Chapter 7

LTC Historical Development

 

 

 

    Long-term care insurance is considered the new kid on the block in comparison to other policy types.  Like any type of product, there are changes made as time reveals necessary adjustments, statutes are enacted, competition develops, and technology brings new opportunities.

 

  It is not an easy line of insurance for agents.  Selling long-term care products requires the agent be educated and keep up with changes.  Many states, including California, require specialized training in long-term care products.  Acquiring that education is the agents responsibility.  It will mean the difference between being a career professional and a temporary player.

 

Legislation in California

 

SB 1943: Year 1993

        Provides that long-term care insurance include insurance designed to provide that coverage, without restriction as to length of coverage, and also includes disability based long-term care policies and specifies that long-term care benefits designed to provide coverage of 12 months or more that are contained in Medicare supplement or other policies is regulated.

        Requires associations to be organized and maintained in good faith for a primary purpose other than obtaining insurance.

        Require associations to provide evidence that the required provisions of the constitution and bylaws have been consistently implemented.

        Requires certain groups to have a main resource not related to the marketing of insurance, to have outreach methods to obtain new members not related to the solicitation of insurance and to provide benefits or services other than insurance, of significant value to its members.

        Requires any policy or certificate limited to institutional care to be called a nursing facility only policy or certificate, one limited to home care to be called a home care only policy or certificate, and would permit only those that provide both institutional and home care to be called comprehensive long-term care insurance.

        Requires specific notice regarding untrue statements on an application.

        Provides that where an insurer does not complete medical underwriting and resolve all reasonable questions arising from information submitted on or with an application before issuing the policy or certification, then the insurer may only rescind the policy or certificate or deny an otherwise valid claim, upon clear and convincing evidence of fraud or material misrepresentation of the risk by the applicant.

        Provides that the contestability period is 2 years and that no long-term care policy or certificate may be field issued.

        Requires long-term care insurance that provides home health care benefits or home care or community-based services to provide specific benefits.

        Provides that in every long-term care policy or certificate that provide home care benefits, the threshold establishing eligib8ility for home care benefits must be at least as permissive as a provision that the insured will qualify if either one of two specific criteria or combination of criterias to be substituted if the insurer demonstrates that the interest of the insured is better served.

        Provides that long-term care insurance may not provide for benefits based on standards described as usual and customary or similar words.

        Provides that if a policy replaces another long-term care policy the replacing insurer must waive any time periods applicable to preexisting conditions and prohibitory periods to the extent that similar exclusions have been satisfied.

        Imposes requirements relating to marketing practices.

        Prohibits certain fair trade practices including cold lead advertising without disclosing that an insurance agent or company will make contact.

        Requires prior approval of certain advertisements.

        Requires agents to make reasonable efforts to determine the appropriateness of a recommended purchase or replacements.

        Requires every long-term care insurer to file its commission structure or an explanation of the insurers compensation plan with the Commissioner.

        Provides for hearings before an Administrative Law Bureau and the Department of Insurance, except where a fine is over $100,000 in which case the Administrative Procedures Act would be applicable.

        Requires every insurer providing long-term care coverage in California to provide a copy of any advertisement to the Commissioner for review at least 30 days before dissemination.

        Requires long-term care insurers to establish marketing procedures, submit to the Commissioner a list of all agents and other insurer representatives authorized to solicit long-term care insurance sales, and provide continuing education to those agents or representatives.

        Requires notice to applicants containing specific information for replacement which must be signed by the agent.

        Requires long-term care policies issued to individuals to be either guaranteed renewable or non-cancelable.

        Requires group insurance to provide for continuation coverage for the certificate holder.

        Makes changes to the long-term care insurance act inapplicable to the California Partnership for Long-Term Care Pilot Program.

 

SB 1052: Year 1997

        Requires every policy to specifically state whether or not it is a federally qualified long-term care contract.  Either a tax qualified or non-tax qualified statement must be attached to the policy.

        Requires insurers that offer policies or certificates that are intended to be federally qualified long-term care insurance contracts, including riders to life insurance policies providing long-term care coverage, to fairly and affirmatively concurrently offer and market policies and certificates that are not intended to be federally qualified long-term care.  The bill would revise various definitions.  Requires that a specific shoppers guide be provided to prospective applicants.

        Requires insurers to make certain reports regarding lapses and replacements.

        Requires that premium adjustments be made for replacement policies.

        Requires insurers and other marketers of long-term care insurance to utilize specified suitability standards.

        Requires that insurers provide notifications regarding denial of claims.

        Requires insurers to offer or provide certain rights and benefits in connection with long-term care insurance, including rights to increase and decrease benefits.

        Imposes requirements on inflation protection benefits.

 

AB 1483: Year 1997

        Requires every policy that is intended to be a qualified long-term care insurance contract as provided by federal law to be identified as such with a specified disclosure statement, including riders to life insurance policies, and, similarly would require every policy that is not intended to be a qualified long-term care insurance contact as provided by federal law be identified as such.

        Requires insurers to fairly offer and market both types of contracts for long-term care: federally tax qualified plans and non-tax qualified plans.

        Sets forth eligibility criteria for policies and certificates intended to be qualified long-term care insurance contracts as provided by federal law as well as for policies and certificates that are not intended to be federally qualified.

        Revises various definitions.

 

SB 527: Year 1997

        Provides that if an insurer provides long-term care insurance intended to qualify for favorable tax treatment under federal law, the insurer must also offer coverage that conforms to the current state eligibility requirements, as specified.

        Requires insurers to provide a specified notice at the time of solicitation, and a specified notice in the application form.

 

SB 1537: Year 1998

        Requires the Department of Insurance to adopt emergency regulations to require insurers offering both forms of polices to offer a holder of either form a one-time opportunity to exchange the policy from one form to the other, if a federal law is enacted, or the United States Department of the Treasury issues a decision, declaring that the benefits paid under long-term care insure policies or certificates that are not intended to be federally qualified, are either taxable or nontaxable as income.

        Provides for the emergency regulations to require insurers to allow exchanges to be made on a guaranteed issuance basis, but to allow insurers to lower or increase the premium, with the new premium based on the age of the policyholder at the time the holder was issued the previous policy as specified.

        Provides for the exchange to be made by a rider to a policy at the discretion of the department, and would also provide that policies may not be exchanged if the holder is receiving benefits under the policy or would immediately be eligible for benefits as a result of an exchange.

        Requires insurers to take certain actions to notify holders of these policies and certificates of the availability of the exchange option.

        Provides that those provisions apply only to a policy or certificate intended to be a federally qualified long-term care insurance contract.

        Requires that outline to include information regarding the toll-free telephone number of the Health Insurance Counseling and Advocacy Program.

        Provides that the cumulative premium credits allowed need not reduce the premium for the replacement policy or certificate to less than the premium of the original policy or certificate.

 

SB 870: Year 1999

        Makes various changes to those provisions, including changes clarifying an insurers obligations to file, offer, and market policies intended to be federally qualified and policies that are not intended to be federally qualified.

        Changes mandating coverage for care in a residential care facility.

        Changes relating to coverage fore pre-existing conditions, changes regarding prohibited policy provisions and prohibited insurer actions in connection with policies.

