Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
A businessman looking at data through a magnifying glass

Life Health > Long-Term Care Planning

7 Reasons New York’s $26M John Hancock LTCI Action Matters for Advisors

Your article was successfully shared with the contacts you provided.

State Medicaid could start to go after insurers and other financial services companies that fail to live up to agreements with people who end up using Medicaid to pay nursing home bills.

New York state insurance regulators raised that possibility last week, when they announced a $26.3 million consent agreement with Manulife’s John Hancock unit.

John Hancock paid a $2.5 million penalty, $21.6 million in extra benefits to policyholders and their beneficiaries — and $2.2 million to the state Medicaid program — to rectify problems with how it calculated the end of long-term care insurance benefit payments for 156 users of John Hancock LTCI policies.

John Hancock designed the policies to fit with the New York State Partnership for Long-Term Care program. Policyholders who used the coverage and ran out of private benefits could exclude more assets than usual from eligibility calculations if they applied for Medicaid nursing home benefits.

Here are seven implications of the consent agreement for clients and their advisors.

1. Regulators like saying that they’ve been tough on insurers.

New York regulators said they began looking into the issue in 2019 because of a consumer complaint.

Regulators and John Hancock found that the consumer had an LTCI policy with a daily benefits maximum and a lifetime benefits maximum.

The policyholder started out using less than the maximum daily benefit each day. John Hancock failed to roll the unused daily benefit amount over to later days.

Once John Hancock discovered it had made that error, it agreed to go through its book of business and look to see whether similar calculation errors had affected other LTCI benefit payment terminations.

The New York department’s announcement emphasizes the error, not the work John Hancock did to try to help make things right.

2. Keeping track of old insurance policies, and other old financial products, will be tricky.

An advisor’s 90-something clients could have cash-value life insurance policies written in the 1950s; certificates for shares of common stock purchased directly from the issuer in the 1960s; mutual funds purchased in the 1980s; and annuities and long-term care insurance policies purchased in the 1990s.

The conscientious clients who began planning for post-retirement income and long-term care needs earliest may have the biggest piles of financial services documents for products purchased in the times before computers made tracking purchases easy.

3. Advisors will need more help from analysts and researchers to understand clients’ older financial services holdings.

The New York regulator noted that one problem with the John Hancock LTCI benefit calculations is that the policy benefit calculation provisions were confusing, and conflicted with what regulators saw when they approved the LTCI policy form.

In other words: To give a client complete help with resolving policy benefit concerns, an advisor might need to work with an analyst, lawyer or other expert who knows how to get and interpret product filings sent to regulators many years ago.

4. Advisors and clients will tend to spend more time, money and energy researching bigger arrangements than smaller arrangements.

Advisors may find that, in some cases, assets come with what amounts to a financial rust charge, with the amount of rust correlating with the age, size and obscurity of the asset.

In practice, a client who certainly ought to be getting $50 from a trading stamp company might have no practical way to justify spending the time to locate the company’s current claim administrator.

A client with a 25-year-old $500,000 LTCI policy might get the full policy value but have to spend money on policy analysts and policyholder advocates to get that value. The net benefits value, in that scenario, would be the benefits paid, or available, minus the policy analysis and advocacy costs.

5. Advisors will want to use, and invest in, claim analysis and advocacy services.

Family Solutions for Care is an example of a company that has been in the LTCI claims advocacy market for years.

Advisors might have a financial incentive to team up to support similar types of for-profit and nonprofit advocacy services, for LTCI coverage and for life, annuity and investment products, to minimize the effects of financial rust on clients’ asset totals.

6. State insurance regulators will have an incentive to team up to conduct multistate policy administration reviews.

The National Association of Insurance Commissioners already coordinates many multistate market conduct reviews of insurers.

Multistate reviews of administration of policies that help older consumers could ramp up as more aging insureds need benefits, and regulators face the complexity of interpreting the terms of insurance policies and investment contracts prepared when Richard Nixon was president.

7. State Medicaid programs will have a strong financial incentive to support all kinds of investigations involving older Americans’ finances.

Medicaid is a program that pays for ordinary medical care for low-income people, and for nursing home care for frail or disabled Americans who meet program income and asset requirements.

States run Medicaid programs with a combination of state and federal money.

Researchers estimated in 2021 that about 9% of Americans in the top fifth in terms of lifetime income end up enrolling in Medicaid after age 65. Many do so because they use it to pay for nursing home care.

Medicaid programs’ role as nursing home care payers of last resort mean that they have a stake in protecting your clients against financial services provider mistakes or fraud that reduce your clients’ asset totals.

If Medicaid program managers around the United States notice the $2.2 million the New York state Medicaid program collected from John Hancock, they could end up investing more resources in investigating your clients’ asset-reducing financial problems, and then competing with your clients for restitution payments.

(Image: Shutterstock)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.