the program grows, there will be many issues and concerns regarding the Partnership program. While a leading goal is to reduce the amount of Medicaid funds spent on nursing home and related care for the elderly, consumer advocates also hope to protect the assets of those who have saved their entire lives for retirement only to see those assets wiped out in a short period of time. All parties involved will be analyzing and examining this program to determine the ultimate outcome of this unique and innovative policy option. State Funding States already face huge financial stress as the baby boom generation ages. The Center for Health Care Strategies (CHCS) has launched an initiative designed to help states take advantage of new opportunities made available in the DRA. The Long-Term Care Partnership Expansion project is being underwritten by the Robert Wood Johnson Foundation. Ten states will receive technical assistance to develop new Partnership programs. George Mason University has served as the national program office for the original Partnership for Long-Term Care program and continues to provide the latest in research knowledge on Long-Term Care Partnerships to health care policymakers. Page 130

132 Chapter 4: Changes or Improvements in LTC Services The National Association of State Medicaid Directors (NASMD) is available to assist states with concerns or questions regarding the Partnership program implementation process. NASMD will continue to periodically survey states to gather implementation status updates and lessons learned to inform other states. Page 131

133 Chapter 5: Alternatives to LTC Insurance Alternatives to LTC Insurance Are there alternatives to purchasing long-term care insurance? Absolutely. The question is not whether or not there are alternatives, but rather if those alternatives are sensible for the individual s personal situation. Not everyone needs to purchase a long-term care insurance policy. For some consumers the cost will simply be more than they can afford over a long period of time. Since many will not use their policy benefits for ten years or more, the premiums paid over that time period represents a sizable sum of money. Some consumers will not have adequate assets to protect. These individuals will easily qualify for Medicaid, so purchase of a long-term care policy would not be effective or even prudent. Assessing the Need Individuals need to determine at an appropriate age whether or not the purchase of a long-term care policy makes sense. Waiting until health conditions develop may mean a higher LTC premium or not being able to purchase such a policy at all. Any method of investment or long-term care funding that produces a pool of money could be considered as an alternative to an insurance policy. It would not matter whether the funding came from stocks, an inheritance, viaticals, or gold. Funding is funding. If it produces enough money to pay for long-term care services, then it is an alternative to an insurance policy. Realistically Speaking Few people actually set aside funds for long-term health or personal care requirements. Investing successfully is one thing and having the funds set aside purely for long-term care is another. The problem is one of timing. Generally, the need for long-term care comes as life is coming to a close. The chances of putting money aside and using it for Page 132

134 Chapter 5: Alternatives to LTC Insurance nothing else are small. It can be done; it just isn't likely to be done. Even so, it is possible to fund long-term care in ways that do not involve an insurance policy. Most people now realize that Medicare will not handle the costs of long-term nursing home care. Medicare does a good job with hospital and doctor bills, but the limited amount of skilled care offered by Medicare is not adequate and cannot be considered coverage on a long-term basis. In addition, with few exceptions, private major medical insurance does not cover longterm nursing home care. Only policies specifically designed to cover such expenses typically do so. The general type of medical policies carried for major medical coverage exclude long-term care benefits in a nursing home. Many state insurance departments are encouraging the use of nursing home policies because other types of coverage do not provide these benefits. Receiving long-term care in an institution is expensive. The better the institution, the more expensive the care will be. It is also more expensive in some areas of the country than others. The time to find out what these costs will be is not when the care is actually needed. Costs should be explored in advance of medical need. Few people do this. We spend more time comparing automobile costs than we do medical costs. Most of us have no desire to pay the costs of a nursing home out-of-pocket. We prefer to think that we will remain at home and someone, probably our children, will come take care of us. Realistically speaking, this is often not possible for many reasons including the inability of our children to leave their jobs or a lack of training on their part. For some, home care is not a possibility due to the type of medical care required. While some may be able to pay for the cost of a nursing home out-of-pocket, it is not necessarily the wisest course of action. Some individuals do elect to fund only a portion of nursing home costs through savings, expecting to pay the balance from current living budgets. There are multiple funding options; some are more sensible than others, however. There are also misconceptions regarding funding options that are available. There are numerous books available on personal finance, but they seldom address the costs of long-term care, except to suggest ways to go on Medicaid, shifting the burden to taxpayers. Since states do not wish to be further burdened, they are or have taken measures to prevent this if assets actually exist. By the time a person needs nursing home care they are past the point of financial planning, having already done so in his or her younger years. Their "financial planning" involves hanging on to what they already have while still enjoying life. There may be some sort of nestegg put away; but a nursing home confinement is likely to gobble it up within a year. Page 133

135 Chapter 5: Alternatives to LTC Insurance When considering funds for long-term care, some types of protection should already be in place. That would include coverage for hospital and doctor fees beyond Medicare s payment (a Medigap policy). There must also be funds to cover the living expenses of the non-institutionalized spouse. Many households end up paying, at least initially, for the long-term confinement of a member in a nursing home. Sometimes this "self-pay" is not intentional; they simply did not plan ahead for this circumstance. In other cases, it was intentional. The household members felt they had the ability to do so if the need arose, or they simply did not believe that such a condition would ever exist for them personally. It would always happen to that mysterious "other guy." For those who did plan to self-pay, there was hopefully some thought put into it beforehand. Perhaps the individuals looked to their family heritage and did not see a past history of health conditions that would make a nursing home confinement likely. In addition to a review of their family's health history, they also should have looked at the financial aspects of a long nursing home confinement. The financial devastation brought on by a nursing home confinement can be minimized to some degree. In some situations, it may even be avoided. Asset Inventory Certain steps should be taken immediately: An inventory of the person's, or couple's, net worth should be made. It should include: Monetary Investments: Cash on hand Checking accounts Savings accounts CDs (certificates of deposit) Treasury notes Bonds (corporate, Treasury, municipal, or convertible) mutual funds Stocks IRAs Business & Real Estate: o Business partnerships including limited partnerships o Real estate property, including investment-types o Retirement Funds & Pensions Civil Service Page 134

136 Chapter 5: Alternatives to LTC Insurance Foreign service Military service Railroad retirement Corporate pension plans Retirement plans of the corporate type Keogh profit sharing plans Corporate profit sharing plans Insurance Products: Annuities Cash value life insurances Term life insurance Medical policies, such as Medigap plans Any other insurance that is carried Personal Possessions: The personal home Vehicles Paintings and other artwork Antiques Rare books Jewelry Silverware, china or crystal Any other valuables Liabilities The previous list reflects assets. Against this list must go the individual s liabilities and debts. This might include, but would not be limited to: Any outstanding mortgages, including rentals Auto loans, including recreational vehicles Credit card balances Private or personal loans Any other debts Do not overlook any loans for which the person or couple has acted as a co-signer. If the borrower defaults, the co-signer will be liable for the debt. The resulting figure (assets minus liabilities) is the person's or couple's net worth. Page 135

137 Chapter 5: Alternatives to LTC Insurance This resulting figure applies to either a single person or a married couple. Some of the assets will be jointly owned while others will belong exclusively to one spouse. The assets will also have to be viewed according to how the resident state views them. If the patient will be a private pay (at least initially), spending down may occur. That means that the patient, in paying privately for his or her care, begins to diminish his or her personal assets. This is likely to occur where the institutionalized person does not immediately meet qualifications for Medicaid. At some point, it is likely that the beneficiary will qualify for Medicaid, since this is normally what eventually happens. It may be wise to seek some type of professional advice in trying to protect some portion of the acquired assets. There are many possibilities, some of which may be applicable and some of which may not be, depending upon the individual circumstances. Estate Planning Tools The non-institutionalized spouse should obtain a Power of Attorney. This is a legal document granting another person the ability to act on behalf of another specified person. Typically, it states certain conditions under which this may take place, and tends to end should the person become mentally incompetent. A Durable Power of Attorney begins when a person becomes mentally incompetent. A trust of some type may be applicable. There are many types of trusts and many people willing to sell them. A trust document basically creates another "entity", which holds the title to the property rather than the person. There are many misconceptions when it comes to living trusts. When a revocable living trust is used, it is unlikely that assets will be protected in any capacity. It has become common for salespeople to say that a revocable living trust will protect the person from such things as creditors, lawsuits, and even taxes. Any asset that may be removed and used for the benefit of the grantor carries NO special protections. As we know, a revocable trust allows assets to be used in any way desired. Therefore, a revocable living trust will not protect assets from a longterm care nursing home confinement. Trusts, while not protecting assets, can still be a valuable estate-planning tool. Some types of trusts, such as the irrevocable trust may especially be beneficial. Only a professional in this field, preferably an attorney, should be consulted. Many banks have trust professionals that may be consulted and they often tend to give better advice than the mainstream council. Certainly, a will needs to be in place. In fact, a will is one of the very first documents that every person of legal age should have in force. Many professionals advise that the will be registered at the local government office. Page 136

138 Chapter 5: Alternatives to LTC Insurance There are other documents that may also be used, depending upon the circumstances. A living will is a tool used in some states to avoid prolonging life by artificial means. A living will states that the use of extraordinary means of life support systems may not be used to extend their life. Guardianships are often used to protect minors or handicapped individuals. Sometimes the individual being protected is the institutionalized spouse. This is especially true if the person's mental ability has diminished. Asset Transfer The ability to legally transfer assets may vary to some extent from state to state. Usually this applies when Medicaid application will be made. It is legal to transfer any or all assets of any person applying for Medicaid, providing the transfer is completed sufficiently prior to applying for Medicaid benefits. Trusts typically have longer transfer requirement periods than do assets outside of the trust. If the transfers are not made soon enough, Medicaid benefits may be denied. Individuals may feel tempted to handle the preservation of their assets personally, either because they feel knowledgeable enough, or because some type of salesperson, friend or relative gave false or grossly limited information. This is seldom wise. So many details go into finances that it really does usually take professionals to cover all aspects of financial protection. A mistake in this area can be extremely costly to all involved. Government Sponsored Programs AARP states that their studies show more than two thirds of Americans would strongly support some sort of government sponsored program for nursing home care. When President William Clinton and First Lady, Hillary Clinton, addressed our nation's health care needs, long-term nursing home care was not included. It is reasonable to assume that the government is not likely to include it in any future health care proposals either. Studies show the following results: percent, nearly two in three Americans, are "very concerned" about the cost of long term health care percent, more than half of all Americans, are "not very" or "not at all" confident that they would be able to pay for long term care personally. Page 137

139 Chapter 5: Alternatives to LTC Insurance percent, nearly three in four Americans, believe nursing home costs would wipe out their savings. The survey further stated that two out of three Americans (66 percent) have had direct or indirect experience with the problems of providing long-term care for family members. Despite these figures, the study also revealed that many Americans are either misinformed or uninformed about the realities of who would pay for their long-term care. In fact, 48 percent, almost half, stated they believed their long-term care bills would be covered by their private insurance policy. In fact, it is extremely rare for a private policy to cover such costs (unless the policy is specifically designed to do so, such as an LTC policy). One third of the Americans over the age of 65 who were polled believed incorrectly that Medicare would pay for their long-term care needs. Once these misguided Americans were given correct information regarding the financial realities of long-term care, their confidence in their ability to receive such care plummeted. The survey used the range of $25,000 to $34,000 per year as their cost figures. Since this study was over ten years old (AARP conducted it in 1990) it is reasonable to assume that people are more informed today. In fact, the majority of nursing home policies have been sold in the last ten years. Regarding long-term care, the survey showed a wide consensus emerging on three components of a federal long-term care program: 1. Most Americans would be willing to pay up to $50 per month for the "right package" of long-term care benefits. In reality, of course, this may not be enough to cover the costs unless working Americans of all ages paid into this fund. 2. Although other factors also play a role, the extent of nursing home coverage is a key element for most of those polled. 3. Most Americans want a program that would be open to people of all ages and income levels. This means that the 25 year old who ends up in long-term care due to a car accident would receive the same benefits as the 75 year old with a broken hip. It is obvious that the solution most are looking towards is the purchase of insurance products that will cover, at least partially, the cost of nursing homes. Even state and federal agencies have begun to realize the need to promote private long-term care insurance policies. Page 138

140 Chapter 5: Alternatives to LTC Insurance Reverse Mortgages Until recently using one's home to pay for a long-term care confinement meant selling it, getting the cash, and moving out for someone else to move in. Today, it can mean something much different. Reverse mortgages offer the opportunity to sell one s home and still live in it. Not all banks participate and it can be difficult to find the right contract, but it is an option that did not exist a few years ago. For the person or couple who owns their own home or have a low remaining mortgage, using a reverse mortgage to fund a nursing home stay (or anything else) may be an option. A reverse mortgage takes the value out of the home and gives it to the owners. It may be given in a variety of ways: monthly, quarterly, annually, or even in a lump sum, depending upon the loan contract. It must be understood that the owners are giving up their home, but in a unique way. The homeowners are actually signing a loan against the value of their home. In exchange, the lender receives the amount borrowed, loan interest and mortgage insurance costs when the house is sold. In the meantime, the homeowner has the value to use as necessary. What is available will vary greatly, so the consumer may have to do a great deal of shopping to get the best opportunity. There are actually some drawbacks to using reverse mortgages so contracts should be completely understood and all questions asked beforehand. 1. The loan must be paid back at some point. Many consider a reverse mortgage as a means of selling one's home while still living in it. This is true to a certain degree. What may not be understood is that the lending institution is not necessarily the entity buying the home. They may require that the homeowner's do the actual selling. Therefore, if the home sells for less than expected, the owners will be required to come up with the difference. 2. Contracts differ on the repayment time. This can be a vital point. If the repayment comes sooner than desired, the homeowners may end up having to move out before they wanted to. Few contracts allow the homeowners to stay until death. Normally, there is a stated time period for repayment, which means they must sell and move out by that time. 3. Reverse mortgages can end up costing more than a traditional loan. The interest is usually compounded, which means interest is charged on interest. If the contract allows a long time before repayment, the interest charged can be substantial. This should not be surprising. Those who lend on reverse mortgages must feel that they have some advantage for doing so. Otherwise, why would they do so? Page 139

141 Chapter 5: Alternatives to LTC Insurance 4. There are fees to apply for a reverse mortgage. Those fees will vary, so it is wise to shop around. Sometimes locating a lender who will consider a reverse mortgage is not easy. Traditional banks often do not participate. The county property tax office may be able to offer some leads, as can the Area Agency on Aging. The National Center for Home Equity Conversion may also be a good starting point. Paid Family Members In some cases paying family members is a solution if long-term illness or injury arises. Usually their care needs are the result of physical, mental or emotional problems that makes living alone dangerous. The family members must be willing to take on the job of caring around-the-clock for the elderly family member. Some families willingly accept this chore and are able to devote the necessary time to it. In some cases, help from outside agencies may be able to supplement the care the family gives. Whether or not this outside help was covered by insurance policies or government aide will depend upon multiple factors. For the sake of planning, the family or individual should not depend upon payment from other sources. Any individual who plans to rely upon their family for their care must understand that they are taking a chance. No matter how willing the family may be today, it will be difficult to access their availability in the years to come. Family situations change; emotions change; financial circumstances change (the potential caretaker may have to take a job, for example); and the family's willingness to take on the chore may change. In addition, taking in a family member affects everyone in the household, not just the actual caregiver. There must be ample room in the house and financial resources must be available. Everyone in the family is likely to give up something when an elderly person moves in. For some, promising a financial reward in return for care is the avenue chosen. A financial reward may be an annuity, stocks, or any vehicle that will pay the caregiver at some specified point in time. The care may be tied into a will or trust or a legal agreement may be drawn up. Whatever the case, there is still no guarantee that it will work. In addition, if the potential caregiver is providing care against their will, what kind of care will they actually be delivering? Most people try to avoid a nursing home because they think their care will be less than they desire. Their care would not be good even if a family member delivered it under some circumstances. In fact, even well intentioned family members have been known to deliver poor care. Nursing homes report a substantial number of patients coming from private homes come with bedsores and other physical problems that developed due to inferior care. Page 140

