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Limited Long-Term Care Insurance Model Proposals Face Resistance

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Insurance regulators in Washington state wish their colleagues would give up on trying to create a national framework for the products often known today as “short-term care insurance” (STCI).

Molly Nollette, a Washington state deputy insurance commissioner, makes the case against creating an STCI product framework in a letter sent to the Health Insurance and Managed Care Committee at the National Association of Insurance Commissioners (NAIC).

“The marketing of such a product would simply add to the confusion and distress that has plagued the long-term care market in general over the last few years,” Nollette writes in a letter on behalf of the Washington State Office of Insurance Commissioner.

(Related: ‘Short-Term Care Insurance’ Faces a Name Fight)

The committee is preparing to consider proposals for a model STCI act and a model STCI regulation during a conference call meeting Tuesday.

What Is STCI?

“Long-term care insurance” (LTCI) covers home care, nursing home care, adult day care services and other forms of care for people who need supervision, or help with activities such as eating and bathing, for long periods of time.

An insurer that offers LTCI must predict how insureds who are young and healthy today will behave years in the future; how the premiums invested in bonds and other assets today will behave between now and the time an insured files a claim; how long an insured who files a claim will stay on claim; and how the assets backing the policy of an insured who is already getting LTCI benefits will behave while the insured is getting the benefits.

State insurance regulators have developed laws and regulations for LTCI based on the idea that predicting how insureds and investment markets will behave over many years of time is difficult.

Some insurers now offer products that cover home care, nursing home care, adult day care services and other forms of post-acute health care for relatively short periods of  time.

The issuers give their products a variety of names. Some agents and brokers call the products STCI products.

Marketers see an STCI policy as a product that can help consumers pay for the recovery period after an acute health care incident, such as a heart attack, or a fall. Some marketers say STCI can also provide some relief for consumers who may end up needing long-term care services but who cannot afford, or qualify to buy, traditional LTCI.

Some STCI supporters have argued that the rules for STCI should be simpler than the rules for LTCI, because a short-term product is inherently simpler in many ways than a similar product with a longer benefit term.

What Is the NAIC Health Insurance and Managed Care Committee?

State insurance regulators are in charge of most insurance regulation efforts in the United States.

The NAIC helps state insurance regulators coordinate their efforts. State regulators work at the NAIC to develop “models,” or examples of how states should write their own insurance laws and regulations.

The Health Insurance and Managed Care Committee is one of the top panels at the NAIC. If committee members approve the STCI models Tuesday, the NAIC could put the models up for consideration by all voting NAIC members at an in-person NAIC meeting.

The NAIC plans to start its next four-day national meeting, in San Francisco, Nov. 15.

States can choose whether or not to use the models. If the NAIC adopts the STCI models, the impact of the models will depend on how many states use the models.

What’s in the NAIC’s STCI Model?

The Senior Issues Task Force, part of the NAIC’s Health Insurance and Managed Care Committee, has been working actively on developing STCI models since 2016. The task force approved the drafts now on  the Health Insurance and Managed Care Committee conference call agenda in June.

In the models, the task force has recommended calling STCI “limited long-term care insurance.” Here are seven other model highlights.

1. Benefits term: Under the terms of the models, the maximum benefit period for limited LTCI would be 12 consecutive months, per person, whether the person was covered on an expense-incurred, indemnity, prepaid or other basis.

2. Group coverage: The model act includes a definition for “group limited long-term care insurance.” A group limited LTCI policy could cover one or more employers or labor organizations, or it could serve a professional, trade or occupational association, or an association or a trust maintaining for the benefit of members of one or more associations.

3. Home-based and community care: A new limited LTCI policy would have to provide coverage for forms of care other than skilled nursing care. A policy would have to provide coverage for lower levels of care that were not significantly lower than the coverage for skilled nursing care.

4. Preexisting conditions: This would, ordinarily, be the strictest definition of “preexisting condition” a limited LTCI issuer could use:

Preexisting condition” means a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within six (6) months preceding the effective date of coverage of an insured person.

5. Benefits limitation periods: The issuer of an individual limited LTCI policy could exclude coverage for claims resulting from preexisting conditions within six months after the effective date of the coverage.

An insurance commissioner could extend the benefits limitation periods related to pre-existing conditions “as to specific age group categories in specific policy forms, if the commissioner found that the extension was in the best interest of the public, according to the draft model text.

6. Prior hospitalization benefits trigger: The issuer of a limited LTCI policy could not make prior hospitalization a condition for collecting benefits, and an issuer could not “condition eligibility for non-institutional benefits on the prior or continuing receipt of skilled care services.”

7. Dishonest applications: An issuer that suspected that a policyholder had lied on the application could rescind the  policy if the issuer identified “misrepresentation that is material to the acceptance for coverage” within six months after the policy had been in force.

For a period between 6 months and two years after the effective date, the issuer could rescind a limited LTCI policy if the issuer could show the applicant had made a misrepresentation that was “both material to the acceptance for coverage and which pertains to the condition for which benefits are sought.”

What’s Washington State’s Problem With Limited LTCI?

Nollette acknowledges in her letter that Washington state was the only state to vote against the models in June, when members of the NAIC’s Senior Issues Task Force approved the models.

Today, Nollette writes, Washington state requires any insurer offering long-term care benefits in the state to make the policy benefits last for at least 12 consecutive months.

An LTCI policy with a relatively short benefit period, but over 12 months, must meet all Washington state LTCI requirements, Nollette writes.

The existing NAIC model act and regulation for LTCI provide greater protection for consumers in areas such as disclosure forms and producer training than the proposed limited LTCI models do, Nollette writes.

“We are greatly concerned that a ‘limited long-term care’ product that does not meet our current standards applicable to benefits, disclosure, and consumer protection creates an inherent risk of deceptive marketing,” Nollette writes. “Limited long-term coverage could be presented as a ‘type’ of long-term care coverage, but one that will not ensure that policyholders will receive the benefits and services needed for the duration of their condition.

The limited LTCI products would provide benefits for less than one year, while the average LTCI insured who goes on claim needs care from 24 months to 30 months, according  to Nollette.

Nollette adds that easing standards for limited LTCI products may not even have much impact on the insurance market.

“ We have seen no real consumer demand for such a product in our state,” Nollette writes. “Washington consumers have not made inquiries about the availability of such a product, Likewise, we have seen very limited inquiries by companies wishing to offer such products in this state.”

Sales of traditional LTCI have decreased substantially in Washington state, and insurance regulators there see no reason to expect a demand for limited long-term care products to emerge, Nollette writes.


Links to documents related to the models are available here.

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