        Changes regarding the right of a policy or certificate holder to appeal decisions regarding benefit eligibility care plans, services and providers, and reimbursements.

 

SB 475: Year 1999

        Requires the Insurance Commissioner to annually prepare a consumer rate guide for consumers for long-term care insurance, as specified.

        Specifies the dates and methods for distributing the consumer rate guide.

        Requires each insurer to provide, and the Department of Insurance to collect, specified data on long-term care policies and certificates, including all policies, whethe5r issued by the insurer or purchased or acquired from another insurer, in the United States, on or after January 1, 1990.

        Provides that the data collected are public records open to members of the public for inspection, unless they are a trade secret as defined.

 

SB 2111: Year 2000

        Revised the existing law by requiring the consumer rate guide to consist of a rate history portion and a policy comparison portion, as specified.

        Requires the premium section of long-term care insurance personal worksheets to include a reference to the consumer rate guide and where a copy may be obtained.

 

SB 898: Year 2000

        Requires group long-term care polices and certificates to be either guaranteed renewable or non-cancelable.

        Requires approval of the Insurance Commissioner before individual or group long-term care insurance may be offered, sold, issued, or delivered in this state, and would specify the duties of insurers and commissioner in this regard.

        Limits premium increases for these policies, as specified.

        Requires premium rate schedules and new policy forms to be filed with the commissioner by January 1, 2002, for all group long-term care policies to be sold on or after January 1, 2003, and for all previously approved individual long-term care policies to be sold on or after January 1, 2003, unless the deadline is extended by the commissioner.

 

SB 455: Year 2001

        Restores Section 10232.65 to the Insurance Code, which imposes limitations of one month (two months if interim coverage is provided) on the amount of premium that may be collected by a long-term care policy issuer with the application prior to the time the policy is delivered.  Requires 60-day notification regarding issuance or non-issuance of a policy and an interest payment made to applicant for failure to notify.

 

SB 1613: Year 2002

        Requires the evidence of the continuing education to be filed with and approved by the Insurance Commissioner for specified nonresident licensees.

        Requires, until June 30, 2003, the notification to be provided within 18 months if certain conditions are met.

        Specifies that an insurer is not prohibited from filing new group and individual policy forms with the commissioner after January 1, 2003.

        Authorizes an insurer that has filed premium rate schedules and new policy forms by March 1, 2002, until 90 days after approval of the premium rate schedules and new policy forms or June 30, 2003.

 

SB 1974: Year 2002

        Authorizes the Commissioner to approve insurance polices and associated materials in languages other than English if certain conditions are satisfied.

 

Consumers Become Aware of LTC

 

  An AARP survey indicated that 40% of admissions to nursing homes were not due to sickness, but rather to falls, which caused injury or developed into frailness.  As our population ages, the costs of long term care on our nation could become staggering.  Half of the people who have ever lived to be 65 or older are alive today!  At birth, life expectancy is now 76 years of age.  Those over the age of 75 are the fastest growing segment of our population.  In fact, the fastest growing segment of the legal profession is in elder care issues.

 

  There is no doubt that increased care also means increased cost.  As we have advanced medically, the types of care given have also advanced, along with the cost for providing such care.  In many cases, longer life today is the result of better medical care.

 

  The methods of providing long-term care have seen some dramatic changes.  One very good example of improved care without higher cost relates to the assisted living arrangements now available.  In California, these are often referred to as RCFEs (residential care for the elderly).  Many insurers are covering this type of care even though it is not expressly stated in the policies.  Are the insurers just really good guys?  No, the insurers (who may also be good guys) simply recognize the cost effectiveness of preventing institutionalization if possible.

 

  Residential care is not the only area that has seen some remarkable changes.  Adult day care, which was often restricted or not covered at all by the policies, is now being recognized as an avenue of preventing or delaying the need for institutionalization.  In the earlier policies, adult day care typically had to be medical (adult medical day care).  Certainly this was much more restrictive since many people merely needed supervision so the primary caregiver could run errands or rest.  When the caregiver has the type of help offered by adult day care, he or she is likely to remain a primary caregiver for a longer period of time.  This allows the patient to remain at home for a longer period of time as well.

 

  Many types of care are now covered by policies, or covered in a broader manner, than in past years.  Home care in the early policies required that the services be provided by a Medicare contracted agency.  This typically meant higher costs which then meant that home care funds under the policy were quickly depleted or simply inadequate to begin with.  Early policies may also have required that home care could only be provided as a means of avoiding institutionalization. Todays policies offer home care because it is needed, not merely to avoid the nursing home.

 

  Why have all these changes emerged?  The reasons vary.  In some cases, the states mandated the changes under consumer legislation.  Competition was also a driving force.  Companies competed for business on the basis of the benefits offered.  Some changes have simply made sense.  If an insurer pays for RCFE and avoids paying for the nursing home they have probably made a wise business decision.  In the process, the beneficiary is also happier.

 

  It is the varying types of services that make marketing long-term care policies a difficult job.  Agents need to be able to distinguish between older policies that do not guarantee coverage for the same items that newer policies do.  Agents must also bear in mind that many older policies are covering items that are not specifically stated, such as assisted living care.  Replacing an older policy should never be done without investigation.

 

  Consumer legislation has probably had the greatest impact on policy change.  Certainly competition made its mark but many of the changes brought about by competition were more about perception than it was actual benefits.  Legislation was more likely to affect the consumer in a positive manner because it targeted specific problems in the industry.  For example, it was California legislation that prohibited newer policies from requiring the use of state-licensed providers unless the state also required a license for that particular type of provider.  Insurance companies are allowed to make exceptions when the care specified in the policy can be delivered appropriately in a place that may not be specifically described in the contract (often at a lower cost).

 

Agents Must be Aware of Historical Developments

 

  Professionals who have been active in the senior insurance market are likely to be well aware of how policies have changed.  However, there are many more agents who have not been present to witness the many changes we have seen in policies, as well as the marketplace. 

 

  When early forms of long-term care policies emerged in the 1970s and 1980s a major problem in the marketplace was agent ignorance.  Many agencies handed their agents brochures and sent them out to sell the products.  Even the insurers at this time were struggling with policy language because the products were so new.  It was no surprise that many consumers purchased contracts that were of little value.

 

  Long-term care policies have undergone dramatic transformations in a very short period of time roughly 30 years.  While we consider the insurance market to be one of constant replacement, that doesnt mean that older policies arent still out there.  Some may well need to be replaced, but not necessarily all of them.  Some of the older policies (especially those issued in the 1990s) have some very favorable aspects to them.  No agent should replace any policy without first being very sure how they operate and what benefits they offer their policyholders.  Since replacing a policy will greatly affect the premium paid, it is especially important to understand what the older policy contains.

 

  Older generations of nursing home policies require a physician to certify the nursing home stay be medically necessary.  Today most policies pay benefits based on the inability to perform a specific number of specified activities of daily living.  It can be an advantage when receiving benefits to merely require medical necessity which is determined by the attending physician.  California determined that home care benefits were easier to obtain under their legislation (versus federal legislation), so the requirement to show both tax qualified and non-tax qualified plans was mandated.  Earlier policies may have benefits that are also easier to obtain.