142 Chapter 5: Alternatives to LTC Insurance Accelerated Life Insurance Benefits Some companies are offering accelerated benefits in their life insurance policies. These may be a part of the policy itself, or an attached rider. These benefits or riders may not take effect immediately upon the onset of illness, and sometimes put a limit on how much can be collected. Exactly how the life insurance benefits pay for long-term care will be affected by many elements, including state laws that may apply. Since a life insurance product does not put long-term care as its primary goal, it is unlikely that the benefits will work as well as a long-term care policy would. Premium rates tend to be higher for products with accelerated benefits, usually about two to ten percent higher. For this amount, the insurer will pay part of the death benefit to the policyholder each month until the benefit is exhausted or a preset maximum is reached. If the policyowner dies before the maximum benefit is exhausted, the remainder of the benefits will go to the beneficiaries named in the life insurance policy. For those life insurance policies set up to allow accelerated benefits, there are typically some codes which must be followed as dictated by the state where issued. The words "accelerated benefit" must often be included in the title of the policy or rider. Even though these benefits are accessible on an accelerated basis, the benefit is not typically described, advertised, marketed, or sold as either long-term care insurance or as providing long-term care benefits. Long-term care insurance and benefits must comply with a strict code of requirements, which these accelerated benefits generally do not meet. The consumer must also be aware that there are possible tax consequences and possible consequences on eligibility for receipt of Medicare, Medicaid, Social Security, Supplemental Security Income (SSI), and other sources of public funding. Some states have specifically addressed accelerated benefits. Washington, for example, requires the following statement in the disclosure form, which must be provided at specific times: "If you receive payment of accelerated benefits from a life insurance policy, you may lose your right to receive certain public funds, such as Medicare, Medicaid, Social Security, Supplemental Security, Supplemental Security Income (SSI), and possibly others. Also, receiving accelerated benefits from a life insurance policy may have tax consequences for you. We cannot give you advice about this. You may wish to obtain advice from a tax professional or an attorney before you decide to receive accelerated benefits from a life insurance policy." Page 141

143 Chapter 5: Alternatives to LTC Insurance The disclosure statement must give a brief and clear description of the accelerated benefits. It must define all qualifying events that can trigger payment of the accelerated benefits. It must also describe any effect the payment will have on the policy's cash value, accumulation account, death benefit, premium, policy loans, and policy liens. In the case of group life insurance policies, the disclosure statement is usually contained in the certificate of coverage, or certificate of insurability, or in any other related document furnished by the insurer to the members of the group. The Largest Payer of LTC: Medicaid Medicaid is likely to be the major payer of an individual s nursing home costs even when the individual financially planned for retirement. The real payer is not the government, but rather our nation s taxpayers. For every elderly person receiving Medicaid payments, there are multiple taxpayers working to supply those funds. What is Medicaid? It is a government program that pays for health care for our nation s poor. Any age qualifies, not simply the elderly. Even so, the elderly eat up the largest portion of Medicaid funds due to their need for long-term nursing home care. Ten years ago, Medicaid was paying $33 billion in nursing home confinements. Added to that was an additional $8.1 billion for home care and community based services. Today, it is even higher. It cannot be stressed enough that our taxes fund Medicaid. Every dollar paid out of Medicaid for someone in a nursing home is a dollar that cannot be used elsewhere for items that would benefit a wider array of people. Medicaid is a grant program, not an insurance program. Medicaid funds the confinement of two-thirds of all nursing-home residents. Since Medicaid pays only for those who are poor, one might be tempted to believe that twothirds of our elderly retired into poverty. In fact, the median income of an elderly couple is $2,270 per month. That is two and a half times the poverty level for a family of two, so clearly they did not retire into poverty. They became impoverished because one of them entered a nursing home. For those who lived comfortably in retirement, a nursing home confinement changes everything about their lives. The process of losing financial standing and reducing assets is called "spend-down." An individual cannot get help from Medicaid unless this has occurred. Medicaid requires nearly all assets to be depleted, although the home is exempt if there is a spouse or dependent children residing in it. Also exempt are the furniture, one car, a burial plot, burial funds and a small amount of cash. Each state is different regarding spend-down and the assets that are exempt. It is important to consult an attorney that specializes in elder care law. Page 142

144 Chapter 5: Alternatives to LTC Insurance Asset Transfers for Medicaid Eligibility Because a nursing home confinement brings such fear, an industry of "asset-hiding" has developed. Especially in states where there is an unusually high amount of retired people, the legal profession is busy helping people give away what they have in order to qualify for Medicaid. This might involve an irrevocable trust (a revocable trust cannot hide assets), transferring assets to children or grandchildren, and other techniques designed to make one appear penniless. If this seems a viable solution, an elder care attorney should be consulted. Time limits may make asset transfers unworkable if there is not sufficient time to do so prior to needing long-term care services. In addition, assets that are transferred to children or grandchildren can be totally lost if their personal circumstances put the assets in jeopardy (such as divorce). Very often the spouse and children of an ill or frail person desires to save the assets while transferring the cost of a nursing home stay to the government. Of course, the term "government" actually means each tax-paying citizen. There is a window of time that allows the individual to move assets entirely into the name of another. For this time period to be utilized, the illness must be handled at home for a long enough period of time to allow completion of the transfers and wait out the prohibited transfer time period. This period of time is called the "look-back period." The amount of allowed transfer changes periodically, always lengthening. It states that an individual who enters a nursing home within that stated period of time will be ineligible for Medicaid benefits if asset transfer was made. The length of ineligibility will depend upon the size of the transfer. Under some conditions, the time period may be unlimited. Each state sets an average cost for nursing home care. The ineligible period is based on the costs set down by the state. If the financial transfer would have covered 5 months of care, then that is the time period of ineligibility. Whatever amount of time could have been covered by the financial value of the gift, that is then the amount of time lost for Medicaid benefits. EXAMPLE: Care in a local nursing home costs $3,500 monthly. The community spouse transfers $25,000 to her daughter in an effort to protect the assets and soon thereafter applies for Medicaid benefits for her ill spouse. The state would divide the $25,000 by the cost of the nursing home ($3,500) to determine the length of time she is ineligible to receive benefits for the institutionalized spouse: $25,000 divided by $3,500 = 7.14 months. Therefore, the ill spouse could not receive Medicaid benefits for 8 months due to the inappropriate transfer of assets. Page 143

145 Chapter 5: Alternatives to LTC Insurance There is no maximum period for disqualification of benefits. Only transfers made during the prohibited time period prior to application for Medicaid benefits actually applies. Therefore, if institutionalization occurs during the prohibited time period following an asset transfer, it would be wise to delay application until that period of time has passed. EXAMPLE: A married couple gives their children $300,000 as a gift. In the year following this transfer, one of the two enters a nursing home. Because the gift would disallow benefits for 86 months, the community spouse does not apply for Medicaid or COPES benefits until sufficient time has passed. By doing so, she has eliminated a penalty because DSHS will not look beyond the asset transfer eligibility period. Not all transfers are illegal causing periods of ineligibility. Certainly, gifts made outside of the "look-back" period are not illegal. Trusts have different time tables than do nontrust assets so again, consultation with an elder care attorney is advised. It is also legal to transfer a home to a child of the applicant, if the child has lived in the home and provided care to the beneficiary for the two years immediately prior to needing care in a nursing home or receiving COPES benefits. It is also legal to transfer the home to the applicant s sibling if the sibling has an equity interest in the home and has lived in the home for a one-year period immediately prior to institutionalization or COPES eligibility. Transfers may be made to a spouse or to a trust for the sole benefit of the spouse. This is also true for transfers made to an annuity for the sole benefit of the community spouse. Transfers may be made to a minor or disabled child or to a trust for the child. In fact, transfers may be made to a trust for the sole benefit of any disabled person under the age of 65. Any transfer may legally be made in situations where the gifts will be returned to the Medicaid applicant. Transfers of assets are generally exempt when a Partnership policy has been purchased. This is because Partnership nursing home policies are for the explicit aim of preserving assets (but not income). Most states do not have Partnership policies available, however, so the general population cannot take advantage of them. What many people may not realize is that many states have instituted penalties for those who refuse to return illegally made gifts. The amount of penalty will depend upon the state in which it occurred. In addition, illegal transfers that are not returned are deemed Page 144

146 Chapter 5: Alternatives to LTC Insurance to be fraudulent conveyance, which gives DSHS the right to petition the court to set aside the transfer and require the return of the assets given away. What if the recipient of the gift no longer has the assets they were given? DSHS can waive the application of the transfer penalty if they feel undue hardship would result. This might happen if the money had been spent and there was no way to recover it. Probably DSHS would only waive the application of the transfer penalty if it were felt that no intent to defraud Medicaid existed and if recovery of the gift might cause the recipient or their family to face loss of shelter, food, clothing, or health care. Trust Shelters Some types of trusts may be used to shelter funds and allow Medicaid qualification. To use a trust as a means of protection, a specialized attorney should be sought out. While any attorney may legally draw up a trust, only attorneys with specialized training will do the type of job desired. Only attorneys should draw up trusts intended to shelter assets. Companies who sell trusts should not be relied upon. They simply are not geared for such complex situations. Medicaid has many avenues, but we are going to look only at Medicaid as it applies to long-term care needs. There are some basic applications to Medicaid that tend to hold true in all states. To apply for Medicaid, a person must: 1. Be aged, 2. Reside in the state in which he or she is applying, 3. Be a legal citizen, or a legal alien, and 4. Be medically in need of a nursing home facility. Let's look at these requirements a little closer. The term aged means 65 years or older. Although Medicaid is medical welfare for a person of any age, qualifying for benefits in a nursing home does have age requirements. The residency requirement is usually immediate. That means the legal domicile, or residence, at the time that the nursing home confinement is required. Durational residence is not required. Durational residency means having to reside in a state for a specified period of time, in order to qualify as a resident. The simple legal residence at the time of Medicaid application is sufficient. The citizenship requirement is either United States citizenship or a legal alien status. Some states are also working to include people who are eligible under the new Amnesty Page 145

147 Chapter 5: Alternatives to LTC Insurance regulations, so it may apply in those states. Such people may be referred to as Legal Permanent Residents. It is not surprising that Medicaid requires the beneficiary be in need of medical care. We have seen cases in the news of elderly parents being "dumped" by their children. If Medicaid would pay in a nursing home for any reason, it may be assumed that these homes would surely become a dumping ground. There is one last requirement not previously mentioned that is certainly important. The family must find an available bed in a facility willing to admit the person. If the beneficiary is being discharged from a hospital, this is not likely to be a problem. Typically, hospitals must find an available bed in order to discharge the patient. If, however, hospitalization was not a factor, it will be up to the family to find an appropriate facility willing to take on a Medicaid patient. Getting into financial qualifications for Medicaid is tricky. Requirements may change from time to time within any given state. It is necessary to understand that this program is massive. It would take an extremely large manual to fully cover the financial aspects of Medicaid. Once done, it is unlikely that anyone (with a sane mind) would even want to read it. However, there are some generalities that we will mention. As we stated, different states will treat the income of the non-institutionalized spouse in various ways. Some states set a specific level of income that the non-institutionalized spouse may receive without affecting the institutionalized spouse's qualifications. If the non-institutionalized spouse receives over that amount, the portion that is above the line may be used to either offset what Medicaid will pay (with the well spouse perhaps having to chip in) or will affect the actual qualification. If the non-institutionalized spouse makes less than a specified amount, the spouse who is in the nursing home may actually have some of his or her income diverted to the noninstitutionalized spouse. Catastrophic Coverage Act of 1988 In September 1989, there were changes in how individuals qualified for Medicaid. The Medicare Catastrophic Coverage Act of 1988 was originally a lengthy bill, which was repealed on December 13th, Only a small section of this bill affecting Medicaid for the aged (not all Medicaid beneficiaries) in long-term health care facilities was left in effect. This section had been written specifically in an effort to aid the spouse who was not institutionalized. It was hoped it would protect the income and resources of the couples in order to guard against impoverishing the community spouse along with the individual in the nursing home. Page 146

148 Chapter 5: Alternatives to LTC Insurance In simple terms: 1. All states are required to exempt the home from being included in the countable resources provided the community spouse (or dependent child in some cases) has been living in the residence prior to institutionalization of the ill person. All personal property and household goods are also exempt. 2. The transfer of assets for the purpose of meeting eligibility requirements for Medicaid must be completed sufficiently prior to application. Longer time periods are required for trusts. 3. Each state will determine the amount of liquid assets the community spouse is permitted to retain, thus the variations from state to state. In all states, it will be one half of all assets providing that figure is not less than the minimum requirement, and does not exceed the maximum requirement. No resources of the community spouse will be considered available to the institutionalized spouse after he or she has been declared eligible for Medicaid. Therefore, once eligibility has been met, the community spouse may have more than initially allowed by the state. 4. In applicable situations, the monthly income that can be retained by the community spouse will gradually be raised. This often has to do with the federal poverty levels. Information Required When Applying for Medicaid When applying to Medicaid, there will be some basic information that will be required. The following list includes what will be requested. Additional information may be required beyond what we have listed. 1. A birth certificate or other proof of age. 2. The applicant's Social Security number. This is an absolute must in any state. 3. Proof of any earnings, if applicable. 4. Letters or forms with amounts of income from Social Security, SSI, VA, or pensions that are being received. In fact, any monthly income must be reported. 5. Life insurance and medical insurance policies. It is best to simply bring in the policies when applying. 6. Savings accounts or banking statements. Page 147

149 Chapter 5: Alternatives to LTC Insurance 7. Information on ownership of real property and motor vehicles. Processing the application for Medicaid usually takes between 30 and 45 days, but may take as long as 60 days. When an applicant is approved for Medicaid that status will usually be reviewed annually. Any significant changes in that person's financial standing could cause him or her to become ineligible for future Medicaid benefits. Viatical Settlements Funding long-term care benefits may involve anything that produces income. Viaticals have become widely advertised, for example. Viaticals are an investment in the death of another. The investor purchases a share in a life insurance policy on someone who is terminally ill, paying a discount from the policy's face value. The ill person receives the money to use prior to death. The investor receives the insurance payoff (in proportion to their investment) when the seller dies. Although viaticals do have the potential of giving a high return, there is certainly no guarantee of that. The U.S. Securities and Exchange Commission cannot compel full disclosure and no other jurisdiction seems interested in doing so at this point. The investor does not own the policy he or she has invested in. The viatical company or a trust company does. The investor has a lien on it. If the viatical company goes out of business, there is no clear indication as to how long the investors would have to wait for their money even if the insured person dies. In fact, there is no guarantee that their investment will be returned at all. Several states have investigated viatical companies following consumer complaints. Another item generally not disclosed to the investor is the possibility of having to pay the insured's premiums if he or she lives longer than expected. Certainly, the investor would not want the policy to lapse, so there is little choice in the matter. Determining How to Cover LTC Costs Financial planners have used various investments with the intention of funding any type of medical expense that might arise, including long-term care needs. Often they promote the theory that the money is there for long-term care needs, but if not needed, it is there for something else. The problem with this becomes obvious. It is too easy to use the money for that something else. Long-term care medical needs tend to be the last medical requirement prior to death. Therefore, the only other use for the money should be gifts to beneficiaries. Investments solely intended for funding long-term care could Page 148

150 Chapter 5: Alternatives to LTC Insurance work, as long as the money is not used for living costs. Money that is intended for longterm care needs cannot be used elsewhere for any reason. If it is, then the money is no longer available for long-term medical needs coming during the last years of life. There was a time when long-term care insurance was not viewed favorably by many elder care attorneys and financial planners, but that attitude has been changing. It is no longer an issue of whether or not an individual needs to cover the costs of long-term care, but rather how the costs will be covered. If an insurance policy is not the best answer, then the individual must determine an alternate method of coverage. Receiving the Benefits Expected There is a basic question that all consumers want answered: Am I covered? Most consumers simply want to know their bills will be paid. Getting them to understand the conditions under which they will be paid can be difficult. Since there is no way to guarantee coverage for all situations, it is important that the agent completely explain how and when benefits will be due. An agent's best defense is to handle only those policies with the fewest limiting conditions on coverage. The Buying Decision Having reviewed the reasons why long-term care products are needed, what actually goes into the buying decision? There are several key elements: 1. What is the consumer's greatest concern: home care, assisted living, or the nursing home? 2. What does nursing home care cost in their town? 3. Do they have family members who need to be part of the buying decision? 4. How fast are prices rising in their part of the country? 5. How long a duration time is desired: 3 years, 4 years, or lifetime? 6. Is an inflation guard prudent and/or desired? 7. Would the consumer be happier with an integrated plan so that all types of care are an option? 8. Does the consumer simply want a basic nursing home plan? 9. Will the cost determine the benefits purchased? Page 149

151 Chapter 5: Alternatives to LTC Insurance 10. Is the consumer comfortable with the company presented? What is the company rating? There may be other issues involved since no two people are alike in their personal concerns. Each concern must be addressed. Unfortunately people often believe that agents are only out to make a commission. Most agents are honest, hardworking people. Unfortunately, there are some who are not and will use any tactic necessary to get the sale. As a result, all agents suffer the consequences. Unfortunately, consumers also suffer them. How? By being reluctant to purchase those products that would greatly benefit them. Page 150

