Gem State officials are wondering whether options that let long term care insurance policyholders buy more coverage are equivalent to policy provisions that automatically increase LTC coverage levels each year.

For now, the Idaho Department of Insurance will not let policies eligible for the state’s new LTC insurance partnership program use coverage purchase options as the main vehicle for protecting policyholders against the effects of inflation, Shad Priest, Idaho’s acting insurance director, writes in Idaho Bulletin Number 06-7.

The bulletin affects insurers that want to sell Idaho LTC partnership program policies.

The Deficit Reduction Act of 2005 has expanded the original LTC partnership program, which was open to only 5 states, to include all states that want to participate.

Participating states can encourage residents to buy private LTC insurance by letting them keep more assets than uninsured residents if they run out of private LTC coverage and end up relying on Medicaid nursing home benefits.

States are supposed to set strict quality standards for LTC partnership policies, to ensure that policyholders do not end up turning to Medicaid nursing home benefits because the private policies provide poor coverage.

The DRA requires a partnership policy to provide “compound annual inflation protection” if a policy is sold to an individual under age 61, and “some level of inflation protection” if the policy is sold to an individual ages 61 to 75.

“The DRA does not define ‘inflation protection’ for purposes of the partnership program,” Priest writes in the bulletin.

So far, not much guidance is available to indicate what Congress intended when it included the inflation protection requirement, Priest writes.

“The department’s current interpretation of this language is that it requires the policy to provide at a minimum a benefit growth rate sufficient to provide meaningful protection against the reasonably expected effects of inflation in the costs of long term care services,” Priest writes.

The Idaho department is still studying the inflation protection issue, but, for now, a policy can qualify for the Idaho partnership program if it guarantees automatic benefit increases equal to or greater than the annual percentage change in the Consumer Price Index for insureds ages 61 and older, and compound increases equal to or greater than the annual change in the CPI for insureds 60 and younger.

A policy also can qualify for the Idaho partnership program if it offers the following levels of inflation protection:

- Insured under the age of 61: automatic compound annual inflation protection of at least 5%.

- Insured ages 61 to 75: automatic annual inflation protection of at least 5%;.

- Insured ages 76 or older: no inflation protection required.

For now, an insurer cannot meet the partnership program inflation protection requirements by providing an option to purchase additional coverage, or by providing an option that reduces the level of protection based on the policyholder’s age, Priest writes.

“These standards will remain in place until the department develops more comprehensive guidelines relating to inflation protection requirements for partnership policies sold in Idaho,” Priest writes.

A copy of the Idaho bulletin is on the Web at Document Link