 

  Consumer Reports magazine stated in May of 1988 that long-term care policies were expensive and difficult to understand.  By todays rates, they were not as expensive as the editors thought.  Costs are definitely much higher today, even after figuring in inflation.  However, insurers are also dramatically raising rates on older policies (especially if they pay benefits with fewer restrictions).

 

  There is no doubt that understanding some of the older policies can be difficult for both the consumer and the agent.  Consumers may request agents review their policies.  No agent should assume how a policy pays.  It is very important to contact the insurer for clarification.  There are likely to be gatekeepers that are unique to the time period in which they were issued.  There may also be benefits that are unique to the time period in which they were issued.  Both need to be investigated and confirmed prior to any policy replacement.

 

ERISA

 

  The Employee Retirement Income Security Act of 1974 ERISA is a federal statute that governs benefits for disability, health, life insurance, pension, severance, and almost any other type of benefit that one may be entitled to due to employment or union membership.  Many companies set up employee benefit plans that provide benefits to employees in the form of life insurance, disability, insurance, health insurance, severance pay, and pensions.  These benefits are funded either through the purchase of an insurance policy or through the establishment of trusts, paid for either by the employer or both the employer and employee. 

 

  The members of the ERISA Industry Committee strive to provide health benefits that make high-quality, affordable, accessible health care available to employees and their dependents.  They do so to attract high-quality workers as well as to ensure that their workforce is healthy and productive as possible.  Thus, ERIC members have a strong interest in consumer issues.

 

  The health care industry has become one of managed care in the attempt to manage costs.  Many of the weaknesses of our current health care system are based, according to the publication, ERISA Industry Committee[1], on inefficiencies of its fragmented delivery system.  They feel the fragmentation is responsible both for unacceptable variations in the quality of medical practice as well as the unsustainable rates of increase in aggregate health care expenditures that erode coverage and access to care.

 

  Providing quality care is a goal of federally sanctioned mechanisms for group purchasing to assure that small groups and individuals have a choice among competing high quality and cost-effective coverage.  Together with large employer purchasers, small employee purchasing groups will be able to hold providers accountable for their clinical performance as well as drive better bargains on the price of health care services. 

 

  The Secretary of Labor will enforce the rules for self-insured ERISA plans.  There are some specific provisions, as stated in a Fact Sheet of the Health Insurance Portability and Accountability Act of 1996:

         Guaranteed access for small business.  Small businesses, with 50 or fewer employees, are guaranteed access to health insurance.  No insurer may exclude an employee or their family member form coverage based on health status.

         Guaranteed Renewal of Insurance.  Once an insurer sells a policy to a group or individual, they are required to renew coverage regardless of the health status of any member.  Premiums may be increased, however.

         Guaranteed Access for Individuals.  People who lose their group coverage due to loss of employment, or a change of jobs will be guaranteed access to coverage in the individual market, or states may develop alternative programs to assure that comparable coverage is available.  The coverage will be available without regard to health status, and renewal will be guaranteed.  This is the portability of HIPAA that we hear about.

         Pre-existing Conditions.  Workers covered by group insurance policies cannot be excluded from coverage for more than 12 months due to a pre-existing medical condition.  Such limits can only be placed on conditions treated or diagnosed within the six months prior to their enrollment in an insurance plan.  Insurers cannot impose new pre-existing condition exclusions for workers with previous coverage.

         Enforcement.  States have primary responsibility to enforce these protections.  If a state fails to act, the Secretary of Health and Human Services can impose civil monetary penalties on insurers.  The Secretary of Labor will enforce these rules for self-insured ERISA plans.  The tax code is modified to allow the Secretary of Treasury to impose tax penalties on employers or insurance plans that are out of compliance.

         Self-employed Individuals.  The current tax deduction for insurance costs of self-employed individuals is gradually increased beginning at 30 percent in 1996.  By 2002 it had reached 80 percent.

         Medical Savings Accounts.  From January 1, 1997 to January 1, 2000, firms with 50 or fewer employees and self-employed individuals enrolled in a qualified high deductible health plan were able t establish tax-favored medical savings accounts, or MSAs.

         Fraud and Abuse Control.  A new health care fraud and abuse control program was created, to be coordinated by the HHS Office of the Inspector General and the Department of Justice.  Funds for this program are appropriated from the Medicare Hospital Insurance (HI) trust fund.

         Long-Term Care Insurance.  Minimum federal consumer protection and marketing requirements are established for tax-qualified long-term care insurance policies, including a requirement that insurers start benefit payments when a policyholder cannot perform at least two ADLs.  Subject to certain limitations, clarifies that long-term care insurance premium payments and un-reimbursed long-term care service costs are tax deductible as a medical expense, and benefits received under a long-term care insurance contract are excludable from taxable income.  Employer sponsored long-term care insurance is to receive the same tax treatment as health insurance.

         Medigap Insurance.  Revised the notices requirement for health insurance policies that pay benefits without regard to Medicare coverage or other insurance coverage.  Long-term care policies are permitted to coordinate with Medicare and other coverage and must disclose any duplication of benefits.

         Administrative Simplification.  All health care providers and health plans that engage in electronic administrative and financial transactions must use a single set of national standards and identifiers.  Electronic health information systems mut meet security standards.  This should result in more cost-effective electronic claims processing and coordination of benefits.

         Health Information Privacy.  If Congress does not enact privacy legislation within three years, health care providers, health plans, and health care clearinghouses will be required to follow privacy regulations promulgated by HHS for individually identifiable electronic health information.

         Viatical Insurance Settlements.  A person who is within 24 months of death can have a portion of their death benefit of a life insurance policy prepaid by the issuing insurance company tax free.  Such a person also is allowed to sell his or her life insurance to a viatical settlement company tax free.  A chronically-ill individual can sell their life insurance and any long-term care insurance rider tax free; the proceeds of such a sale must be spent on long term care.

 

  The long-term care insurance provisions became effective January 1, 1997.

 

Tax Qualified Federal Legislation

And California Policies

 

  The Health Insurance Portability and Accountability Act of 1996 (HIPAA), sometimes called the Kassebaum-Kennedy Act, was a major health care achievement of the 104th Congress.  It was signed into Public Law 104-191 on August 21st, 1996 with the effective date being July 1st, 1997.  It was the intent of this law to improve the portability of health insurance coverage in the group and individual markets, take aim against health care fraud and abuse, promote the use of medical savings accounts, improve access to long-term care services and insurance coverage, and simplify the administration of health insurance.  Senators Kassebaum (R-KS) and Kennedy (D-MA) introduced the legislation.

Section 321 made specific changes relating to the long-term care insurance market.  With the passage of HIPAA, tax qualified long-term care insurance policies were created.  All policies not covered under this act are considered to be non-tax qualified long-term care insurance contracts.  Policies issued prior to the passage of this act were grandfathered in as tax qualified as long as no material changes were made in them.

 

  Several specific statements are made in the Kennedy-Kassebaum Bill (HIPAA):

 

1.      Long term care insurance contracts will be treated as accident and health insurance policies.

 

2.      Except for policyholder dividends or premium refunds, benefit payments received under a qualified long-term care policy will be treated as amounts received for personal injuries or sickness and will be treated as reimbursement for expenses that were actually incurred for medical care.