152 Chapter 6: RCW 48.83, and RCW 48.83, and Intent. (Effective January 1, 2009.) The intent of this chapter is to promote the public interest, support the availability of long-term care coverage, establish standards for long-term care coverage, facilitate public understanding and comparison of long-term care contract benefits, protect persons insured under long-term care insurance policies and certificates, protect applicants for long-term care policies from unfair or deceptive sales or enrollment practices, and provide for flexibility and innovation in the development of long-term care insurance coverage. [2008 c ] Long-term care insurance contracts have the potential of providing benefits that will protect the insured s assets, provide comfort in knowing they have done what is prudent for their future, and give family members relief from what might otherwise be a long and difficult journey of personal care. Unfortunately, if the recommended policy was not appropriate for the situation it might also represent wasted premium dollars. The intent of this legislation is to prevent inappropriate placement of policies and prevent unfair sales practices Application. (Effective January 1, 2009.) This chapter applies to all long-term care insurance policies, contracts, or riders delivered or issued for delivery in this state on or after January 1, This chapter does not supersede the obligations of entities subject to this chapter to comply with other applicable laws to the extent that they do not conflict with this chapter, except that laws and regulations designed and intended to apply to Medicare supplement insurance policies shall not be applied to long-term care insurance. (1) Coverage advertised, marketed, or offered as long-term care insurance shall comply with the provisions of this chapter. Any coverage, policy, or rider advertised, marketed, or offered as long-term care or nursing home insurance shall comply with the provisions of this chapter. (2) Individual and group long-term care contracts issued prior to January 1, Page 151

153 Chapter 6: RCW 48.83, and , remain governed by chapter RCW and rules adopted thereunder. (3) This chapter is not intended to prohibit approval of long-term care funded through life insurance. [2008 c ] This chapter is not applicable to Medicare supplemental policies, even though they do provide some amount of skilled care benefits. It applies only to policies and riders that are specifically marketed as long-term care policies. All long-term care policies and riders marketed in this state must comply with Washington requirements. Individual and group contracts issued prior to January 1, 2009 remain governed by chapter RCW. Any benefits obtained through life insurance contracts are not affected Definitions. (Effective January 1, 2009.) The definitions in this section apply throughout this chapter unless the context clearly requires otherwise. (1) "Applicant" means: (a) In the case of an individual long-term care insurance policy, the person who seeks to contract for benefits; and (b) in the case of a group long-term care insurance policy, the proposed certificate holder. (2) "Certificate" includes any certificate issued under a group long-term care insurance policy that has been delivered or issued for delivery in this state. (3) "Commissioner" means the insurance commissioner of Washington state. (4) "Issuer" includes insurance companies, fraternal benefit societies, health care service contractors, health maintenance organizations, or other entity delivering or issuing for delivery any long-term care insurance policy, contract, or rider. (5) "Long-term care insurance" means an insurance policy, contract, or rider that is advertised, marketed, offered, or designed to provide coverage for at least twelve consecutive months for a covered person. Long-term care insurance may be on an expense incurred, indemnity, prepaid, or other basis, for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes any policy, contract, or rider that provides for payment of benefits based upon cognitive impairment or the loss of functional capacity. (a) Long-term care insurance includes group and individual annuities and life insurance policies or riders that provide directly or supplement long-term care insurance. However, long-term care insurance does not include life insurance policies that: (i) Accelerate the death benefit specifically for one or more of the qualifying events of terminal illness, medical conditions requiring extraordinary medical Page 152

154 Chapter 6: RCW 48.83, and intervention, or permanent institutional confinement; (ii) provide the option of a lump-sum payment for those benefits; and (iii) do not condition the benefits or the eligibility for the benefits upon the receipt of long-term care. (b) Long-term care insurance also includes qualified long-term care insurance contracts. (c) Long-term care insurance does not include any insurance policy, contract, or rider that is offered primarily to provide coverage for basic Medicare supplement, basic hospital expense, basic medical-surgical expense, hospital confinement indemnity, major medical expense, disability income, related income, asset protection, accident only, specified disease, specified accident, or limited benefit health. (6) "Group long-term care insurance" means a long-term care insurance policy or contract that is delivered or issued for delivery in this state and is issued to: (a) One or more employers; one or more labor organizations; or a trust or the trustees of a fund established by one or more employers or labor organizations for current or former employees, current or former members of the labor organizations, or a combination of current and former employees or members, or a combination of such employers, labor organizations, trusts, or trustees; or (b) A professional, trade, or occupational association for its members or former or retired members, if the association: (i) Is composed of persons who are or were all actively engaged in the same profession, trade, or occupation; and (ii) Has been maintained in good faith for purposes other than obtaining insurance; or (c)(i) An association, trust, or the trustees of a fund established, created, or maintained for the benefit of members of one or more associations. Before advertising, marketing, or offering long-term care coverage in this state, the association or associations, or the insurer of the association or associations, must file evidence with the commissioner that the association or associations have at the time of such filing at least one hundred persons who are members and that the association or associations have been organized and maintained in good faith for purposes other than that of obtaining insurance; have been in active existence for at least one year; and have a constitution and bylaws that provide that: (A) The association or associations hold regular meetings at least annually to further the purposes of the members; (B) Except for credit unions, the association or associations collect dues or solicit contributions from members; and (C) The members have voting privileges and representation on the governing Page 153

155 Chapter 6: RCW 48.83, and board and committees of the association. (ii) Thirty days after filing the evidence in accordance with this section, the association or associations will be deemed to have satisfied the organizational requirements, unless the commissioner makes a finding that the association or associations do not satisfy those organizational requirements; [or] (d) A group other than as described in (a), (b), or (c) of this subsection subject to a finding by the commissioner that: (i) The issuance of the group policy is not contrary to the best interest of the public; (ii) The issuance of the group policy would result in economies of acquisition or administration; and (iii) The benefits are reasonable in relation to the premiums charged. (7) "Policy" includes a document such as an insurance policy, contract, subscriber agreement, rider, or endorsement delivered or issued for delivery in this state by an insurer, fraternal benefit society, health care service contractor, health maintenance organization, or any similar entity authorized by the insurance commissioner to transact the business of long-term care insurance. (8) "Qualified long-term care insurance contract" or "federally taxqualified long-term care insurance contract" means: (a) An individual or group insurance contract that meets the requirements of section 7702B(b) of the internal revenue code of 1986, as amended; or (b) The portion of a life insurance contract that provides long-term care insurance coverage by rider or as part of the contract and that satisfies the requirements of sections 7702B(b) and (e) of the internal revenue code of 1986, as amended. [2008 c ] All contracts are legal documents. As such, terminology is very important since terms have a direct bearing on how the contracts pay benefits. An agent who is not aware of how terms will affect policy benefits and policy types cannot properly represent the product to his or her clients Out-of-state policy Restriction. (Effective January 1, 2009.) A group long-term care insurance policy may not be offered to a resident of this state under a group policy issued in another state to a group described in RCW (6)(d), unless this state or another state having statutory and regulatory Page 154

156 Chapter 6: RCW 48.83, and long-term care insurance requirements substantially similar to those adopted in this state has made a determination that such requirements have been met. [2008 c ] Group insurance contracts often originate in a state other than Washington. If an employer or other group wishes to offer long-term care coverage to residents of this state, the coverage must substantially meet our requirements. Therefore, the state of issuance must have substantially similar requirements as Washington has. If the issuing state does not have similar requirements, the group certificates may not be offered to Washington residents Preexisting conditions. (Effective January 1, 2009.) (1) A long-term care insurance policy or certificate may not define "preexisting condition" more restrictively than as a condition for which medical advice or treatment was recommended by or received from a provider of health care services, within six months preceding the effective date of coverage of an insured person, unless the policy or certificate applies to group long-term care insurance under RCW (6) (a), (b), or (c). (2) A long-term care insurance policy or certificate may not exclude coverage for a loss or confinement that is the result of a preexisting condition unless the loss or confinement begins within six months following the effective date of coverage of an insured person, unless the policy or certificate applies to a group as defined in RCW (6)(a). (3) The commissioner may extend the limitation periods for specific age group categories in specific policy forms upon finding that the extension is in the best interest of the public. (4) An issuer may use an application form designed to elicit the complete health history of an applicant and underwrite in accordance with that issuer's established underwriting standards, based on the answers on that application. Unless otherwise provided in the policy or certificate and regardless of whether it is disclosed on the application, a preexisting condition need not be covered until the waiting period expires. (5) A long-term care insurance policy or certificate may not exclude or use waivers or riders to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions beyond the waiting period. [2008 c ] The point of obtaining long-term care coverage, like all types of coverage, is to obtain benefits when claims arise. Preexisting conditions play an important role in whether or not the insurer will even accept the risk and issue a policy. When a policy is issued, Page 155

157 Chapter 6: RCW 48.83, and existing health conditions determine if claims will be paid that relate to the health condition that existed at the time of application or in the period of time prior to making application. Like many states, Washington has specified how insurers may define a preexisting condition. In our state long-term care policies may not require greater restrictions than those allowed, but they may make requirements more lenient than mandated. A preexisting condition is defined as one for which medical advice or treatment was recommended by or received from a provider of health care services, within six months preceding the effective date of coverage. Preexisting conditions will not be covered for the first six months following policy issuance. Example: A physical condition was treated by a doctor on January 1 st. The policy was applied for and issued on May 20 th. Since January 1 st occurred in the previous six months, the physical condition that was treated will not be covered until November 20 th. Of course, insurers may use an application designed to secure the type of information necessary to properly underwrite the application. This would include obtaining facts relating to previous medical conditions. Issued policies may not exclude some health conditions from coverage so the policy must be underwritten based on the facts and either issued or declined; it may not be issued with exclusions, waivers, or riders on specified health conditions Prohibited policy terms and practices Field-issued, defined. (Effective January 1, 2009.) No long-term care insurance policy may: (1) Be canceled, non-renewed, or otherwise terminated on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder; (2) Contain a provision establishing a new waiting period in the event existing coverage is converted to or replaced by a new or other form within the same company, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder; (3) Provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care; (4) Condition eligibility for any benefits on a prior hospitalization requirement; (5) Condition eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care; Page 156

158 Chapter 6: RCW 48.83, and (6) Condition eligibility for any benefits other than waiver of premium, postconfinement, post-acute care, or recuperative benefits on a prior institutionalization requirement; (7) Include a post-confinement, post-acute care, or recuperative benefit unless: (a) Such requirement is clearly labeled in a separate paragraph of the policy or certificate entitled "Limitations or Conditions on Eligibility for Benefits"; and (b) Such limitations or conditions specify any required number of days of preconfinement or post-confinement; (8) Condition eligibility for non-institutional benefits on the prior receipt of institutional care; (9) A long-term care insurance policy or certificate may be field-issued if the compensation to the field issuer is not based on the number of policies or certificates issued. For purposes of this section, "field-issued" means a policy or certificate issued by a producer or a third-party administrator of the policy pursuant to the underwriting authority by an issuer and using the issuer's underwriting guidelines. [2008 c ] Once a policy is issued the insurance company may not cancel the policy due to deterioration in health or mental ability. Additionally, the insurer may not refuse to renew the policy or otherwise cancel it. Only if the insured does not pay his or her premiums on a timely basis may the insurer cancel or refuse to renew the policy. If the insurer changes policy forms or converts coverage, they may not impose a new waiting period on their existing policyholders. This would not apply to changes in coverage requested by the insured. In Washington insurers may not require prior hospitalization or skilled care prior to paying other benefits, such as custodial care. Any post-confinement, post-acute care, or recuperative benefit unless it is clearly labeled in a separate paragraph that states: limitations or conditions on eligibility for benefits. Few companies would issue long-term care policies without underwriting since the potential of paying large benefits makes doing so impractical. However, if a company wishes to have field-issued policies, the compensation paid to the field-issuer (agent) may not be based on the number of policies issued. Field issued policies would still use some type of underwriting standard, although it might merely be based upon the answers on an application. Page 157

159 Chapter 6: RCW 48.83, and Right to return policy or certificate Refund. (Effective January 1, 2009.) (1) Long-term care insurance applicants may return a policy or certificate for any reason within thirty days after its delivery and to have the premium refunded. (2) All long-term care insurance policies and certificates shall have a notice prominently printed on or attached to the first page of the policy stating that the applicant may return the policy or certificate within thirty days after its delivery and to have the premium refunded. (3) Refunds or denials of applications must be made within thirty days of the return or denial. (4) This section shall not apply to certificates issued pursuant to a policy issued to a group defined in RCW (6)(a). [2008 c ] Long-term care insurance applicants have thirty days to review their issued policy and either keep or decline it during that time. If the applicant decides to return the policy they must do so within that 30-day period. Premiums will be refunded without any explanation required from the applicant as to why it was returned. There must be a prominent notice regarding this right printed on or attached to the first page of the policy. Refunds (or denials of refunds) must be made within 30 days from policy return Required documents for prospective and approved applicants Contents When due. (Effective January 1, 2009.) (1) An outline of coverage must be delivered to a prospective applicant for longterm care insurance at the time of initial solicitation through means that prominently direct the attention of the recipient to the document and its purpose. (a) The commissioner must prescribe a standard format, including style, arrangement, overall appearance, and the content of an outline of coverage. (b) When an insurance producer makes a solicitation in person, he or she must deliver an outline of coverage before presenting an application or enrollment form. (c) In a direct response solicitation, the outline of coverage must be presented with an application or enrollment form. (d) If a policy is issued to a group as defined in RCW (6)(a), an outline of coverage is not required to be delivered, if the information that the commissioner requires to be included in the outline of coverage is in other materials relating to enrollment. Upon request, any such materials must be made available to the commissioner. Page 158

160 Chapter 6: RCW 48.83, and (2) If an issuer approves an application for a long-term care insurance contract or certificate, the issuer must deliver the contract or certificate of insurance to the applicant within thirty days after the date of approval. A policy summary must be delivered with an individual life insurance policy that provides long-term care benefits within the policy or by rider. In a direct response solicitation, the issuer must deliver the policy summary, upon request, before delivery of the policy, if the applicant requests a summary. (a) The policy summary shall include: (i) An explanation of how the long-term care benefit interacts with other components of the policy, including deductions from any applicable death benefits; (ii) An illustration of the amount of benefits, the length of benefits, and the guaranteed lifetime benefits if any, for each covered person; (iii) Any exclusions, reductions, and limitations on benefits of long-term care; (iv) A statement that any long-term care inflation protection option required by RCW is not available under this policy; and (v) If applicable to the policy type, the summary must also include: (A) A disclosure of the effects of exercising other rights under the policy; (B) A disclosure of guarantees related to long-term care costs of insurance charges; and (C) Current and projected maximum lifetime benefits. (b) The provisions of the policy summary may be incorporated into a basic illustration required under chapter 48.23A RCW, or into the policy summary which is required under rules adopted by the commissioner. [2008 c ] The applicant will receive an outline of coverage prior to policy application. There will be a policy summary with the issued long-term care policy. This summary will explain how the long-term care policy interacts with other sections of the policy. An illustration of the amounts of benefits, length of benefits, and guaranteed lifetime benefits will be included Benefit funded through life insurance policy Acceleration of a death benefit. (Effective January 1, 2009.) Page 159

161 Chapter 6: RCW 48.83, and If a long-term care benefit funded through a life insurance policy by the acceleration of the death benefit is in benefit payment status, a monthly report must be provided to the policyholder. The report must include: (1) A record of all long-term care benefits paid out during the month; (2) An explanation of any changes in the policy resulting from paying the long-term care benefits, such as a change in the death benefit or cash values; and (3) The amount of long-term care benefits that remain to be paid. [2008 c ] Some life insurance policies provide a long-term care benefit by utilizing a policy acceleration of the death benefit. If this is the case and this benefit is initiated, a monthly report must be provided that includes a record of all long-term care benefits paid during the month and an explanation of changes in the policy that result from the payout Denial of claims Written explanation. (Effective January 1, 2009.) All long-term care denials must be made within sixty days after receipt of a written request made by a policyholder or certificate holder, or his or her representative. All denials of long-term care claims by the issuer must provide a written explanation of the reasons for the denial and make available to the policyholder or certificate holder all information directly related to the denial. [2008 c ] Denials of long-term care benefits must be made in writing within 60 days following the submitted claim for benefits. There must be a written explanation of why the claim was denied. Any information related to the denied claim must be made available to the policyholder or their legal representative Rescission of policy or certificate. (Effective January 1, 2009.) (1) An issuer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim if: (a) A policy or certificate has been in force for less than six months and upon a showing of misrepresentation that is material to the acceptance for coverage; or (b) A policy or certificate that has been in force for at least six months but less than two years, upon a showing of misrepresentation that is both material to the acceptance for coverage and that pertains to the condition for which benefits are sought. Page 160

162 Chapter 6: RCW 48.83, and (2) After a policy or certificate has been in force for two years it is not contestable upon the grounds of misrepresentation alone. Such a 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. (3) An issuer's payments for benefits under a long-term care insurance policy or certificate may not be recovered by the issuer if the policy or certificate is rescinded. (4) This section does not apply to the remaining death benefit of a life insurance policy that accelerates benefits for long-term care that are governed by RCW the state's life insurance incontestability clause. In all other situations, this section shall apply to life insurance policies that accelerate benefits for long-term care. [2008 c ] Under specific circumstances an insurance company may deny long-term care benefits for an otherwise qualified claim or even rescind (take back) an issued policy. If the policy has been in force for less than six months when a misrepresentation on the application is discovered that would have affected the issuance of the policy the insurer may deny a submitted claim or rescind the policy entirely. If the policy has been issued longer than six months but less than two years when a misrepresentation is discovered that would have affected policy issuance and a claim has been filed relevant to that misrepresentation the claim may be denied and the policy rescinded. After the policy has been in force for two or more years it is not contestable due to misrepresentation alone. It may be contested only if it can be proven that the insured knowingly and intentionally misrepresented relevant facts regarding health status of the insured. Any previous benefit payments that may have been made cannot be recovered by the insured Inflation protection features Rules. (Effective January 1, 2009.) (1) The commissioner must establish minimum standards for inflation protection features. (2) An issuer must comply with the rules adopted by the commissioner that establish minimum standards for inflation protection features. [2008 c ] Washington s insurance commissioner s office must establish minimum standards for inflation protection in a long-term care policy. Insurers must, of course, comply with the rules adopted. Page 161

163 Chapter 6: RCW 48.83, and Nonforfeiture benefit option Offer required Rules. (Effective January 1, 2009.) (1) Except as provided by this section, a long-term care insurance policy may not be delivered or issued for delivery in this state unless the policyholder or certificate holder has been offered the option of purchasing a policy or certificate that includes a nonforfeiture benefit. The offer of a nonforfeiture benefit may be in the form of a rider that is attached to the policy. If a policyholder or certificate holder declines the nonforfeiture benefit, the issuer must provide a contingent benefit upon lapse that is available for a specified period of time following a substantial increase in premium rates. (2) If a group long-term care insurance policy is issued, the offer required in subsection (1) of this section must be made to the group policyholder. However, if the policy is issued as group long-term care insurance as defined in RCW (6)(d) other than to a continuing care retirement community or other similar entity, the offering shall be made to each proposed certificate holder. (3) The commissioner must adopt rules specifying the type or types of nonforfeiture benefits to be offered as part of long-term care insurance policies and certificates, the standards for nonforfeiture benefits, and the rules regarding contingent benefit upon lapse, including a determination of the specified period of time during which a contingent benefit upon lapse will be available and the substantial premium rate increase that triggers a contingent benefit upon lapse. [2008 c ] A long-term care insurance policy cannot be issued in Washington unless the policyholder has the option of a nonforfeiture benefit. This option would likely require additional premium if selected. The nonforfeiture benefit may be part of the policy or be a rider attached to the policy. If the applicant declines to purchase the nonforfeiture benefit, there must be a contingent benefit available upon lapse for a specified time period following a substantial increase in premium rates. In the case of group coverage, the offer must be made to the group policyholder or to each proposed certificate holder, depending upon the situation. Washington s commissioner will adopt rules specifying the types of nonforfeiture benefits available Selling, soliciting, or negotiating coverage Licensed insurance producers Training Issuers duties Rules. (Effective January 1, 2009.) A person may not sell, solicit, or negotiate long-term care insurance unless he or she is appropriately licensed as an insurance producer and has successfully completed long-term care coverage education that meets the requirements of this section. Page 162

164 Chapter 6: RCW 48.83, and (1) All long-term care education required by this chapter must meet the requirements of chapter RCW and rules adopted by the commissioner. (2)(a)(i) After January 1, 2009, prior to soliciting, selling, or negotiating long-term care insurance coverage, an insurance producer must successfully complete a onetime education course consisting of no fewer than eight hours on long-term care coverage, long-term care services, state and federal regulations and requirements for long-term care and qualified long-term care insurance coverage, changes or improvements in long-term care services or providers, alternatives to the purchase of long-term care insurance coverage, the effect of inflation on benefits and the importance of inflation protection, and consumer suitability standards and guidelines. (ii) In order to continue soliciting, selling, or negotiating long-term care coverage in this state, all insurance producers selling, soliciting, or negotiating long-term care insurance coverage prior to January 1, 2009, must successfully complete the eighthour, one-time long-term care education and training course no later than July 1, (b) In addition to the one-time education and training requirement set forth in (a) of this subsection, insurance producers who engage in the solicitation, sale, or negotiation of long-term care insurance coverage must successfully complete no fewer than four hours every twenty-four months of continuing education specific to long-term care insurance coverage and issues. Long-term care insurance coverage continuing education shall consist of topics related to long-term care insurance, longterm care services, and, if applicable, qualified state long-term care insurance partnership programs, including, but not limited to, the following: (i) State and federal regulations and requirements and the relationship between qualified state long-term care insurance partnership programs and other public and private coverage of long-term care services, including Medicaid; (ii) Available long-term care services and providers; (iii) Changes or improvements in long-term care services or providers; (iv) Alternatives to the purchase of private long-term care insurance; (v) The effect of inflation on benefits and the importance of inflation protection; (vi) This chapter and chapters and RCW; and (vii) Consumer suitability standards and guidelines. (3) The insurance producer education required by this section shall not include training that is issuer or company product-specific or that includes any sales or marketing information, materials, or training, other than those required by state or federal law. (4) Issuers shall obtain verification that an insurance producer receives training Page 163

165 Chapter 6: RCW 48.83, and required by this section before that producer is permitted to sell, solicit, or otherwise negotiate the issuer's long-term care insurance products. (5) Issuers shall maintain records subject to the state's record retention requirements and shall make evidence of that verification available to the commissioner upon request. (6)(a) Issuers shall maintain records with respect to the training of its producers concerning the distribution of its long-term care partnership policies that will allow the commissioner to provide assurance to the state department of social and health services, Medicaid division, that insurance producers engaged in the sale of longterm care insurance contracts have received the training required by this section and any rules adopted by the commissioner, and that producers have demonstrated an understanding of the partnership policies and their relationship to public and private coverage of long-term care, including Medicaid, in this state. (b) These records shall be maintained in accordance with the state's record retention requirements and shall be made available to the commissioner upon request. (7) The satisfaction of these training requirements for any state shall be deemed to satisfy the training requirements of this state. [2008 c ] Washington agents must acquire specific education relating to long-term care products prior to soliciting or selling long-term care contracts. This education must meet the requirements of the state. As of January 1, 2009 producers must successfully complete a one-time 8-hour education course even if he or she has previously completed long-term care education that met state requirements at that time. Agents have until July 1, 2009 to complete the 8 hours of education. Thereafter, agents must complete a 4-hour refresher course each license renewal period that meets current state requirements. The long-term care course is good for a 24-month period, meaning the refresher course must be completed no later than 24 months following completion of the initial 8-hour CE course. These long-term care education requirements are part of the total 24-hour requirement for license renewal; they are not in addition to the 24 hour requirement. Insurance companies are required to monitor compliance with the education requirements for long-term care. Insurers cannot accept an application from an agent unless he or she has met the long-term care education requirement and given proof of such to the insurer. If the agent intends to solicit or sell Partnership long-term care products, he or she must also meet the federal requirements for Partnership education. This is a training requirement rather than a state continuing education requirement. What does that mean? It means the Partnership education may be state approved for CE requirements, but it is Page 164

166 Chapter 6: RCW 48.83, and not required to be state approved. Agents may take courses that meet the federal Partnership training requirement but have not been submitted to the domicile state to receive state education credits. Issuers must maintain training records that allow the commissioner to provide assurance to the state Department of Social and Health Services, Medicaid Division that such education has been completed. There must be demonstrated evidence that such training provided an understanding of the Partnership policies and their relationship to public and private coverage of long-term care, including Medicaid, in Washington. The satisfaction of the Partnership training in any state will satisfy the training requirements for Partnership education in this state. Agents must still meet the training requirements of Washington, however, to sell long-term care insurance in general Determining whether coverage is appropriate Suitability standards Information protected Rules. (Effective January 1, 2009.) Issuers and their agents, if any, must determine whether issuing long-term care insurance coverage to a particular person is appropriate, except in the case of a life insurance policy that accelerates benefits for long-term care. (1) An issuer must: (a) Develop and use suitability standards to determine whether the purchase or replacement of long-term care coverage is appropriate for the needs of the applicant or insured; (b) Train its agents in the use of the issuer's suitability standards; and (c) Maintain a copy of its suitability standards and make the standards available for inspection, upon request. (2) The following must be considered when determining whether the applicant meets the issuer's suitability standards: (a) The ability of the applicant to pay for the proposed coverage and any other relevant financial information related to the purchase of or payment for coverage; (b) The applicant's goals and needs with respect to long-term care and the advantages and disadvantages of long-term care coverage to meet those goals or needs; and (c) The values, benefits, and costs of the applicant's existing health or long-term care coverage, if any, when compared to the values, benefits, and costs of the recommended purchase or replacement. Page 165

167 Chapter 6: RCW 48.83, and (3) The sale or transfer of any suitability information provided to the issuer or agent by the applicant to any other person or business entity is prohibited. (4)(a) The commissioner shall adopt, by rule, forms of consumer-friendly personal worksheets that issuers and their agents must use for applications for long-term care coverage. (b) The commissioner may require each issuer to file its current forms of suitability standards and personal worksheets with the commissioner. [2008 c ] Long-term care policies are right for many people, but not for every person. It is the job of insurers and agents to make determinations regarding the suitability of placing a policy prior to doing so. This would not apply to life insurance contracts that accelerate longterm care benefits. Insurers are required to develop suitability standards to aid their agents in making this determination. Once suitability standards are developed, insurers must train their agents in the use of them when recommending or replacing a long-term care contract. Such suitability standards must be available for inspection by the commissioner upon request. How does an insurer or agent determine if a long-term care policy is appropriate for the specific situation? There are several issues to consider: the income of the applicant, his or her ability to sustain the premium payments for a number of years, any other financial information that is relative to purchasing long-term care insurance (such as assets that may need to be conserved), the applicant s personal goals and needs, and whether purchase of a policy would appropriately address those goals and needs. If there is existing insurance in place, the agent must review them to see if the consumer s goals and needs are already appropriately addressed by the products in place. Any information gathered by either the insurer or agent for the purpose of addressing product suitability may not be sold or given to any other person or entity. The commissioner will develop long-term care worksheets that agents and insurers must use when determining the suitability of long-term care products Prohibited practices. (Effective January 1, 2009.) A person engaged in the issuance or solicitation of long-term care coverage shall not engage in unfair methods of competition or unfair or deceptive acts or practices, as such methods, acts, or practices are defined in chapter RCW, or as defined by the commissioner. [2008 c ] Page 166

168 Chapter 6: RCW 48.83, and An agent (or any person) that works in the long-term care insurance market may not engage in unfair methods of competition or deceptive acts. This would include such things as misrepresentation of products, what those products will accomplish, the benefits that can be expected from the policy, or the pricing of LTC products Violations Fines. (Effective January 1, 2009.) An issuer or an insurance producer who violates a law or rule relating to the regulation of long-term care insurance or its marketing shall be subject to a fine of up to three times the amount of the commission paid for each policy involved in the violation or up to ten thousand dollars, whichever is greater. [2008 c ] An insurance company or agent that violates the laws and rules relating to long-term care insurance products can be fined. The amount of the fine will be three times the amount of commission the agent would have earned for the sale of the product, or up to $10,000, whichever is greater Rules, generally. (Effective January 1, 2009.) (1) The commissioner must adopt rules that include standards for full and fair disclosure setting forth the manner, content, and required disclosures for the sale of long-term care insurance policies, terms of renewability, initial and subsequent conditions of eligibility, non-duplication of coverage provisions, coverage of dependents, preexisting conditions, termination of insurance, continuation or conversion, probationary periods, limitations, exceptions, reductions, elimination periods, requirements for replacement, recurrent conditions, and definitions of terms. The commissioner must adopt rules establishing loss ratio standards for longterm care insurance policies. The commissioner must adopt rules to promote premium adequacy and to protect policyholders in the event of proposed substantial rate increases, and to establish minimum standards for producer education, marketing practices, producer compensation, producer testing, penalties, and reporting practices for long-term care insurance. (2) The commissioner shall adopt rules establishing standards protecting patient privacy rights, rights to receive confidential health care services, and standards for an issuer's timely review of a claim denial upon request of a covered person. (3) The commissioner may adopt reasonable rules to effectuate any provision of this chapter in accordance with the requirements of chapter RCW. [2008 c ] Page 167

169 Chapter 6: RCW 48.83, and Washington s insurance commissioner is responsible for developing and adopting rules of conduct relating to the long-term care insurance industry. This includes all areas, such as preventing duplication of coverage, policy disclosures, renewability of policies, preexisting conditions, replacement of policies, and all other conditions and situations relating to long-term care products. It also includes the development and implementation of agent education on long-term care products Severability 2008 c 145. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected. [2008 c ] Effective date 2008 c 145. This act takes effect January 1, [2008 c ] General provisions, intent. (Effective until January 1, 2009.) This chapter may be known and cited as the "long-term care insurance act" and is intended to govern the content and sale of long-term care insurance and long-term care benefit contracts as defined in this chapter. This chapter shall be liberally construed to promote the public interest in protecting purchasers of long-term care insurance from unfair or deceptive sales, marketing, and advertising practices. The provisions of this chapter shall apply in addition to other requirements of Title 48 RCW. [1986 c ] The long-term care insurance act is intended to govern the content and sale of long-term care products. It is designed to protect consumers who are interested in purchasing longterm care insurance. Page 168

170 Chapter 6: RCW 48.83, and Definitions. Unless the context requires otherwise, the definitions in this section apply throughout this chapter. (1) "Long-term care insurance" or "long-term care benefit contract" means any insurance policy or benefit contract primarily advertised, marketed, offered, or designed to provide coverage or services for either institutional or community-based convalescent, custodial, chronic, or terminally ill care. Such terms do not include and this chapter shall not apply to policies or contracts governed by chapter RCW and continuing care retirement communities. (2) "Loss ratio" means the incurred claims plus or minus the increase or decrease in reserves as a percentage of the earned premiums, or the projected incurred claims plus or minus the increase or decrease in projected reserves as a percentage of projected earned premiums, as defined by the commissioner. (3) "Preexisting condition" means a covered person's medical condition that caused that person to have received medical advice or treatment during the specified time period before the effective date of coverage. (4) "Medicare" means Title XVIII of the United States social security act, or its successor program. (5) "Medicaid" means Title XIX of the United States social security act, or its successor program. (6) "Nursing home" means a nursing home as defined in RCW [1986 c ] This section provides specific terminology that will apply to long-term care contracts Rules Benefits-premiums ratio, coverage limitations. (1) The commissioner shall adopt rules requiring reasonable benefits in relation to the premium or price charged for long-term care policies and contracts which rules may include but are not limited to the establishment of minimum loss ratios. (2) In addition, the commissioner may adopt rules establishing standards for longterm care coverage benefit limitations, exclusions, exceptions, and reductions and for policy or contract renewability. [1986 c ] Page 169

171 Chapter 6: RCW 48.83, and Washington s commissioner will adopt rules that require reasonable benefits in relation to the premiums paid for the long-term care contracts, including establishment of minimum loss ratios. He or she will also set standards for such things as minimum benefits, exclusions and renewability of contracts Policies and contracts Prohibited provisions. No long-term care insurance policy or benefit contract may: (1) Use riders, waivers, endorsements, or any similar method to limit or reduce coverage or benefits; (2) Indemnify against losses resulting from sickness on a different basis than losses resulting from accidents; (3) Be canceled, non-renewed, or segregated at the time of re-rating solely on the grounds of the age or the deterioration of the mental or physical health of the covered person; (4) Exclude or limit coverage for preexisting conditions for a period of more than one year prior to the effective date of the policy or contract or more than six months after the effective date of the policy or contract; (5) Differentiate benefit amounts on the basis of the type or level of nursing home care provided; (6) Contain a provision establishing any new waiting period in the event an existing policy or contract is converted to a new or other form within the same company. [1986 c ] Some things are prohibited in long-term care contracts. These would include such things as use of riders, waivers or endorsements that limit or reduce benefits in the contract, pay benefits differently for sickness than they do from accidents, or experience increases in premiums due to re-rating on the grounds of age or deterioration of health. The previous prohibited provisions are important since they protect consumers who may not have enough experience or knowledge to realize they are being treated unfairly. In many cases the role of the insurance department is to protect consumers from any practice that is unethical or unfair. Page 170