 

3.      Employer provided plans will also be considered as an accident and health care insurance.

 

4.      Qualified policies must be guaranteed renewable contracts.

 

  Under HIPAA, a qualified long-term care policy must meet certain criteria:

 

1.      The policy only pays for long-term care costs and services.

 

2.      It does not duplicate payments under Title XVIII of the Social Security Act.

 

3.      The contract is guaranteed renewable.

 

4.      There is no cash surrender value, as in life insurance policies, or any other ability to assign or pledge as collateral any aspect of the policy.

 

5.      Any policy refunds or dividends must be applied towards future policy premiums or used for additional benefits.

 

  HIPAA further states that qualified long term care services means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and personal care which are required by a chronically ill person and are provided according to a plan of care prescribed by a licensed health care practitioner. 

 

  Many policies pay benefits according to the inability to perform by oneself certain functions of daily life.  These functions are referred to as activities of daily living or ADLs.  Since the inability to perform these functions determines whether or not the long term care insurance policy will pay any benefits, they become very important to the beneficiary.  HIPAAs list of activities include:

 

1.    eating,

2.    toileting,

3.    transferring,

4.    bathing,

5.    dressing, and

6.    continence.

 

  It is important to note that HIPAA does not include ambulating as an activity of daily living.  The inability to ambulate becomes increasingly important as a person ages.  Under HIPAAs qualified long term care plans, the ability to ambulate plays no part, which means benefits are not based on a persons inability to do so.  In fact, it was the elimination of ambulation as an ADL in qualified LTC policies that concerned many professionals in the industry.

 

  The federal tax qualified standards specify the level of disability required before benefits can be paid under a qualified contract.  These standards conflicted with those that had been required in California.  Specifically the federal law restricts the payment of benefits to an inability to perform 2 out of 6 ADLs and a certification that services would be needed for at least 90 days.  California requires companies to pay benefits when a person is impaired in 2 out of 7 ADLs and does not allow the application of a 90-day requirement. 

 

  Other conflicts exist.  These include cognitive impairment, the severity of both the ADL and cognitive impairment triggers, and the type of assistance that could be provided under a tax qualified contract.  Some insurance policies had been paying for home care when a person needed services, regardless of whether the 2 out of 7 ADL or cognitive impairment triggers had been met.  In a tax qualified contract, these payments and other benefit triggers or standards such as "medical necessity" are not permitted for benefit eligibility.

 

  Because the federal benefit triggers conflicted with California state requirements for benefit eligibility, qualified contracts were not available in California until November, 1997, when Governor Wilson signed into law three related bills that gave access to reasonable disability coverage - a choice between federally authorized long-term care policies, which do qualify for tax deductions (but make it difficult to secure home care benefits), and state authorized policies that are not tax deductible but make it easier for policyholders to receive certain benefits.

 

  The compromise allows the sale of these tax qualified contracts using the federal standards for claims payment but requires the concurrent offer of contracts that meet the more liberal benefit payment standards required by California state law.  Contracts that were sold under state law prior to January 1st, 1997 were automatically granted the status of a qualified contract.  These older contracts enjoy all of the tax benefits of a qualified contract, regardless of the construction, benefits, or standards used.  10232.2

 

  Beginning in the tax year 1997, every insurance carrier has been required to report to the Internal Revenue Service (IRS) on Form 1099 any benefit paid under a contract that was sold, marketed or issued as long-term care insurance.  Companies are not required to determine whether the benefits were paid under a qualified contract, and there are not yet any instructions for taxpayers about their use of these 1099 forms.  Because the results of these issued forms are not clearly stated by the IRS or Congress, there has been controversy among accountants, insurance companies, agents, and consumer groups on the tax treatment of non-tax qualified long-term care contracts.

 

  Although HIPAA specifically addressed the tax treatment of qualified contracts, it is silent regarding the tax treatment of contracts that do not meet the federal standards.  Some argue that the law is explicit by implication and that all other long-term care contracts will be treated differently for tax purposes.  They believe that the benefits from such a contract will be taxable as personal income.  Others believe that not only will the benefits be taxable; the expenses will not be allowed as a medical deduction because they are reimbursed expenses.  Still others argue that long-term care benefits have never been taxed despite repeated requests to the IRS for clarification and that the federal law does not change IRS silence on this issue.

 Deductibility of Long-Term Care Insurance Premiums

  The Act allows policyholders to include the premiums for qualified long-term care insurance as an itemized medical cost on Schedule A of the federal income tax return, up to specified limits.  The potential maximum tax savings for this is also shown.  It should be noted that this is per person - not per household.  These figures do change regularly.  A tax accountant should always be consulted in anything that relates to taxation.  Agents are generally not qualified to give tax advice and should not do so.

 

 

 

 

  A long-term care policy with meaningful coverage can be purchased within these limits.  It should be noted, however, that these savings are "potential."  There are limitations on the deduction that will preclude many policyholders from claiming the deduction, even in part since the total medical expenses must exceed 7.5 percent of the adjusted gross income.  In addition, only those who itemize their deductions on their tax return will be able to deduct the cost of their premium.  Most taxpayers take advantage of the standard deduction allowed by the IRS.  Nationally, less than 30 percent of all federal taxpayers itemize.^[2]   Even lower percentages of senior citizens itemize. 

 

 Because tax equations can be complicated, we would not recommend that any agent try to be their client's tax accountant.  Rather, the agent should simply suggest that his or her clients consult their own tax expert.

 

  Non-qualified long-term care insurance premiums are not deductible.  As a result, there are no tax benefits from these premiums.

 

  When a policyholder files a claim for long-term care benefits from their qualified policy, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) the tax treatment of payments received are not considered to be taxable income.  Therefore, they are not subject to income tax except for certain per diem type reimbursements, then only if the per diem rate exceeds certain amounts.

 

  When selling tax-qualified policies, consumers should be told to consult their own accountant.  It is unlikely that most agents would be qualified by education or experience to act as a tax expert.  Note that tax qualified contracts are labeled "intended to be Tax Qualified."  It is possible to lose the tax status by a company's unintended failure to comply with some provision of the federal law.  The side-by-side comparison contains language that is required by statute.  This language protects agents from venturing into the profession of tax adviser.  Again, applicants must be directed to their own tax accountant.  Any adverse reaction would then belong to the accountant, not the insurance agent.

 

  Insurance tends to be a replacement business.  Therefore, it is logical to assume that long-term care policies will also be replaced.  Before a grandfathered policy is replaced, the agent will want to do a very thorough comparison of any sold prior to 01/01/97 since plans sold prior to that date are automatically tax qualified.  There may be more favorable benefits, benefit triggers, or other features in the original policy that should be thoroughly researched prior to replacement.

 

SB 527, SB 1052, and AB 1483

 

  Three related bills were signed into law by Governor Wilson in November 1997.  They were SB 527, SB 1052, and AB 1483.  Each of these has to do with long-term care policies in California.

 

Senate Bill 527

  Senate Bill 527 was introduced by Senator Rosenthal.  Existing California law regulates long-term care insurance and requires that insurance provide certain benefits.  It also provides that long-term care insurance is entitled to certain favorable tax treatment if it meets certain requirements.  SB 527 mandates insurers offering tax-qualified long-term care products for sale must also offer coverage that conforms to the current California eligibility requirements.  The bill requires insurers to provide a specified notice at the time of solicitation and a specified notice in the application form to notify consumers of both options.

 

  California requirements for long-term care policies and federal standards for tax-qualified plans contain differences which consumers need to be aware of.  There are actually three bills which address specific issues:  SB 527 (Rosenthal, D., Los Angeles) that requires long-term care insurers to offer both the tax qualified and non-tax qualified long-term care policies and requires a disclosure that consumers have a "choice" of policies; AB 1483 (Gallego, D., El Monte) that establishes clear eligibility standards for home care benefits; and SB 1052 (Vasconcellos, D., Santa Clara) that adopts several new consumer protection standards.

 

  If the conflicts between tax-qualified federal polices and Californias non-tax qualified contracts were to become resolved so that California's requirements could be preserved while still allowing them to be tax qualified, then portions of SB 527 would no longer be necessary.

 

  SB 527 would have only become effective if both AB 1483 and SB 1052 were also enacted which they were.  In November 1997 Governor Wilson signed all three into law.  Upon being signed, SB 527 immediately took effect as an urgency statute.

 

  Since both types of policy, qualified and non-tax qualified, must be concurrently offered, it is necessary that consumers know that both exist.  To accomplish this, a notice is required stating such.  The notice must be printed in at least a 12-point font (this is 12 point font).  The notice is signed and dated by the applicant and agent or insurer and one copy is given to the applicant.  10232.25. 

 

  It reads:

 

IMPORTANT NOTICE

 

THIS COMPANY OFFERS TWO TYPES OF LONG-TERM CARE POLICIES IN CALIFORNIA:

 

(1) LONG-TERM CARE POLICIES (OR CERTIFICATES) INTENDED TO QUALIFY FOR FEDERAL AND STATE OF CALIFORNIA TAX BENEFITS.

 

AND

 

(2) LONG-TERM CARE POLICIES (OR CERTIFICATES) THAT MEET CALIFORNIA STANDARDS AND ARE NOT INTENDED TO QUALIFY FOR FEDERAL OR STATE OF CALIFORNIA TAX BENEFITS BUT WHICH MAY MAKE IT EASIER TO QUALIFY FOR HOME CARE BENEFITS.

 

Assembly Bill 1483

  Introduced by Assembly Member Gallegos, Assembly Bill 1483 is intended to amend Section 10232.1 of the Insurance Code, add Sections 10232.2 and 10232.8 to the Insurance Code and amend Section 22005 of the Welfare and Institutions Code, relating to health insurance. 

 

 Existing California law regulates long-term care insurance, and requires insurance to provide certain benefits.  Existing law authorizes the Insurance Commissioner to waive certain requirements under specific circumstances.  Existing federal law provides that long-term care insurance is entitled to certain favorable tax treatment if it meets specific requirements.

 

  AB 1483 requires every policy that is intended to be a federal tax-qualified long-term care insurance contract to be identified as such with a specified disclosure statement.  This includes riders to life insurance policies.  In addition, any policy that is not intended to be a qualified long-term care insurance policy, as provided by federal law, must be clearly labeled as non-qualified.  Policies which are intended to be federally qualified long-term care insurance plans must fairly and affirmatively offered and marketed along side other policies that are not intended to be federally qualified long-term care contracts.

 

  Since there are two types of policies available in California, the state requires labeling that alerts consumers to the product they are considering for purchase.  A notice on page one of the policy will state one of the following, depending on which type of contract it is:

 

  "This contract for long-term care insurance is intended to be a federally qualified long-term car insurance contract and may qualify you for federal and state tax benefits."

 

Or:

 

  "This contract for long-term care insurance is not intended to be a federally qualified long-term care insurance contract."

 

  Page one will also state the type of policy being purchased: nursing facility only, home care only, or  comprehensive long-term care insurance.  10232 (d)

 

  This bill also set down the definitions for the activities of daily living that were listed in a previous chapter of this text. 

 

Senate Bill 1052

  Introduced by Senator Vasconcellos in 1997, Senate Bill 1052 required every policy which is intended to be a qualified long-term care insurance contract, as provided by federal law, be identified as such with a special disclosure statement, and, similarly required every policy that is not intended to be a qualified long-term care insurance contract to be identified as such.  Like AB 1483 and SB 527, it also requires insurers to offer both qualified and non-qualified policies equally and fairly.

 

  SB 1052 revised some definitions.  It also required that a specific shoppers guide be provided to prospective applicants.  Reports must be made under this bill regarding lapses and replacements of long-term care policies.  Premium adjustments must be made for replacement policies.

 

  Policies are required to prominently display on page one of the policy and on the outline of coverage a notice regarding the possibility that all costs may not be covered by the long-term care contract.  It reads:

 

  "Notice to buyer:  This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage.  The buyer is advised to review carefully all policy limitations."

 

  Agents are required to inquire and make every reasonable effort to identify those applicants that already have long-term care insurance and the types and benefit amounts they previously purchased.  Every insurer or entity marketing long-term care insurance is required to establish auditable procedures for verifying compliance with this subdivision.

 

  Every insurer must provide a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge.  Agents must provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222.

 

  Agents must also provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.

 

  Suitability standards were developed under SB 1052.  The point of suitability standards is to make a distinction between those Californians that would reasonably benefit from purchasing a long-term care contract and those that would not.  10234.95 (a)

 

  Obviously, an agent does not make the final determination, the consumer does.  Even so, using suitability standards will enable the agent to make a reasonable effort to market only to those individuals who would clearly benefit from such a policy.  The issuer and agent must make reasonable efforts to obtain the information needed to determine whether or not the consumer should purchase long-term care insurance.  This includes, prior to application, use of the "Long Term Care Insurance Personal Worksheet."  The personal worksheet used by the insurer must contain the information in the NAIC worksheet in not less than 12-point type.  The insurer may request the applicant to provide additional information to comply with its suitability standards.  A copy of the insurer's personal worksheet must be filed and approved by the commissioner.

10234.95 (c)(1)

 

  Any and all information obtained through use of the worksheet cannot be used for any other reason.  All information obtained is confidential.  The insurance company will use the suitability standards to determine if issuing a policy is appropriate.  10234.95 (e)

 

  If the issuer determines that the applicant does not meet its financial suitability standards, or if the applicant has declined to provide the information, the issuer may reject the application.  Alternatively, the issuers shall send the applicant a letter similar to the "Long-Term Care Insurance Suitability Letter" contained in the Long-Term Care Model Regulations of the National Association of Insurance Commissioners.  However, if the applicant has declined to provide financial information, the issuer may use some other method to verify the applicant's intent.  Either the applicant's returned letter or a record of the alternative method of verification is kept in the applicant's file. 10234.95 (h)

 

  Each year the insurer reports to the commissioner the total number of applications received from residents of California, the number of those who declined to provide information on the personal worksheet, the number of applicants who did not meet the suitability standards, and the number who chose to conform after receiving a suitability letter.  This does not apply to life insurance policies that accelerate benefits for long-term care.  10234.95 (i)(j)

 

Senate Bill 475

  Because long-term care needs are so important, new legislation is likely from time to time.  Senate Bill 475 was introduced by Senator Dunn.  It is an act to amend Section 10324.95 of the Insurance Code and to add Section 10234.6 relating to long-term care insurance.