172 Chapter 6: RCW 48.83, and Disclosure rules Required provisions in policy or contract. (Effective until July 1, 2009.) (1) The commissioner shall adopt rules requiring disclosure to consumers of the level, type, and amount of benefits provided and the limitations, exclusions, and exceptions contained in a long-term care insurance policy or contract. In adopting such rules the commissioner shall require an understandable disclosure to consumers of any cost for services that the consumer will be responsible for in utilizing benefits covered under the policy or contract. (2) Each long-term care insurance policy or contract shall include a provision, prominently displayed on the first page of the policy or contract, stating in substance that the person to whom the policy or contract is sold shall be permitted to return the policy or contract within thirty days of its delivery. In the case of policies or contracts solicited and sold by mail, the person may return the policy or contract within sixty days. Once the policy or contract has been returned, the person may have the premium refunded if, after examination of the policy or contract, the person is not satisfied with it for any reason. An additional ten percent penalty shall be added to any premium refund due which is not paid within thirty days of return of the policy or contract to the insurer or agent. If a person, pursuant to such notice, returns the policy or contract to the insurer at its branch or home office, or to the agent from whom the policy or contract was purchased, the policy or contract shall be void from its inception, and the parties shall be in the same position as if no policy or contract had been issued. [1986 c ] Until July 1, 2009 there are some provisions that are required in long-term care contracts and certificates. The commissioner develops and adopts these provisions. They pertain to the level, type, and amount of benefits provided. They also pertain to the limitations, exclusions, and exceptions contained in a long-term care insurance policy. The commissioner will also develop disclosures that are user-friendly so consumers can understand what he or she may be responsible for. There will be a prominent statement displaced on the first page of the policy informing the applicant that he or she may return the policy within the first 30 days following delivery and receive a full premium refund. If the contract was purchased through the mail (without an agent) the insured has sixty days to return the policy and receive a full premium refund. If the refund is not made to the consumer within thirty days of the return of the policy, an additional 10% penalty must be paid to the applicant in addition to the full refund of the premium amount. Once the policy has been returned for refund, it is as if the contract never existed. That means that no benefits will be payable even if an otherwise covered event would have resulted in benefits being paid under the policy. Page 171

173 Chapter 6: RCW 48.83, and Disclosure rules Required provisions in policy or contract. (Effective July 1, 2009.) (1) The commissioner shall adopt rules requiring disclosure to consumers of the level, type, and amount of benefits provided and the limitations, exclusions, and exceptions contained in a long-term care insurance policy or contract. In adopting such rules the commissioner shall require an understandable disclosure to consumers of any cost for services that the consumer will be responsible for in utilizing benefits covered under the policy or contract. (2) Each long-term care insurance policy or contract shall include a provision, prominently displayed on the first page of the policy or contract, stating in substance that the person to whom the policy or contract is sold shall be permitted to return the policy or contract within thirty days of its delivery. In the case of policies or contracts solicited and sold by mail, the person may return the policy or contract within sixty days. Once the policy or contract has been returned, the person may have the premium refunded if, after examination of the policy or contract, the person is not satisfied with it for any reason. An additional ten percent penalty shall be added to any premium refund due which is not paid within thirty days of return of the policy or contract to the insurer or insurance producer. If a person, pursuant to such notice, returns the policy or contract to the insurer at its branch or home office, or to the insurance producer from whom the policy or contract was purchased, the policy or contract shall be void from its inception, and the parties shall be in the same position as if no policy or contract had been issued. (3) No later than January 1, 2010, or when the insurer has used all of its existing paper long-term care insurance policy forms which were in its possession on July 1, 2009, whichever is earlier, the notice required by subsection (2) of this section shall use the term insurance producer in place of agent. [2008 c ; 1986 c ] As of July 1, 2009 the commissioner will adopt rules requiring disclosure of the level, type, and amounts of benefits provided and the limitations, exclusions and exceptions in the long-term care policy. The disclosure must be consumer-friendly alerting consumers to items their policy will not pay for, such as prescription drugs or personal use items. All long-term care contracts must include a provision that is prominently displayed on the first page of the contract alerting the applicant that he or she may return the policy within 30 days of delivery, sixty days for contracts purchased through the mail. If the insurer does not return the premium within 30 days of the policy s return an additional 10% penalty will be added. By January 1, 2010, insurers will use the term insurance producer rather than agent. Page 172

174 Chapter 6: RCW 48.83, and Prohibited practices. (Effective until July 1, 2009.) No agent, broker, or other representative of an insurer, contractor, or other organization selling or offering long-term care insurance policies or benefit contracts may: (1) Complete the medical history portion of any form or application for the purchase of such policy or contract; (2) knowingly sell a long-term care policy or contract to any person who is receiving Medicaid; or (3) use or engage in any unfair or deceptive act or practice in the advertising, sale, or marketing of long-term care policies or contracts. [1986 c ] Until July 1, 2009 agents, brokers, and other representatives are prohibited from: 1. Completing the medical history portion of any application form on behalf of the applicant; 2. Knowingly selling a long-term care contract to any person receiving Medicaid; or 3. Using or engaging in unfair or deceptive acts in the advertising, sale, or marketing of long-term care contracts Prohibited practices. (Effective July 1, 2009.) No insurance producer or other representative of an insurer, contractor, or other organization selling or offering long-term care insurance policies or benefit contracts may: (1) Complete the medical history portion of any form or application for the purchase of such policy or contract; (2) knowingly sell a long-term care policy or contract to any person who is receiving Medicaid; or (3) use or engage in any unfair or deceptive act or practice in the advertising, sale, or marketing of long-term care policies or contracts. [2008 c ; 1986 c ] As of July 1, 2009, agents are now referred to as insurance producers. The prohibited practices remain the same, but the reference to agent has been changed to insurance producer. Producers still may not: 1. Complete the medical history portion of any application form on behalf of the applicant; 2. Knowingly sell a long-term care contract to any person receiving Medicaid; or 3. Use or engage in unfair or deceptive acts in the advertising, sale, or marketing of long-term care contracts. Page 173

175 Chapter 6: RCW 48.83, and Separation of data regarding certain policies. Commencing with reports for accounting periods beginning on or after January 1, 1988, all insurers, fraternal benefit societies, health care services contractors, and health maintenance organizations shall, for reporting and record keeping purposes, separate data concerning long-term care insurance policies and contracts from data concerning other insurance policies and contracts. [1986 c ] Some data is separated for reporting and record keeping purposes. Long-term care data must be separated from other insurance policies and contracts Severability 1986 c 170. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected. [1986 c ] Effective date, application 1986 c 170. RCW shall take effect on November 1, 1986, and the commissioner shall adopt all rules necessary to implement RCW by its effective date including rules prohibiting particular unfair or deceptive acts and practices in the advertising, sale, and marketing of long-term care policies and contracts. The commissioner shall adopt all rules necessary to implement the remaining sections of this chapter by July 1, 1987, and the remaining sections of this chapter shall apply to policies and contracts issued on or after January 1, [1986 c ] Washington Long-Term Care Partnership program Generally. (Effective until January 1, 2009.) The department of social and health services shall, in conjunction with the office of the insurance commissioner, coordinate a long-term care insurance program entitled the Washington Long-Term Care Partnership, whereby private insurance and Medicaid funds shall be used to finance long-term care. For individuals purchasing a long-term care insurance policy or contract governed by chapter RCW and meeting the criteria prescribed in this chapter, and any other terms as specified by the office of the insurance commissioner and the department of social and health Page 174

176 Chapter 6: RCW 48.83, and services, this program shall allow for the exclusion of some or all of the individual's assets in determination of Medicaid eligibility as approved by the federal health care financing administration. [1995 1st sp.s. c 18 76; 1993 c ] This code was effective until the new code became effective on January 1, Washington Long-Term Care Partnership program Generally. (Effective January 1, 2009.) The department of social and health services shall, in conjunction with the office of the insurance commissioner, coordinate a long-term care insurance program entitled the Washington Long-Term Care Partnership, whereby private insurance and Medicaid funds shall be used to finance long-term care. For individuals purchasing a long-term care insurance policy or contract governed by chapter or RCW and meeting the criteria prescribed in this chapter, and any other terms as specified by the office of the insurance commissioner and the department of social and health services, this program shall allow for the exclusion of some or all of the individual's assets in determination of Medicaid eligibility as approved by the federal health care financing administration. [2008 c ; st sp.s. c 18 76; 1993 c ] This new code includes RCW. Long-term care Partnership plans will be developed by the Department of Social and Health Services in conjunction with the insurance commissioner s office. Private insurance and Medicaid funds will be used to finance the asset protection portion of Partnership long-term care policies. The amount of long-term care protection purchased by Washington residents will determine the amount of personal assets that will be protected from Medicaid s spend-down requirements. Partnership plans protect only assets; never income Protection of assets Federal approval Rules. The department of social and health services shall seek approval from the federal health care financing administration to allow the protection of an individual's assets as provided in this chapter. The department shall adopt all rules necessary to implement the Washington Long-Term Care Partnership program, which rules shall permit the exclusion of all or some of an individual's assets in a manner specified by the department in a determination of Medicaid eligibility to the extent that private long-term care insurance provides payment or benefits for services. [1995 1st sp.s. c 18 77; 1993 c ] Page 175

177 Chapter 6: RCW 48.83, and Under the Partnership programs, individuals who purchase such policies are allowed to keep assets even when their insurance benefits are depleted and they must apply for Medicaid benefits. Policyholders only keep the amount of assets that were purchased under the Partnership long-term care policies. Income is never protected, only assets. For example: Joseph buys a Partnership long-term care policy that provides $50,000 in long-term care benefits. Joseph actually has $100,000 in assets so he is protecting half of his assets with his Partnership long-term care policy. When Joseph enters a nursing home he begins receiving benefits from his LTC policy. When the benefits are exhausted Joseph must still spend down $50,000 in assets (the amount left unprotected by his Partnership plan) before he can apply for Medicaid benefits, but he is allowed to keep the $50,000 in assets that were protected under his Partnership plan. If Joseph had purchased $100,000 in Partnership long-term care benefits all of his assets (but not income) would have been protected from Medicaid spend-down requirements. Once his policy was exhausted he could have immediately applied for Medicaid if he had purchased the higher amount of benefits Insurance policy criteria Rules. (1) The insurance commissioner shall adopt rules defining the criteria that longterm care insurance policies must meet to satisfy the requirements of this chapter. The rules shall provide that all long-term care insurance policies purchased for the purposes of this chapter: (a) Be guaranteed renewable; (b) Provide coverage for nursing home care and provide coverage for an alternative plan of care benefit, as defined by the commissioner; (c) Provide optional coverage for home and community-based services. Such home and community-based services shall be included in the coverage unless rejected in writing by the applicant; (d) Provide automatic inflation protection or similar coverage for any policyholder through the age of seventy-nine and made optional at age eighty to protect the policyholder from future increases in the cost of long-term care; (e) Not require prior hospitalization or confinement in a nursing home as a prerequisite to receiving long-term care benefits; and (f) Contain at least a six-month grace period that permits reinstatement of the Page 176

178 Chapter 6: RCW 48.83, and policy or contract retroactive to the date of termination if the policy or contract holder's nonpayment of premiums arose as a result of a cognitive impairment suffered by the policy or contract holder as certified by a physician. (2) Insurers offering long-term care policies for the purposes of this chapter shall demonstrate to the satisfaction of the insurance commissioner that they: (a) Have procedures to provide notice to each purchaser of the long-term care consumer education program; (b) Offer case management services; (c) Have procedures that provide for the keeping of individual policy records and procedures for the explanation of coverage and benefits identifying those payments or services available under the policy that meet the purposes of this chapter; (d) Agree to provide the insurance commissioner, on or before September 1 of each year, an annual report containing information derived from the long-term care partnership long-term care insurance uniform data set as specified by the office of the insurance commissioner. [1995 1st sp.s. c 18 78; 1993 c ] Partnership plans must follow federal requirements and our commissioner must adopt rules that comply with the federal guidelines. When insurers apply for approval of their products they must conform to all state and federal Partnership requirements. Partnership plans must be guaranteed renewable products, have alternative care options, offer optional coverage for home and community based care (for extra premium), include inflation provisions, have no requirement for previous hospitalization, and contain at least a six-month grace period that permits reinstatement of the policy if it has lapsed due to nonpayment resulting from a cognitive impairment. Furthermore, insurers must have procedures in place to notify each purchaser of the consumer education program, offer case management services, and prove the commissioner with an annual report on or before September 1 each year Consumer education program. The insurance commissioner shall, with the cooperation of the department of social and health services and members of the long-term care insurance industry, develop a consumer education program designed to educate consumers as to the need for long-term care, methods for financing long-term care, the availability of long-term care insurance, and the availability and eligibility requirements of the asset protection program provided under this chapter. [1995 1st sp.s. c 18 79; 1993 c ] Page 177

179 Chapter 6: RCW 48.83, and No matter how good a long-term care program is, if consumers are not aware of its existence they cannot benefit. Therefore, the commissioner will develop, in cooperation with the Department of Social and Health Services, a consumer education program. The hope is that those who would not otherwise have purchased long-term care insurance will buy a Partnership long-term care plan since it will provide asset protection (but not income protection). While there is some disagreement, the hope is that Medicaid funding will decrease since these individuals will be protected, at least to some degree, by their Partnership long-term care policy. Page 178

180 Chapter 7: Chapter RCW Chapter WAC The following is the complete Chapter WAC. Comments by the author will be in a different font and color (online only). You will note that much of this information has already been covered in previous chapters, but we felt the reader should see the law exactly as written Purpose and authority. The purpose of this chapter is to effectuate chapter RCW, the Long-Term Care Insurance Act, by establishing minimum standards and disclosure requirements to be met by insurers, health care service contractors, health maintenance organizations, and fraternal benefit societies with respect to long-term care insurance and long-term care benefit policies and contracts Applicability and scope. (1) Except as otherwise specifically provided, this chapter shall apply to every policy, contract, or certificate, and riders pertaining thereto, of an insurer, fraternal benefit society, health care service contractor, or health maintenance organization, if such contract is primarily advertised, marketed, or designed to provide long-term care services over a prolonged period of time, which services may range from direct skilled medical care performed by trained medical professionals as prescribed by a physician or qualified case manager in consultation with the patient's attending physician to rehabilitative services and assistance with the basic necessary functions of daily living for people who have lost some or complete capacity to function on their own. Such contract is "long-term care insurance" or a "long-term care contract," and is subject to this chapter. (2) Pursuant to RCW , this chapter shall not apply to Medicare supplement insurance; nor shall it apply to a contract between a continuing care retirement community and its residents. (3) Long-term care contracts not meeting the requirements of this chapter may not be issued or delivered in this state after December 31, Page 179

181 Chapter 7: Chapter RCW Long-term care products are not the same as Medicare supplemental policies; nor do such laws apply to continuing care retirement communities and their residents. These laws specifically apply only to long-term care products Definitions of terms used in this chapter and chapter RCW. For purposes of the administration of chapter RCW and this chapter: (1) "Community based care" means services including, but not limited to: (a) Home delivered nursing services or therapy; (b) custodial or personal care; (c) day care; (d) home and chore aid services; (e) nutritional services, both in-home and in a communal dining setting; (f) respite care; (g) adult day health care services; or (h) other similar services furnished in a homelike or residential setting that does not provide overnight care. Such services shall be provided at all levels of care, from skilled care to custodial or personal care. (2) "Contract" means a long-term care insurance policy or contract, regardless of the kind of insurer issuing it, unless the context clearly indicates otherwise. (3) "Direct response insurer" means an insurer who, as to a particular contract, is transacting insurance directly with a potential insured without solicitation by, or the intervention of, a licensed insurance agent. (4) A "gatekeeper provision" is any provision in a contract establishing a threshold requirement which must be satisfied before a covered person is eligible to receive benefits promised by the contract. Examples of such provisions include, but are not limited to the following: A three-day prior hospitalization requirement, recommendations of the attending physician, and recommendations of a case manager. (5) "Institutional care" means care provided in a hospital, skilled or intermediate nursing home, or other facility certified or licensed by the state primarily affording diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services. Such a facility provides twentyfour-hour nursing services on its premises or in facilities available to the institution on a formal prearranged basis. (6) "Insured" shall mean any beneficiary or owner of a long-term care contract regardless of the type of insurer. (7) "Insurer" includes insurance companies, fraternal benefit societies, health care service contractors and health maintenance organizations unless the context clearly indicates otherwise. (8) "Premium" shall mean all sums charged, received or deposited as consideration for a contract and includes any assessment, membership, contract, survey, inspection, service, or similar fees or charges as paid. (9) "Terminally ill care" means care for an illness, disease, or injury which has reached a Page 180

182 Chapter 7: Chapter RCW point where recovery can no longer be expected and the attending physician has certified that the patient is facing imminent death; or has a life expectancy of six months or less. (10) "Adult day health care" means a program of community based social and healthrelated services provided during the day in a community group setting for the purpose of supporting frail, impaired elderly or other disabled adults who can benefit from care in a group setting outside the individual's home Standards for definitions applicable to long-term care contracts. The following definitions are applicable to long-term care contracts and the implementation of chapter RCW and this chapter, and no contract may be advertised, solicited, or issued for delivery in this state as a long-term care contract which uses definitions more restrictive or less favorable to an insured than the following: (1) "Acute care" means care provided for patients who are not medically stable. These patients require frequent monitoring by health care professionals in order to maintain their health status. (2) "Benefit period" means the period of time for which the insured is eligible to receive benefits or services under a contract. A benefit period begins on the first day that the insured is eligible for and begins to receive the benefits of the contract. The benefit period ends when the insured is no longer eligible to receive benefits or has received the lifetime maximum benefits available. Such benefit period must be stated in terms of days rather than in terms of months of benefit. (3) "Case manager" or "case coordinator" means an individual qualified by training and/or experience to coordinate the overall medical, personal and social service needs of the long-term care patient. Such coordination activities shall include but are not limited to: Assessing the individual's condition to determine what services and resources are necessary and by whom they might most appropriately be delivered; coordination of elements of a treatment or care plan and referral to the appropriate medical or social services personnel or agency; control coordination of patient services and continued monitoring of the patient to assess progress and assure that services are delivered. Such activities shall be conducted in consultation with the attending physician. (4) "Chronic care" or "maintenance care" means care that is necessary to support an existing level of health and is intended to preserve that level from further failure or decline. The care provided is usually for a long, drawn out or lingering disease or infirmity showing little change or slowly progressing with little likelihood of complete recovery, whether such care is provided in an institution or is community-based and whether such care requires skilled, intermediate or custodial/personal care. (5) "Convalescent care" or "rehabilitative care" is non-acute care which is prescribed by a physician and is received during the period of recovery from an illness or injury when improvement can be anticipated, whether such care requires skilled, intermediate or Page 181

183 Chapter 7: Chapter RCW custodial/personal care, and whether such care is provided in an institutional care facility or is community-based. (6) "Custodial care" or "personal care" means care which is mainly for the purpose of meeting daily living requirements. This level of care may be provided by persons without professional skills or training. Examples are: Help in walking, getting out of bed, bathing, dressing, eating, meal preparation, and taking medications. Such care is intended to maintain and support an existing level of health or to preserve the patient from further decline. Custodial or personal care services are those which may be recommended by the case manager in consultation with the patient's attending physician and are not primarily for the convenience of the insured or the insured's family. (7) "Guaranteed renewable" means that renewal of a contract may not be declined by an insurer for any reason except for nonpayment of premium, but the insurer may revise rates on a class basis. (8) A "home health aide" is a person who is providing care under the supervision of a physician, licensed professional nurse, physical therapist, occupational therapist, or speech therapist. Care provided may include ambulation and exercise, assistance with self-administered medications, reporting changes in a covered person's conditions and needs, completing appropriate records, and personal care or household services needed to achieve medically desired results. (9) "Home care services" or "personal care services" are services of a personal nature including, but not limited to, homemaker services, assistance with the activities of daily living, respite care services, or any other non-medical services provided to ill, disabled, or infirm persons which services enable those persons to remain in their own residences consistent with their desires, abilities and safety. An insurer may require that services are provided by or under the direction of a home health care agency or home care agency regulated by this state, or that services are administered in accordance with a plan of treatment developed by or with the assistance of health care professionals. (10) "Home health care" shall mean, but is not limited to, any of the following health or medical services: Nursing services, home health aide services, physical therapy, occupational therapy, speech therapy, respiratory therapy, nutritional services, medical or social services, and medical supplies or equipment services. An insurer may require that services are provided by or under the direction of a regulated home health care agency regulated by this state, or that services are administered in accordance with a plan of treatment developed by or with the assistance of health care professionals. (11) "Intermediate care" means technical nursing care which requires selected nursing procedures for which the degree of care and evaluation is less than that provided for skilled care, but greater than that provided for custodial/personal care. This level of care provides a planned continuous program of nursing care that is preventive or rehabilitative in nature. (12) "Long-term care total disability" means the functional inability due to illness, disease or infirmity to engage in the regular and customary activities of daily living which are usual for a person of the same age and sex. Page 182

184 Chapter 7: Chapter RCW (13) "Managed long-term care delivery system" means a system or network of providers arranged or controlled by a managed long-term care plan. Such systems provide a range of long-term care services with provisions for effective utilization controls and quality assurance. In the case of provision of long-term care in the managed care environment, a case manager or other qualified individual may be used to develop and coordinate a care plan of appropriate long-term care services. (14) "Managed long-term care plan" means a plan which on a prepaid basis assumes the responsibility and the risk for delivery of the covered long-term care services set forth in the benefit agreement. Actual services are rendered by the plan through its own staff, through capitation, or other contractual arrangements with providers. Managed long-term care plans may include but are not limited to those offered by health maintenance organizations, and health care service contractors, if their services are provided through a managed long-term care delivery system. (15) "Non-cancelable" means that renewal of a contract may not be declined except for nonpayment of premium, nor may rates be revised by the insurer. (16) "One period of confinement" means consecutive days of institutional care received as an inpatient in a health care institution, or successive confinements due to the same or related causes when discharge from and readmission to the institution occurs within a period of time not more than ninety days or three times the maximum number of days of institutional care provided by the policy to a maximum of one hundred eighty days, whichever provides the covered person with the greater benefit. (17) "Preexisting condition," as defined by RCW (3), means a covered person's medical condition that caused that person to have received medical advice or treatment during the specified time period before the effective date of coverage. (18) "Respite care" is short-term care which is required in order to maintain the health or safety of the patient and to give temporary relief to the primary caretaker from his or her caretaking duties. (19) "Skilled care" means care for an illness or injury which requires the training and skills of a licensed professional nurse, is prescribed by a physician, is medically necessary for the condition or illness of the patient, and is available on a twenty-four-hour basis Minimum standards for benefit triggers Physician certification, activities of daily living, and cognitive impairments. (1)(a) Except as provided in (b) of this subsection, every long-term care insurance contract or certificate issued on or after January 1, 1996, which provides coverage to a resident of this state, shall require certification by the insured's attending physician that the services are appropriate due to illness or infirmity, or include provisions which condition the payment of benefits on an assessment of the insured's ability to perform specific activities of daily living or the insured's Page 183

185 Chapter 7: Chapter RCW cognitive impairment. (b) Certificates issued on or after January 1, 1996, under a group long-term care insurance contract that was in force on December 31, 1995, need not meet the standards of this section. (2) Activities of daily living and cognitive impairment shall be used to measure an insured's need for long-term care and shall be described in the contract or certificate in a separate paragraph labeled "Eligibility for the Payment of Benefits." Any additional benefit triggers shall be explained in that section. If a trigger differs for different benefits, an explanation of the trigger shall accompany each benefit description. If an attending physician or other specified person must certify a certain level of functional dependency in order to be eligible for benefits, the policy shall so specify. (3) Eligibility for the payment of benefits based on the inability of the insured to perform certain activities shall not be more restrictive than requiring a deficiency in the ability to perform not more than three of the following activities of daily living. (a) "Activities of daily living" on which an insurer intends to rely as a measure of functional incapacity shall be defined in the policy, and shall include at least all of the following: (i) Bathing: The ability of the insured to wash himself or herself either in the tub or shower or by sponge bath, including the task of getting into or out of a tub or shower. (ii) Continence: The ability of the insured to control bowel and bladder functions; or, in the event of incontinence, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag). (iii) Dressing: The ability of the insured to put on and take off all items of clothing, and necessary braces, fasteners, or artificial limbs. (iv) Eating: The ability of the insured to feed himself or herself by getting food and drink from a receptacle (such as a plate, cup, or table) into the body including intravenously or by feeding tube. (v) Toileting: The ability of the insured to get to and from the toilet, get on and off the toilet, and perform associated personal hygiene. (vi) Transferring: The ability of the insured to move in and out of a chair, bed, or wheelchair. (b) For purposes of this section, the determination of a deficiency shall not be more restrictive than: (i) Requiring the hands-on assistance of another person to perform the prescribed activities of daily living; or (ii) If the deficiency is due to the presence of a cognitive impairment, supervision or verbal cuing by another person is needed in order to protect the insured or others. Page 184

186 Chapter 7: Chapter RCW (c) Upon prior approval of the commissioner in writing, an insurer may use standards or definitions for activities of daily living in addition to the standards set forth in (a) of this subsection; however, in no case may an insurer require a deficiency in more than three activities of daily living as a barrier to benefits. Any additional activities of daily living approved by the commissioner, shall be used in addition to those set forth in (a) of this subsection, and not in lieu thereof. Assessments of activities of daily living and cognitive impairment shall be performed by licensed or certified professionals, such as physicians, nurses, or social workers. No contract or certificate may combine more than one activity of daily living to create a compound impairment requirement. (d) Each long-term care insurance contract or certificate shall include a clear description of the process for appealing and resolving benefit determinations. (4) If an insurer proposes standards other than those described in this section, the insurer shall describe to the satisfaction of the commissioner how the proposed assessment will reasonably be expected to produce reliable, valid, and clinically appropriate results and shall demonstrate that the alternate assessment method is not less beneficial to the insured than the standards described in this section. (5) For purposes of this section the following definitions apply: (a) "Cognitive impairment" means a deficiency in a person's short-term or long-term memory; orientation as to person, place, and time; deductive or abstract reasoning; or judgment as it relates to safety awareness. (b) "Hands-on assistance" means any amount of physical assistance (whether minimal, moderate, or maximal) without which the insured would not be able to perform the activity. Long-term care policies must pay benefits when specific circumstances are met. Certainly the beneficiary s doctor must certify that the care is needed. Obviously the person s family is not qualified to make this determination for their convenience. The doctor will make this determination based on specific standards that include their ability to perform the types of daily living activities necessary to independence. It may also be based on the insured s cognitive ability, which is a deficiency in the person s short or long term memory and orientation as to people, places, and time Exclusions. No contract shall limit or exclude coverage by type of illness, accident, treatment, or medical condition, except with respect to the following: (1) Conditions arising out of war or act of war (whether declared or undeclared); (2) Conditions arising out of participation in the commission of a felony, riot or insurrection; Page 185

187 Chapter 7: Chapter RCW (3) Conditions resulting from suicide, attempted suicide (while sane or insane) or intentionally self-inflicted injury; (4) Benefits available under any state or federal workers' compensation, employer's liability or occupational disease law, or any motor vehicle no-fault law; (5) Services performed by a member of the covered person's immediate family; (6) Services for which no charge is made in the absence of insurance; (7) Dental care or treatment; (8) Eye glasses, hearing aids and examination for the prescription or fitting thereof; (9) Rest cures and routine physical examinations; (10) Chemical dependency; (11) Treatment in a government hospital or in a government facility unless required by law; (12) Benefits provided under Medicare or other governmental programs (except Medicaid); (13) Experimental treatments, supplies, or services; (14) Other exclusions appropriate to the particular contract, justified to the satisfaction of the commissioner, in connection with the filing of the contract form, may be permitted by prior written agreement. No policy covers everything. Some situations are specifically excluded. Contracts must pay for claims that relate to the coverage, but such things as war and illegal acts are clearly outside of the policy s intention Renewability. No insurer shall refuse to renew any long-term care contract or coverage thereunder, provided that after written approval of the commissioner, an insurer may discharge its obligation to renew by obtaining for the insured coverage with another insurer which coverage provides equivalent benefits for value paid. If an insurer provides coverage through another insurance company it may shift the individual s coverage over to that company. The coverage must be substantially the same or better than the coverage the individual originally purchased and within the same price range. Page 186

188 Chapter 7: Chapter RCW Minimum standards General. No contract may be advertised, solicited, or issued for delivery in this state as a long-term care contract which does not meet the following standards. These are minimum standards and do not preclude the inclusion of other provisions or benefits which are not inconsistent with these standards. (1) No contract shall limit benefits to an unreasonable period of time or an unreasonable dollar amount. For example, a provision that a particular condition will be covered only for one year without regard to the actual amount of the benefits paid or provided, is not acceptable. Policies or contracts may, however, limit in-patient institutional care benefits to a reasonable period of time. Benefits may also be limited to a reasonable maximum dollar amount and, as for example in the case of home health care visits, to a reasonable number of visits over a stated period of time. (2) If a fixed-dollar indemnity, fee for services rendered or similar long-term care contract contains a maximum benefit period stated in terms of days for which benefits are paid or services are received by the insured, the days which are counted toward the benefit period must be days for which the insured has actually received one or more contract benefits or services. If benefits or services are not received on a given day, that day may not be counted. Waiver of premium shall not be considered a contract benefit for purposes of accrual of days under this section, and long-term care total disability shall not operate to reduce the benefit. (3) If a contract of a managed health care plan contains a maximum benefit period it must be stated in terms of the days the insured is in the managed care delivery system. The days which are counted toward the benefit period may include days that the insured is under a care plan established by the case manager, or days in which the insured actually receives one or more benefits or services. (4) A long-term care contract must cover skilled, intermediate, and custodial or personal care, whether benefits are for institutional or community based care. (5) No contract may restrict or deny benefits because the insured has failed to meet Medicare beneficiary eligibility criteria. (6) No insurer may offer a contract form which requires prior skilled or intermediate care as a condition of coverage for institutional or community based care. (7) No insurer may offer a contract form which requires prior hospitalization as a condition of covering institutional or community based care. (8) No long-term care contract may restrict benefit payments to a requirement that the patient is making a "steady improvement" or limit benefits to "recuperation" of health. (9) All long-term care contracts shall be issued as individual or family contracts only, unless coverage is provided pursuant to a group contract, issued to a bona fide group, which contract provides continuity of coverage equivalent to that which would be provided under a guaranteed Page 187

189 Chapter 7: Chapter RCW renewable individual contract, and otherwise satisfies the commissioner that it is not contrary to the best interests of the public. All policies advertised or sold in Washington must meet specific state-mandated standards. Policies must be reasonable in the benefits they provide. Benefits may not be based on whether or not the insured has met Medicare eligibility criteria for the skilled care benefits Medicare provides, for example. All levels of care must be equally covered and the insurance company may not require a higher level of care prior to paying for a lower level of personal care. Prior hospitalization may not be required in order to receive long-term care benefits. Long-term care benefits may not require the insured to be making steady improvement or pay only for recuperative care Minimum standards Gatekeeping provisions. Any gatekeeper provisions must be reasonable in relation to the benefits promised in the contract. It must be demonstrated to the satisfaction of the commissioner that a reasonable number of insureds who can be expected to receive benefit or contract payments because of an illness, injury or condition, are not precluded by the gatekeeper from receiving said benefits. Policies or contracts providing long-term care benefits following institutionalization shall not condition such benefits upon admission to the long-term care facility within a period of fewer than thirty days after discharge from the institution. A gatekeeper is in place to close the gate on claims. Insurers use them to limit claim payments. Washington requires gatekeeping provisions to be reasonable. Determination of reasonable is based upon the ability of sufficient numbers of insureds receiving benefits under the policy contract Reduction of coverage. Effective January 1, 1996, every person purchasing a long-term care insurance contract in this state shall have the right to reduce the benefits of a long-term care contract without providing evidence of insurability. Such a reduction may include, for example, changes which result in a contract with a longer elimination period, a lower daily benefit, or a shorter benefit period: Provided, however, that an insurer shall not reduce benefits to a level below the minimum level which has been approved by the commissioner on the date the reduction of coverage is requested. Long-term care insurance has become increasingly expensive. It is feasible that many who currently have long-term care insurance policies may, at some time, find the Page 188