 

  One of the issues addressed with SB 475 relates to the consumer rate guide.  Existing law required every policy or certificate for long-term care insurance to include a provision for retaining the policy or certificate after the first year and permitting changes in coverage that would either lower or increase premiums.  Existing law required an issuer of long-term care insurance, or where an agent is involved, the agent, to present an applicant with a long-term care insurance personal worksheet.  Senate Bill 475 requires the Insurance Commissioner to annually prepare a consumer rate guide for consumers for long-term care insurance, as specified.  The bill specifies the dates and methods for distributing the consumer rate guide.  The bill requires each insurer to provide, and the Department of Insurance to collect, specified data on long-term care policies and certificates, including those issued by the insurer or purchased or acquired from another insurer, on or after January 1, 1990.  The data is considered to be public record open to members of the public for inspection, unless they are a trade secret as defined by law.  The bill requires insurers to include in the premium section of the long-term care insurance personal worksheets information, as specified, on any increases or requests for increases in rates of prior policies sold in any state by the insurer.

 

Senate Bill 870

  Senate Bill 870 was introduced by Senator Vasconcellos.  Existing law prescribes various requirements and conditions governing the delivery or issuance for delivery in California of individual or group long term care insurance.  This bill made various changes to those provisions, including changes clarifying an insurers obligations to file, offer, and market policies intended to be federally qualified and policies that are not intended to be federally qualified; changes mandating coverage for care in a residential care facility; changes relating to coverage for preexisting conditions, changes regarding prohibited policy provisions and prohibited insurer actions in connection with policies, and changes regarding the right of a policy or certificate holder to appeal decisions regarding benefit eligibility, care plans, services and providers, and reimbursements.

 

Senate Bill 1537

  Senate Bill 1537 was introduced by Senator Burton.  This bill was pretty simple.  It added justice to existing law.  Existing law established the Education Code and provided that it was to be construed liberally with a view to effect its objects and to promote justice.  This bill added that justice is to be both promoted and enhanced.

 

 

 

The 1970s and 1980s

 

  Although long-term care policies are thirty-some years old, that is still relatively new as products go.  Only in the last ten or fifteen years have the policies gained popularity and began selling in record numbers.  As a result, some national requirements have emerged as well.  One item to develop is the Long-Term Care Insurance Act.  This act:

1.      Prohibits cancellation or non-renewal of policies due to age or deterioration of mental or physical health.  Of course, nonpayment of premiums will allow cancellation.

2.      The LTC Insurance Act requires coverage of Alzheimer's and other mental conditions.

3.      Limits preexisting exclusions to no more than six months.   

4.      Prohibits policies from requiring previous hospitalization.  

5.      Requires that all levels of care (skilled, intermediate and custodial) be covered equally. 

6.      Gives the consumer a 30-day right from the time of policy delivery to return the policy for any reason and receive a full refund. 

7.      Requires policies to offer an inflation guard.  This is only offered; the consumer makes the decision whether or not to purchase it.

 

  The first long-term care products were not really very "long-term."  The first policies were not even called long-term care policies.  They were termed Extended Care policies.  These came out in the 60's.  They had low benefits and benefit triggers were difficult.  A benefit trigger is the required condition or conditions that must be met before benefits are payable.

 

  Actual long-term care policies were not developed until 1972, with marketing beginning in 1973.  In fact, few insurance companies or states kept any records of LTC sales until 1987.  Prior to that date, such policies simply did not have enough sales to make statistics seem worthwhile.

 

  During the 1970's and early 80's, policies began to be recognized by the consumers.  These early policies had many limitations, or gatekeepers.  A gatekeeper is a clause in the policy which "closes the gate" on claim payments.  These policies had many limiting provisions, including:

 

1.      Benefits were payable only for care in a nursing facility.  Assisted living and RCFE arrangements were not even conceived at that time.

 

2.      Most policies covered only skilled or intermediate care.  Few policies gave any coverage at all for custodial or personal care.

 

3.      If custodial or personal care was included in the policy, benefits were limited in a variety of ways.  Some policies covered it at 50 percent of the skilled benefit level; some covered it as low as 20 percent.  Some policies gave only a limited time period for custodial care, such as 90 days.

 

4.      It was rare for a policy to include any benefits for home care, adult day care or other care alternatives.  Inflation guards were not available.  Most policies covered only care in a skilled nursing home under limited conditions.

 

5.      The policies included many exclusions and gatekeepers.  Since the insurance companies had no background with this type of policy, they were fearful of extreme losses.  They protected themselves by adding many clauses that could be used to prevent payment of claims.

 

6.      Ironically, the benefit trigger in many of these early policies was merely that of being "medically necessary."  This was typically determined by the family doctor or other practitioner in the medical field.  Today this is considered one of the most generous benefit triggers since the familys doctor will be working for the good of his or her patient.

 

7.      The policies issued during this time period were generally "conditionally renewable."  Insurance companies could cancel the policies for a variety of reasons.

 

  As consumers and agents demanded better products, competition among companies rose.  Consumers began to be better educated.  Insurance companies realized that they would have to improve their products. Many states also stepped in with legislation promoting policy improvement.  Legislation often followed growing complaints from consumers who felt they had been unfairly treated by their insurance companies.

 

  In the mid to late 1980's, policies began to greatly improve:

 

1.    Zero day elimination periods began appearing in policies.  These tended to be an option and the consumer paid more for policies, which paid from the very first day of confinement.

2.     States began mandating that all three levels of care must be covered equally.  A few companies began offering this before states required it in response to growing competition among insurers.

3.    Some policies began offering home care IF the beneficiary was in a nursing home first.  Benefits were typically a percentage amount, usually 50 percent, of the nursing home payment.  For example, where the nursing home was paid at $60 per day, then $30 was available per day for home care.  Some of the home care benefits required that skilled care be received in the nursing home prior to home care.

4.    Some policies began introducing benefits payable for Adult Day Care.  Usually, they required some type of state certification for the Adult Day Care facility.  Some policies required the facility be Medicare certified.  These requirements were gatekeepers.  They allowed insurers to refuse payment if all conditions were not met.

5.    During this time, the use of ADL's came into being.  ADL stands for Activities of Daily Living.  They include such things as feeding oneself, bathing in a safe manner, dressing, and generally performing the functions required in daily life.  ADL's and cognitive impairment began to be the format for receiving benefits.  If a person could not perform a set number of listed Activities of Daily Living, or if their cognitive ability became severely impaired, the policy would pay benefits.

6.    Policies during this time began to see restoration of policy benefits.  Usually the policy required that the beneficiary be out of the institution and free of the physical ailment for at least six months.  If that occurred, then the policy would restore any benefits that had been paid out.  This, of course, is a non-issue for policies purchased with a lifetime benefit, but it is of value for those with a three, four, or otherwise limited benefit period.

7.    Spousal discounts emerged to encourage growth of sales.  Since women tend to live longer and also marry older men, the husbands often became the first one to experience ill health or frailty.  Traditionally, the wives take care of their husbands.  It may ruin her health, but she does it.  Insurance companies received premium payments from two people even though the husband was generally cared for at home by the wife.  Obviously, this was good financially for the insurance companies.  Therefore, it made good sense to give a discount when both husband and wife made application for long-term care policies.