190 Chapter 7: Chapter RCW premiums more than they can afford. This section of Washington s statutes provides an avenue for reducing premium costs while still keeping some amount of long-term care insurance benefits, although they are likely to be less than originally purchased Non-duplication with state or national health care benefits. In the event that a state or federal program is enacted which substantially duplicates all or part of the coverage of an in-force long-term care insurance contract or certificate, current benefits or features which are duplicated by a state or national program shall be revised or eliminated promptly and in an orderly manner, subject to prior approval by the commissioner Prohibition against preexisting conditions and probationary periods in replacement policies or certificates. If a long-term care insurance contract or certificate replaces another long-term care insurance contract or certificate, the replacing insurer shall waive any time periods applicable to preexisting conditions and probationary periods in the new long-term care insurance contract for similar benefits to the extent that similar exclusions have been satisfied under the original contract. Although long-term care policies are not as likely to be replaced as some other types of insurance it does still happen. When one policy with similar benefits replaces another the replacing insurer must waive any time periods for preexisting conditions or probationary periods Minimum standards for community based care benefits in long-term care insurance policies. (1) No long-term care insurance contract or certificate which provides benefits for community based care services may limit or exclude benefits: (a) By requiring care in a skilled nursing facility before covering community based care services; (b) By requiring that the insured first or simultaneously receive nursing or therapeutic services in a home, community or institutional setting before community based care services are covered; Page 189

191 Chapter 7: Chapter RCW (c) By limiting eligible services to services provided by registered nurses or licensed practical nurses; (d) By requiring that community based care services may be delivered only by licensed nurses or therapists when the type of services to be provided comes within the authorized scope of license of other regulated health care providers; (e) By excluding coverage for personal care services provided by a home health aide; (f) By requiring that the delivery of community based care services be at a level of certification or licensure greater than that required for the eligible service; (g) By requiring that the insured have an acute condition before community based care services are covered; (h) By limiting benefits to services provided by Medicare-certified agencies or providers; or (i) By excluding coverage for adult day care services. (2) A long-term care insurance contract or certificate, if it provides for community based care services, shall provide coverage for total community based care services in a dollar amount equivalent to at least one-half of one year's coverage available for institutional benefits under the contract or certificate at the time covered community based care services are received. This requirement does not apply to contracts or certificates issued to residents of continuing care retirement communities. (3) Community based care coverage may be applied to the nonhome health care benefits provided in the contract or certificate when determining maximum coverage under the terms of the contract or certificate. Community based nursing care also must meet specific state criteria. Benefits may not be limited or excluded by requiring skilled care first be received prior to other types or levels of care. The insurer cannot require care be delivered by individuals with more training or experience than actually necessary to deliver the care. In other words, if a person without medical training would be qualified to care for the insured, the company cannot require a registered nurse deliver the care. Each of the requirements listed in this section must be adhered to by the insurer Grace period. Every long-term care contract must contain a grace period of no fewer than thirty-one days following the due date for the payment of premiums. Page 190

192 Chapter 7: Chapter RCW Unintentional lapse. The purpose of this section is to protect insureds from unintentional lapse by establishing standards for notification of a designee to receive notice of lapse for nonpayment of premiums at least thirty days prior to the termination of coverage and to provide for a limited right to reinstatement of coverage unintentionally lapsed by a person with a cognitive impairment or loss of functional capacity. These are minimum standards and do not prevent an insurer from including benefits more favorable to the insured. This section applies to every insurer providing long-term care coverage to a resident of this state, which coverage is issued for delivery or renewed on or after January 1, (1) Every insurer shall permit an insured to designate at least one additional person to receive notice of lapse or termination for nonpayment of premium, if the premium is not paid on or before its due date. The designation shall include the designee's full name and home address. (a) The notice shall provide that the contract or certificate will not lapse until at least thirty days after the notice is mailed to the insured's designee. (b) Where a policyholder or certificate holder pays premium through a payroll or pension deduction plan, the insurer shall permit the insured to designate a person to receive notice of lapse or termination for nonpayment of premium within sixty days after the insured is no longer on such a premium payment plan. The application or enrollment form for contracts or certificates where premium will be paid through a payroll or pension deduction plan shall clearly indicate the payment plan selected by the applicant. (c) The insurer shall offer each insured in writing an opportunity to change the designee, or update the information concerning the designee, no less frequently than once in every twentyfour months. (2) Every insurer shall provide a limited right to reinstate coverage in the event of lapse or termination for nonpayment of premium, if the insurer is provided proof of the insured's cognitive impairment or loss of functional capacity and reinstatement is requested within the five months after the policy lapsed or terminated due to nonpayment of premium. (a) The standard of proof of cognitive impairment or loss of functional capacity shall be no more restrictive than the benefit eligibility criteria for cognitive impairment or loss of functional capacity contained in the contract or certificate. (b) Current good health of the insured shall not be required for reinstatement if the request otherwise meets the requirements of this section. (3) An insurer shall permit an insured to waive his or her right to designate an additional person to receive notice of lapse or termination for nonpayment of premium. (a) The waiver shall be in writing, and shall be dated and signed by the applicant or insured. (b) No less frequently than once in every twenty-four months, the insured shall be permitted to revoke this waiver and to name a designee. Page 191

193 Chapter 7: Chapter RCW (4) Designation by the insured to receive notice of lapse or termination for nonpayment of premium does not constitute acceptance of any liability on the part of the designee for services provided to the insured or applicant. As an individual ages forgetfulness is common. Obviously a person who is experiencing mental difficulties, memory loss, or other conditions is especially likely to need longterm care services. This would be the worst possible time for their policy to lapse due to memory issues. Washington requires insurers to make specific efforts to prevent this from happening by notifying the insured their policy is in danger of lapsing at least 30 days prior to the actual lapse. Additionally, at least one person can be designated by the insured to also receive notice that their policy could lapse due to nonpayment. The insurer must provide a limited right to reinstate coverage if a lapse does occur due to nonpayment of premiums. The insurer can require proof of the insured s cognitive impairment or loss of functional capacity. The insured has five months in which to do this. Cognitive impairment requirements may not be stricter than those for benefit eligibility under the policy. The insured will not be required to show proof of insurability to meet reinstatement criteria Extension of benefits. Termination of long-term care insurance shall be without prejudice to any benefits payable for institutionalization if such institutionalization began while the long-term care insurance was in force and continues without interruption after termination. Such 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 applicable waiting period, and all other applicable provisions of the contract or certificate Requirement to offer inflation protection. (1) No insurer may offer a long-term care insurance contract unless, in addition to any other inflation protection option, the insurer offers to the policyholder the option to purchase a contract that provides for benefit levels to increase with benefit maximums or reasonable durations which are meaningful to account for reasonably anticipated increases in the costs of long-term care services covered by the contract. Insurers must offer to each applicant, at the time of purchase, the option to purchase a contract with an inflation protection feature no less favorable than one of the following: Page 192

194 Chapter 7: Chapter RCW (a) Increases benefit levels annually in a manner so that the increases are compounded annually at a rate not less than five percent; (b) Guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status so long as the option for the previous period has not been declined. The amount of the additional benefit shall be no less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least five percent for the period beginning with the purchase of the existing benefit and extending until the year in which the offer is made; or (c) Covers a specified percentage of actual or reasonable charges and does not include a maximum specified indemnity amount or limit. (2) Where the contract is issued to a group, the required offer in subsection (1) of this section shall be made to the group policyholder; except, if the policy is issued to an association group (defined in RCW ) other than to a continuing care retirement community, the offering shall be made to each proposed certificate-holder. (3) The offer in subsection (1) of this section shall not be required of life insurance policies or riders containing accelerated long-term care benefits. (4)(a) Insurers shall include the following information in or with the disclosure form: (i) A graphic comparison of the benefit levels of a contract that increases benefits over the contract period with a contract that does not increase benefits. The graphic comparison shall show benefit levels over at least a twenty-year period. (ii) Any expected premium increases or additional premiums to pay for automatic or optional benefit increases. (b) An insurer may use a reasonable hypothetical, or a graphic demonstration, for the purposes of this disclosure. (c) It is intended that meaningful inflation protection be provided. Meaningful benefit minimums or durations may, for example, include providing increases to attained age, or for a period such as at least twenty years, or for some multiple of the policy's maximum benefit, or throughout the period of coverage. (5) Inflation protection benefit increases under a contract which contains such benefits shall continue without regard to an insured's age, claim status or claim history, or the length of time the person has been insured under the contract. (6) An offer of inflation protection which provides for automatic benefit increases shall include an offer of a premium which the insurer expects to remain constant. Such offer shall disclose in a conspicuous manner that the premium may change in the future unless the premium is guaranteed to remain constant. (7)(a) Inflation protection as provided in subsection (1)(a) of this section shall be included in a long-term care insurance contract unless an insurer obtains a written rejection of inflation Page 193

195 Chapter 7: Chapter RCW protection signed by the applicant. (b) The rejection shall be considered a part of the application and shall state: "I have reviewed the outline of coverage and the graphs that compare the benefits and premiums of this contract with and without inflation protection. Specifically, I have reviewed Plans......, and I reject inflation protection." People commonly hold their long-term care policy many years before they actually need to claim policy benefits. An individual who files for benefits ten years following the purchase of his or her policy will soon realize that costs have gone up greatly. The point of including an inflation provision becomes obvious when benefits are needed. Inflation clauses can be costly so many consumers may be reluctant to pay the additional premium. The rejection statement is actually a protection for the agent since it proves he or she offered it at the time of sale. When offering the protection the agent must show the importance of including it however, since it is truly a benefit worth purchasing. It is considered so important that Partnership policies are required to include it, without a choice of rejection. In Washington the insurer must offer this protection (thus the rejection statement when the coverage is refused) at the time of sale. The agent must use the graphic comparison provided by the insurer. Benefits increases will be compounded annually at no less than 5%. Insurers may offer more than 5%, but never less. Insureds individuals have the right to periodically increase benefit levels without providing proof of insurability, as long as previous increases have not been declined by the insured Information to be furnished, style. (1) Each broker, agent, or other representative of an insurer selling or offering benefits that are designed, or represented as being designed, to provide long-term care insurance benefits, shall deliver the disclosure form as set forth in WAC not later than the time of application for the contract. If an agent has solicited the coverage, the disclosure form shall be signed by that agent and a copy left with the applicant. The insurer shall maintain a copy in its files. (2) The disclosure form required by this section shall identify the insurer issuing the contract and may contain additional appropriate information in the heading. The informational portion of the form shall be substantially as set forth in WAC and words emphasized therein shall be underlined or otherwise emphasized in each form issued. The form shall be printed in a style and with a type character that is easily read by an average person eligible for long-term care insurance. (3) Where inappropriate terms are used in the disclosure form, such as "insurance," "policy," or "insurance company," a fraternal benefit society, health care service contractor, or health Page 194

196 Chapter 7: Chapter RCW maintenance organization shall substitute appropriate terminology. (4) In completing the form, each subsection shall contain information which succinctly and fairly informs the purchaser as to the contents or coverage in the contract. If the contract provides no coverage with respect to the item, that shall be so stated. Address the form to the reasonable person likely to purchase long-term care insurance. (5) A policy which provides for the payment of benefits based on standards described as "usual," "customary," or "reasonable" (or any combination thereof), or words of similar import, shall include an explanation of such terms in its disclosure form and in the definitions section of the contract. (6) If the contract contains any gatekeeper provision which limits benefits or precludes the insured from receiving benefits, such gatekeeper provision shall be fully described. (7) All insurers shall use the same disclosure form. It is intended that the information provided in the disclosure form will appear in substantially the same format provided to enable a purchaser to compare competing contracts easily. (8) The information provided shall include the statement: "This is NOT a Medicare supplement policy," and shall otherwise comply with WAC (9) The required disclosure form shall be filed by the insurer with the commissioner prior to use in this state. (10) In any case where the prescribed disclosure form is inappropriate for the coverage provided by the contract, an alternate disclosure form shall be submitted to the commissioner for approval or acceptance prior to use in this state. (11) Upon request of an applicant or insured, insurers shall make available a disclosure form in a format which meets the requirements of the Americans with Disabilities Act and which has been approved in advance by the commissioner. A disclosure form must be given to any applicant for long-term care insurance. The disclosure will identify the company the agent has recommended. It must clearly inform the buyer of the coverage they are purchasing or considering for purchase. If such words as usual, customary, or reasonable are used the definitions must be included. All insurers will use disclosure forms that are substantially similar to allow consumers to reasonably compare competing companies Form to be used Long-term care insurance disclosure form. No later than January 1, 1996, the disclosure form shall be substantially as follows: Page 195

197 Chapter 7: Chapter RCW (Company Name) Disclosure Form Long-term Care Insurance The decision to buy a new long-term care policy is very important. It should be carefully considered. The following data give you some general tips and furnish you with a summary of benefits available under our policy. Your long-term care policy provides thirty days (sixty days for direct response insurers) within which you may decide without cost whether you wish to keep it. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available under your policy. If you now have insurance which provides benefits for long-term care, read your policy carefully. Look for what is said about renewing it. See if it contains waiting periods before benefits are paid. Note how it covers preexisting conditions (health conditions you already have). Compare these features with similar ones in any new policy. Use this information to measure the value of any insurance or health care plans you now have. DON'T BUY MORE INSURANCE THAN YOU REALLY NEED. One policy that meets your needs is usually less expensive than several limited policies. If you are eligible for state medical assistance coupons (Medicaid), you should not purchase a long-term care insurance policy. After you receive your policy, make sure you have received the coverage you thought you bought. If you are not satisfied with the policy, you may return it within thirty days (sixty days for direct response insurer) for a full refund of premium. 1. INSTITUTIONAL CARE LTC DISCLOSURE FORM What levels of care are covered by the policy? YES NO Does the policy provide benefits for these levels of care? Skilled Nursing Care? Intermediate Nursing Care? Custodial/Personal Care? (By state law, all long-term care policies in Washington State must cover all three of the above levels of care.) Page 196

198 Chapter 7: Chapter RCW Where can care be received and be covered under the policy? Does the policy pay for care in any licensed facility? If no, define the restrictions on where care can be obtained: Is the alternative plan of care benefit available with institutional part of policy? If yes, see section 2 Does the alternative plan of care benefit include home care? If yes, see section 2 Does the alternative plan of care benefit include structural home improvements? 2. HOME/COMMUNITY BASED CARE What types of care are covered by the policy? Does the policy provide home care benefit for: Check all that apply Adult day care Adult day health care Chore services Home health aides Homemaker services Hospice Hygiene/personal care Laboratory services Meals/nutrition services Medical equipment/supplies Prescription drugs Physician/nursing services Respite care Social workers Therapies (List) Transportation Other: Are these separate or post-confinement benefits? Separate Where can home/community-based care be received? Check all that apply Adult day care centers Alternative care facilities Assisted living facilities Boarding homes Community centers Congregate care facilities Multiple family residences Single family residences Other: Post - Confinement Page 197

199 Chapter 7: Chapter RCW Does the alternative plan of care benefit include home care? Does the alternative plan of care benefit include structural improvements? Must the alternative plan of care be pre-certified? If yes, by whom? 3. BOTH INSTITUTIONAL AND COMMUNITY-BASED CARE What is the maximum daily benefit amount for: YES/NO/COMMENTS Institutional/nursing home care? Home/Community Based Care? Are there limits on the number of days (or visits) per year for which benefits will be paid for: Institutional/nursing home care? Home/Community based care? What are the dollar limits the policy will pay during the policyholder's lifetime for: Institutional/Nursing home care? Home/Community based care? Total lifetime limit? What basic features and benefits does the policy offer? Is the policy guaranteed renewable? Can you purchase additional increments of coverage? If yes: When can additional coverage be purchased? How much can be purchased? When is additional coverage no longer available for purchase? Does the policy have inflation protection? If yes, what is the % amount of the increase? Is the rate of increase simple or compound? When do increases stop? If policy includes inflation coverage, what is the daily benefit for: Institutional/nursing home care. 5 years from policy effective date? 10 years from policy effective date? Home/Community based care. 5 years from policy effective date? 10 years from policy effective date? After the limits have been reached for inflation adjustments, what is the maximum daily benefit for: Institutional/nursing home care Home/community based care Page 198

200 Chapter 7: Chapter RCW After the limits have been reached for inflation adjustments, what is the maximum lifetime benefit for: Institutional/nursing home care Home/community based care Is there a waiver of premium provision for: Institutional/nursing home care? Home/community based care? How many days of confinement in an institution are required before the waiver of premium benefit is available? How many days of confinement at home are required before the waiver of premium benefit is available? How many days of benefits must be paid before waiver is effective? Does the policy have a nonforfeiture benefit? If yes, how many years must policy be in effect before the insured benefits from nonforfeiture values? What would the benefit value be in terms of dollars after 20 years? What does the nonforfeiture benefit promise? (give an appropriate example showing dollars and time limits) Does the policy have a death benefit? If yes, specify value (in dollars of %) What conditions or limitations apply, if any? Does the policy have a restoration of benefits provision? If yes, give amount of benefit and minimum required # of days between benefits. If disability recurs, is there a new elimination or waiting period before benefits begin again? If yes, after how long? How long is the waiting period for preexisting conditions? How is the preexisting condition defined? When do benefits begin? How long is the elimination or waiting period before benefits begin for: Institutional/nursing home care? Home/community based care? What gatekeepers are required before benefits start? Doctor certification Case management If yes, by whom? Medical necessity Plan of treatment If yes, by whom? Inability to perform activities of daily living (ADLs) Page 199