8.    Guaranteed renewability developed, although consumers often did not realize the value of such guarantees.  The states often required the renewability changes, but companies also did it on their own.  No longer could insurance companies protect themselves by refusing to renew, terminating or canceling long term care policies.  As long as premiums were paid in a timely manner, the companies had to renew their policies.

 

  In 1988, regulations began to come forcefully into the long-term insurance market.  Many states were passing legislation aimed at this type of policy.  There were no mandatory federal minimum standards.  NAIC did draft minimum standards, but these were voluntary.

 

 

The 1990s

 

  The 1990's saw the greatest improvement in the long-term care industry.  Whether this had to do with state legislation, federal legislation, consumer demands, agent demands, or simple competition is hard to say.  It was probably all things combined.  While policies do have some variations, primarily we have seen:

                                                    

1.    Home care and home health care options.  Some policies included home care without additional cost while others offered it as an option for additional premium.

2.    Alternate types of care.

3.    Assisted living, RCFE arrangements, and alternative facilities.  Only a few years ago, assisted living was unheard of.  Today, it is one of the fastest growing forms of elder care.

4.    Integrated policies.  This type of policy is perhaps one of the easiest to explain, although it carries a disadvantage.  An integrated policy sets a specific amount of money to be used for whatever type of care is needed.  It is easiest to explain because consumers understand it.  In a way these policies are like a checkbook.  As each claim is paid, that amount of money is deducted from the total amount available.  The danger lies in how the money might be spent.  It is easy for benefits to run out far too soon, so that when actual nursing home care is required there is little or no money left for it.  Usually the benefits run out because the consumers chose methods of care that were not practical and used up the money that would have been better spent on actual nursing home care.

5.    Third party billing notification of lapses.  This is one of the best additions we have seen in nursing home policies.  In the past, insurance companies were often relieved when a consumer failed to make their premium payments.  The beneficiary might even have been in the middle of receiving benefits.  If consumers had not had the problems they did with this situation, it might never have changed.  It happened often enough, however, that the individual states began to consider what could be done to prevent it.  The answer was third party billings.  On the application itself, there is a spot to list a person and their address.  The designated person receives a billing if the premium has not been received within 30 days of the due date.  When the third party designated receives such a notice, he or she should either immediately pay the premium personally or notify the insured; whichever arrangement has been agreed upon between the two.

6.    Reinstatement of lapse due to cognitive impairment.  Lapses often occurred because the insured had lost the ability to manage their own financial affairs.  If no family member had stepped in to ensure that bills were paid, insurance premiums, and even such things as electrical services, often went unpaid.  In the past, insurance companies could simply refuse to reinstate policies when payment was not received in a timely manner.  Families might not discover the problem until the grace period had long passed.  Under the current policies, if the family can show that the insured had demonstrable cognitive impairment, policies can be reinstated.  Back premiums must, of course, be paid.

7.    Nonforfeiture Benefit.  This applies to tax qualified policies and costs extra premium to obtain.  If the insured fails to pay their premiums and has a nonforfeiture benefit in their policy, the amount of premium that has been paid in will go towards paying claims that occur after the policy has lapsed.  Typically, only a percentage of the actual premiums paid will be used rather than the entire premium amount.

8.    Return of Premium.  Some policies will return all unused premium if no benefits or benefits lower than premium amounts have been paid out.  There are typically some restrictions and time limitations.  Similar to this are spousal survivorship benefits. The surviving spouse has a paid up policy after five or ten years (depending upon policy requirements) of premium payment.  Many policies state that the dying spouse cannot have used benefits; others do not require this.  Some simply state that benefits could have been used for a specific amount of time (versus ever).  The premium of the two people must equal either five or ten years.  For example, a husband dies after seven years.  The wife must continue to pay premiums for an additional three years.  Seven and three equals ten years of payment.  At that point, she no longer is required to pay for her policy, but it does stay activated.  In a five-year policy, both the husbands and wife's premiums must add up to ten years (five each, or a combination, such as seven and three).

9.    Bed Reservation.  When this first came out in the policies, it was not given the attention it deserved.  It is not unusual for a person confined to a nursing facility to occasionally have to enter the hospital.  If the patient was gone more than three days, it was common for their bed in the nursing home to be given to another patient.  Under the bed reservation benefit, the bed continues to be paid for by the policy so that the patient will be able to return to the same facility.  This can be especially important to a person with mental impairment where familiar surroundings are desired.

 

  The policies of the nineties were not only more "agent-friendly" but also more "consumer-friendly."  Consumers were able to read policy brochures easier than before.  Certainly anything that makes the consumers more comfortable with a product purchased is good for the agent.  Consumer confidence means business that stays on the agent's books.

 

  Only since the nineties have agents seriously considered selling long-term care products as a full time business.  Prior to that it tended to be a sideline with life or major medical policies being the agents primary focus. Ten years ago not only were most consumers ignorant of long-term care needs and policies; agents were ignorant, too.  Only in the past ten years has the long-term care marketplace and consumer needs become obvious to many agents.

 

Defining LTC Insurance

  Under HIPAA, a qualified long-term care policy is one that:

1.      Pays for long-term care costs and services.

2.      Does not duplicate payments under Title XVIII of the Social Security Act.

3.      Is guaranteed renewable.

4.      Offers no cash surrender value, as in life insurance policies, or any other ability to assign or pledge as collateral any aspect of the policy.

5.      Applies any policy refunds or dividends must be applied towards future policy premiums or used for additional benefits.

 

  The general definition of LTC insurance is privately issued insurance policies that cover the cost of nursing facility care costs in part or whole.  Premiums are based on age, health at the time of application, the deductible period selected, benefit amounts selected, and the duration of benefits selected at the time of application.

 

Defining Applicant

  An applicant, as it relates to long-term care, is the person applying for insurance coverage.  In the case of a group plan, it would be the certificate holder (who is usually the employer).  10231.4

 

Defining Certificate

  A certificate is a legal document issued for group long-term care benefits.  The terms of the insurance coverage will be stated in the master policy.  10231.5

 

Defining Group LTC Insurance

  Group LTC insurance would include a policy for any of the following:

        An employer or employer group, such as labor organizations;

        Any trade group, professional or occupational group.  It may be for its members or former or retired members, or a combination of these.  The group cannot have come together solely for the purpose of obtaining insurance; it must be composed of persons in the same profession, trade, or occupation;

        An association group;

        A discretionary group.  10231.6

 

  The Commissioner must investigate any groups relationship to the insurance.  No group may be developed just for the purpose of purchasing insurance.  The point of this is to make sure the group is legitimate and meets the requirements required to become a qualified group.  10232

 

Defining Policy

  A policy is a written contract for insurance coverage.  It includes any policy, contract, subscriber agreement, rider or endorsement which has been delivered or issued for delivery in California by an insurer, fraternal benefit society, nonprofit hospital service plan, or any similar organization regulated by the Commissioner.  10231.8

 

  Considering the increases in general medical care, the increases in long-term care have been less severe.  While costs to provide extended care have increased, the level of increase has been modest when compared to other types of medical costs.

 

Comparing Annual Increases In Nursing Home Rates With Consumer Price Index

 

California Office of Statewide Health Planning and Development, 2000

        Californias Annual Increases Trending Downward

  According to the Administration on Aging annual increases in nursing home costs is low when compared to the rest of the country, coming in at 6 percent.  Although that is low, it still exceeds the 5 percent compounded protection increase that may be purchased with long-term care insurance policies.  Cost increases for home and community are also considered low, in comparison with the rest of the country, coming in at just over 6 percent.  California is ranked by the Administration on Aging at 17th among all the states.  In July 1998, the Census put the 60+ population in California at 4,648,953, which was the highest of all the states.  Florida was second with 3,397,366 people over the age of sixty.  Considering these figures, California has done well in providing for the health needs advancing age brings.

 

Long-Term Care Costs

  The California Advocates for Nursing Home Reform states that choosing a nursing home for a family member is one of the most difficult decisions in life.  They recommend that a facility already approved for payment by Medi-Cal be selected even if the initial stay is covered by private funds or insurance products.  The future may depend upon Medi-Cal payments.  Facilities do not all charge the same amount so it is important to understand what the consumer will receive for their money.  The level of care required will certainly affect the actual cost.  The California Advocates for Nursing Home Reform will provide free pre-placement counseling to California consumers through a toll-free number: 1-800-474-1116. 

 

Estimated Life Expectancies

  For a person born today, they can expect to live to the age of 76.  Of course, there will be those who live longer and those who live shorter life spans.  Averages are, after all, made up of highs and lows.  It is interesting to note that those who are healthy enough to qualify for a long-term care policy can expect to live longer than the expected average.

 

Administration on Aging 1995.  A sponsored development report titled State LTC Profiles Report

 

Projected Future Nursing Home Costs:

California Office of Statewide Health Planning and Development, 2000

 

  It should be noted that, assuming a 5% compounded increase, costs will double every 14 years.

 

Out-Of-Pocket Expenditures

  According to the NAICs A Shoppers Guide To Long-Term Care Insurance, national figures show that one-third of all nursing home costs are paid out-of-pocket by the patient or their family members.  While it may be possible to pay these costs initially from savings and monthly income, for most people these costs eventually become a burden.

 

  Having a nursing home policy will not necessarily eliminate out-of-pocket expenses, but they do lessen them.  Inflation protection is especially helpful because it increases the available money each year, although it may not be sufficient to cover all costs.  Compound increases will go further than simple increases.

 

  Long-term care insurance benefits may not be reduced due to out-of-pocket expenditures paid by the insured or on behalf of the insured by the family members or friends.  10233.4

 

Cal Pers Program

 

This section has been provided in its entirety by the California Insurance Department.

 

Cal Pers Long-Term Care Program 2000 Plans

Plans At A Glance

 

 

Inflation Protection Options	Built-in Inflation Protection * or Periodic Benefit Increase **
Deductible	90 calendar days, once per lifetime
Benefit Eligibility	Severe Cognitive Impairment, or three out of six ADLs * for Nursing Home Care or two out of six ADLs for all other benefits.
Care Advisor	Available to help develop required plan of care and identify quality providers
Portability	Coverage continues even if you change jobs, retire, or move out of state.  Plan pays benefits anywhere in the United States.
Nonforfeiture Option	This option provides for continuation of your coverage on a limited basis if you elect to voluntarily terminate coverage after paying premiums for at least ten years.  This option is available for an additional premium.  For more information, call 1-800-908-9119.
Rates	Rates are based on your age when your application is received, and are designed to remain level.
Guaranteed Renewable	Your coverage can never be canceled as long as you continue paying your premiums when due.
Tax Qualified	Benefits you receive are tax-free and your premiums may be tax deductible under certain circumstances.

 

* Built-in Inflation Protection provides for a 5% compounded annual benefit increase while premiums are designed to remain level.

** Periodic Benefit Increase Option gives you an opportunity to increase your benefits every 36 months for an additional premium amount. (When you increase your coverage, your premium will go up.)

* ADL means Activity of Daily Living.

 

CalPERS LTC Program

 

  CalPERS (the California Public Employees Retirement System) have issued more than 46,000 LTC insurance contracts in less than 17 months.  CalPERS projected that it will have issued more than 65,000 plans during the initial enrollment period that ended June 30, 1996.  The CalPERS Program is available to nearly 5 million people, including all active and retired public employees and their spouses, parents, and parents-in-law, regardless of where they live in the U.S.  The California State Teachers Retirement System has endorsed the program and has been key in helping CalPERS attain these high figures.

 

  The PERS program is the first of its kind, a self-funded, not-for-profit LTC program with all income and reserves held in a trust fund.  At the current rate, the PERS LTC Trust Fund reserve will be more than $300 million in less than 4 years.  It is already at $20 million.

 

  The program is directed by the CalPERS Board of Administration.  The trust fund and administrative oversight are managed by CalPERS.  General administration (including underwriting, customer service, care management, and claims evaluation) is managed by the Long-Term Care Group.

 

Profile of an LTC Plan

 

  The program has gone to great lengths to include new concepts espoused by many LTC researchers.  Some of these features are monthly allowances for home care, compound inflation protection, a one-time elimination period, lifetime benefits, automatic three-year inflation upgrading, pot-of-money concepts, and care advisers.  Additionally, there is no maximum age limits to apply for coverage, and the minimum age depends on the practices of the public agency involved.  Other values include a return-of-premium death benefit, bed reservations, respite care, alternate care, and portability within the U.S.

 

Three Plans

  There are three basic plans with several sub-options:

1.      CalPERS Comprehensive;

2.      CalPERS Nursing Home/Assisted Living Only; and the

3.      Partnership Plans.  These plans are designed with California in mind, so the benefit limits are at, or above, this states average cost of care.  Both the Comprehensive and the Partnership plans cover the full range of services, including personal care homemaker visits, home care, and care in an assisted living facility or nursing home.

 

  The CalPERS Nursing home Assisted Living Facility Only plan does not provide home or community based care.

 

  CalPERS Comprehensive and Nursing Home / Assisted Living plans feature a 90-day elimination period and an integrated benefit allowance of either $142,350 or lifetime.  With inflation protections selected, all benefits increase by 5% (compounded annually).  Otherwise, members have the opportunity to increase their benefit limits every third year without having to provide evidence of insurability.

 

  The CalPERS Partnership plans provide dollar-for-dollar asset protection from Medicaid (Medi-Cal) spend-down, offer a 30-day elimination period and an integrated benefit allowance of either $40,150 or $80,300, and include 5% compounded inflation protection.  The most popular plans are the lifetime and compound inflation plans.

 

  Premiums typically average 20% less than comparable private LTC plans.  For example, at age 65 the premium for the CalPERS Comprehensive plan with lifetime benefits and inflation protections is $177 per month.  Most of these savings result from the direct marketing and self-funded, not-for-profit aspects of the program.

 

Additional Features:

        Bed Reservation (14 days)

        Care Advisor

        Return of Premium Death Benefit (no additional cost)

        Alternative Care Payment Provision

        Guaranteed Renewable

 

  The CalPERS Long-Term Care Program is intended to be a Tax Qualified long-term care insurance contract.

 

End of Chapter Seven