201 Chapter 7: Chapter RCW If yes, how many ADLs must fail before benefits begin? If the policy uses an ADL gatekeeper(s), define "inability to perform ADL." Is there a separate benefit qualification requirement if there is a cognitive impairment? Who determines a qualifying event? Define any separate benefit qualification requirement if there is a cognitive impairment. What does the policy cost? How often can the premium increase? By how much annually can the premium increase? Is there a discount if both spouses buy policies? If so, how much? Do you lose the discount if one spouse dies? 4. ADDITIONAL POLICY INFORMATION Use this space to outline additional benefits, further explanations or clarifications 5. POLICY DEFINITIONS (Include definitions of policy provisions) WHAT DOES THE POLICY COST? COMPANY NAME POLICY OPTION 1 POLICY OPTION 2 POLICY OPTION 3 POLICY OPTION 4 ELIMINATION (DEDUCTIBLE) PERIOD BENEFIT PERIOD $ BENEFIT FOR DAY $ MAXIMUM BENEFIT Institutional/Nursing Home Home Health/ Community Based PREMIUM SUBTOTAL $ OPTIONAL BENEFITS Inflation Page 200

202 Chapter 7: Chapter RCW Non Forfeiture Spousal Discount Death Benefit Other Other Other PREMIUM TOTAL $ BENEFIT "TRIGGERS" (QUALIFICATION REQUIREMENTS) List List Format of long-term care contracts. No long-term care contract shall be delivered or issued for delivery to any person in this state if it fails to comply with the following: (1) The style, arrangement, and over-all appearance of the policy shall give no undue prominence to any portion of the text (except as required by this chapter). Every printed portion of the text of the contract and of any amendment or attached papers shall be plainly printed in easily read type. (2) Limitations, exclusions, exceptions, and reductions of coverage or benefits shall be set forth in the policy and shall be printed, at the insurer's option, either included with the benefit provision to which they apply, or under an appropriate caption such as "LIMITATIONS and EXCEPTIONS," or "EXCLUSIONS and REDUCTIONS," except that if a limitation, exclusion, exception, or reduction specifically applies only to a particular benefit of the policy, a statement of such limitation, exclusion, exception, or reduction shall be included with the benefit provision to which it applies. (3) Each contract delivered or issued for delivery to any person in this state shall clearly indicate on its first page that it is a "LONG-TERM CARE INSURANCE" contract. In addition, the contract shall contain a table of contents which shall clearly identify the location within the contract of each of the provisions of the contract with particular attention to the location of contract provisions for (a) limitations, exclusions, exceptions or reductions of coverage, (b) renewability, (c) definitions, (d) gate-keeping provisions, and (e) any unique provisions or circumstances such as elimination periods, or minimum or maximum limits. The term "contract" or "certificate" may be substituted on the first page of the contract for the word "insurance" where appropriate. Page 201

203 Chapter 7: Chapter RCW All policies issued for Washington must comply with the style, arrangement, and overall appearances that are mandated by this state. Limitations, exclusions, exceptions, or reductions of coverage must be printed with the benefit provision they apply to or under a caption that is clearly recognizable by the applicant. The first page of all long-term care contracts must clearly state LONG-TERM CARE INSURANCE Loss ratio requirements. (1) The provisions of chapter WAC shall apply to every contract of long-term care issued by a disability insurer and fraternal benefit society. The provisions of WAC through shall apply to every long-term care contract issued by a health care service contractor or health maintenance organization. (2) Benefits for all long-term care contracts shall be reasonable in relation to the premium or price charged Loss ratio definitions. The following definitions apply to WAC through : (1) "Loss ratio" means the claims incurred plus or minus the increase or decrease in reserves as a percentage of the earned premiums, or the projected incurred claims plus or minus the increase or decrease in projected reserves as a percentage of projected earned premiums, as defined by the commissioner. (2) "Claims" shall mean the cost of health care services paid to or provided on behalf of covered individuals in accordance with the terms of contracts issued by health care service contractors or health maintenance organizations or capitation payments made to providers of long-term care. (3) The "expected loss ratio" is a prospective calculation and shall be calculated as the projected "benefits incurred" divided by the projected "premiums earned" and shall be based on the pricing actuary's best projections of the future experience within the "calculating period." (4) The "actual loss ratio" is a retrospective calculation and shall be calculated as the "benefits incurred" divided by the "premiums earned," both measured from the beginning of the "calculating period" to the date of the loss ratio calculations. Page 202

204 Chapter 7: Chapter RCW (5) The "overall loss ratio" shall be calculated as the "benefits incurred" divided by the "premiums earned" over the entire "calculating period" and may involve both retrospective and prospective data. (6) The "calculating period" shall be the time span over which the pricing actuary expects the premium rates whether level or increasing, to remain adequate in accordance with his best estimate of future experience and during which the pricing actuary does not expect to request a rate increase. (7) The "benefits incurred" shall be the "claims incurred" plus any increase (or less any decrease) in the "reserves." (8) The "claims incurred" shall mean: (a) Claims paid during the accounting period; plus (b) The change in the liability for claims which have been reported but not paid; plus (c) The change in the liability for claims which have not been reported but which may reasonably be expected. The "claims incurred" shall not include expenses incurred in processing the claims, home office or field overhead, acquisition and selling costs, taxes or other expenses, contributions to surplus, or profit. (9) The "reserves," as referred to in this section, shall include: (a) Active life disability reserves; (b) Additional reserves whether for a specific liability purpose or not; (c) Contingency reserves; (d) Reserves for select morbidity experience; and (e) Increased reserves which may be required by the commissioner. (10) The "premiums earned" shall mean the premiums, less experience credits, refunds or dividends, applicable to an accounting period whether received before, during or after such period Loss ratio grouping of contract forms. For purposes of rate making and requests for rate increase. Page 203

205 Chapter 7: Chapter RCW (1) The actuary responsible for setting premium rates shall group similar contract forms, including forms no longer being marketed if issued on or after January 1, 1988, in the pricing calculations. Such grouping shall rely on the judgment of the pricing actuary and be satisfactory to the commissioner. Among the factors which shall be considered are similar claims experience, types of benefits, reserves, margins for contingencies, expenses and profit, and equity between contract holders. Such grouping shall enhance statistical reliability and improve the likelihood of premium adequacy without introducing elements of discrimination in violation of RCW or (2) The insureds under similar contract forms are grouped at the time of rate making in accord with RCW or because they are expected to have substantially like insuring, risk and exposure factors and expense elements. The morbidity and mortality experience of these insureds will, as a group, deteriorate over time. It is hereby defined to be an unfair discriminatory practice and therefore prohibited pursuant to RCW or and (3) to withdraw a form from its assigned grouping by reason of the deteriorating health of the insureds covered thereunder. (3) One or more of the contract forms grouped for rate making purposes may, by random chance, experience significantly higher or more frequent claims than the other forms. It is hereby defined to be an unfair discriminatory practice and therefore prohibited pursuant to RCW or , to deviate from the assigned grouping of contract forms for pricing purposes at the time of requesting a rate increase unless the pricing actuary can justify to the satisfaction of the commissioner that a different grouping is more equitable because of some previously unrecognized and nonrandom distinction between forms or between groups of insureds. (4) Successive contract forms of similar benefits are sometimes introduced by health care service contractors and health maintenance organizations for the purpose of keeping up with trends in hospital costs, new developments in medical practice, additional supplemental benefits offered by competitors, and other reasons. While this is commendable, contract holders who can not qualify for the new improved contracts, or to whom the new benefits are not offered, are left isolated as a high risk group under the prior form and soon become subject to massive rate increases. It is hereby defined to be an unfair discriminatory practice and therefore prohibited pursuant to RCW or and (3), to fail to combine successive generic contract forms and to fail to combine contract forms of similar benefits covering generations of contract holders in the calculation of premium rate and loss ratios Loss ratio requirements Individual contract forms. The following standards and requirements apply to individual contract forms: (1) Benefits shall be deemed reasonable in relation to the premiums if the overall loss ratio is at least sixty percent over a calculating period chosen by the health care service contractor or health maintenance organization which calculating period is satisfactory to the commissioner. (2) The calculating period may vary with the benefit and renewal provisions. The health care Page 204

206 Chapter 7: Chapter RCW service contractor or health maintenance organization may be required to demonstrate the reasonableness of the calculating period chosen by the actuary responsible for the premium calculations. A brief explanation of the selected calculating period shall accompany the filing. (3) Contract forms, the benefits of which are particularly exposed to the effects of inflation and whose premium income may be particularly vulnerable to an eroding persistency and other similar forces, shall use a relatively short calculating period reflecting the uncertainties of estimating the risks involved. Contract forms based on more dependable statistics may employ a longer calculating period. The calculating period may be the lifetime of the contract for guaranteed renewable and non-cancelable contract forms if such forms provide benefits which are supported by reliable statistics and which are protected from inflationary or eroding forces by such factors as fixed dollar coverage, inside benefit limits, or the inherent nature of the benefits. The calculating period may be as short as one year for coverage which is based on statistics of minimal reliability or which is highly exposed to inflation. (4) A request for a rate increase to be effective at the end of the calculating period shall include a comparison of the actual to the expected loss ratios, shall employ any accumulation of reserves in the determination of rates for the new calculating period, and shall account for the maintenance of such reserves for future needs. The request for the rate increase shall be further documented by the expected loss ratio for the new calculating period. (5) A request for a rate increase submitted during the calculation period shall include a comparison of the actual to the expected loss ratios, a demonstration of any contributions to and support from the reserves, and shall account for the maintenance of such reserves for future needs. If the experience justifies a premium increase it shall be deemed that the calculating period has prematurely been brought to an end. The rate increase shall further be documented by the expected loss ratio for the next calculating period. (6) The commissioner may accept a series of two or three smaller rate increases in lieu of one large increase. These should be calculated to reduce lapses and anti-selection that often result from large rate increases. A demonstration of such calculations, whether for a single rate increase or for a series of smaller rate increases, satisfactory to the commissioner, shall be attached to the filing. (7) Health care service contractors and health maintenance organizations shall review their experience periodically and file appropriate rate revisions in a timely manner to reduce the necessity of later filing of exceptionally large rate increases Loss ratio experience records. Health care service contractors and health maintenance organizations shall maintain records of earned premiums and incurred benefits for each contract year for each contract, rider, endorsement, amendment and similar form which were combined for purposes of premium calculations, including the reserves. Records shall also be maintained of the experience expected in the premium calculations. Notwithstanding the foregoing, with proper justification, the Page 205

207 Chapter 7: Chapter RCW commissioner may accept approximation of contract year experience based on calendar year data Evaluating loss ratio experience data. In determining the credibility and appropriateness of experience data, due consideration shall be given to all relevant factors including: (1) Statistical credibility of premiums and benefits such as low exposure or low loss frequency; (2) Past and projected trends relative to the kind of coverage, such as inflation in medical expenses, inflation in expense charges and others; (3) The concentration of experience at early contract durations where select morbidity and preliminary term reserves are applicable and where loss ratios are expected to be substantially higher or lower than in later contract durations; (4) The mix of business by risk classification; (5) The expected lapses and anti-selection at the time of rate increases Loss ratio Special circumstances. Loss ratios other than those indicated in WAC may be approved by the commissioner with satisfactory actuarial demonstrations. Examples of coverage where the commissioner may grant special considerations are: (1) Contract forms exposed to high risk of claim fluctuation because of the low loss frequency, or the catastrophic or experimental nature of the coverage. (2) Individual situations where higher than usual expenses are expected because of peculiar administrative or geographic circumstances Advertising. Page 206

208 Chapter 7: Chapter RCW In addition to this chapter, specific applicable standards for the regulation of advertisements relating to individual, group, blanket, and franchise and individual and group health care service contractors' agreements, are included in WAC through , and are applicable to the advertisement of all long-term care insurance contracts Standards for education of licensees soliciting long-term care contracts. (1) Every issuer shall annually certify to the commissioner that each resident and nonresident licensee involved in the transaction of long-term care insurance has completed an approved LTC special education course every two years in accordance with WAC Applications may only be accepted if the licensee involved in the transaction meets all of the requirements of WAC (2) Beginning with the calendar year 1998, issuers shall file a copy of the following certification report with the commissioner on or before March 31 of each year: Annual Filing of Compliance with the Long-Term Care and Long-Term Care Partnership Education Requirements of WAC To be filed with the commissioner on or before March 31 of each year For the period of January 1 to December 31 of (Year) Company Name Address Insurance Policies Offered: Long-Term Care Long-Term Care Partnership Both I hereby certify that all appointed agents involved in the transaction of each long-term care or long-term care partnership policy we issue in Washington have fulfilled the requirements of WAC I certify that to the best of my knowledge, we did not accept or process any applications that involved the participation of a licensee who was not in compliance with WAC Signature of Officer: Date: Name and Title of Officer: Prepared by: Phone Number: Phone Number: Page 207

209 Chapter 7: Chapter RCW Return Certification Form to: Education Manager Office of the Insurance Commissioner P.O. Box Olympia, WA Fax Insurance companies are required to monitor whether or not their licensed agents have met the long-term care education requirements. If the insurer does not have such proof on file, it will not accept an application for coverage from the writing agent. Certificates of Course Completion is the proof they generally require Unfair or deceptive acts. RCW authorizes the commissioner to prohibit particular unfair or deceptive acts in the conduct of the advertising, sale, and marketing of long-term care policies and contracts. The purpose of this section is to define certain minimum standards which insurers should meet with respect to long-term care. If the following standards are violated with such frequency as to indicate a general business practice by an insurer, it will be deemed to constitute an unfair method of competition or a deceptive act by such insurer and a violation of this section. (1) Misrepresenting pertinent facts or insurance contract provisions. (2) Failing to acknowledge and act reasonably promptly upon communications with respect to communications arising under insurance policies or contracts. (3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies or contracts. (4) Refusing to pay claims or provide benefits without conducting a reasonable investigation. (5) Failing to affirm or deny coverage of claims within a reasonable time. (6) Compelling an insured to institute litigation to recover amounts due under an insurance contract by offering substantially less than the amounts ultimately recovered in actions brought by such an insured. (7) Attempting to settle a claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material Page 208

210 Chapter 7: Chapter RCW accompanying or made part of an application. (8) Making claims payments to an insured or beneficiaries not accompanied by an explanation setting forth the coverage under which the payments are being made. (9) Failing to promptly provide a reasonable explanation of the basis in the insurance contract in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement. (10) Asserting to an insured or claimant a policy of appealing from arbitration awards in favor of an insured or claimant for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration. (11) Delaying the investigation or payment of claims by unreasonably requiring an insured, claimant, or the attending physician of the patient to submit a preliminary claim report and then requiring subsequent submissions which contain substantially the same information. (12) Failure to expeditiously honor drafts given in settlement of claims within three working days of notice of receipt by the payor bank except for reasons acceptable to the commissioner. (13) Failure to adopt and implement reasonable standards for the processing and payment of claims once the obligation to pay has been established. (14) Issue checks or drafts in partial payment of a loss or claim under a specific coverage which contain language which appear to release the insurer from its total liability. (15) Failure to reply to the insurance commissioner within fifteen working days of receipt of an inquiry, such reply to furnish the commissioner with an adequate response to the inquiry. (16) Failure to settle a claim on the basis that responsibility for payment should be assumed by others except as may otherwise be provided by policy provisions as permitted by this chapter. (17) Making statements which indicate the rights of persons may be impaired if a form or release is not completed within a given time unless the statement otherwise is provided by policy provisions or is for the purpose of notifying that person of the provisions of an applicable statute of limitations. Some practices are simply illegal because they are particularly deceptive in the conduct of advertising, selling, or marketing long-term care products. Certainly it is illegal to misrepresent facts or contract provisions. Agents are required to forward insurer communications on to their clients in a timely manner. Insurers are required to act on claims and provide benefits in a reasonable length of time and to forward any necessary information to the insured. Checks must be issued in a reasonable length of time and in the amount the insured would have reason to believe he or she is entitled to. Page 209

211 Chapter 7: Chapter RCW Chapter not exclusive. Nothing contained in this chapter shall be construed to limit the authority of the commissioner to regulate a long-term care contract under other sections of Title 48 RCW. This concludes your initial Washington long-term care course. Thank you for ordering from nd Street East Eatonville, Washington Telephone: FAX: [email protected] Please visit our websites at: Page 210