Department of Health and Human 
 Servces 

OFFICE OF


INSPECTOR GENERA


STATE REGULATION


OF LONG TERM CARE INSURANCE 

Richard P. Kusserow 

INSPECfOR GENERA 

cIa MAY 1991 
OFFCE OF INSPECfOR GENRA


The miion of the Offce of Inspector General (OIG), as mandated by Public Law 95-452 

as amended, is to protect the integrty of the Department of Health and Human Servces 

(HS) programs as well as the health and welfare of beneficiaries served by those programs. Th statutory mision is carred out through a nationwide network of audits, investigations 

and inpections conducted by three OIG operating components: the Offce of Audit 

Servce, the Offce of Investigations, and the Offce of Evaluation and Inspections. The 

OIG also inorm the Secetary of HHS of program and management problems and 

recmmends courses to correct them. 

OFFCE OF AUDIT SERVICE 

The OIG's Offce of Audit Servce (OAS) provides all auditing servces for HHS, either by 

conducting audits with its own audit resource or by overseeing audit work done by others. 

Audits examie the performance of HHS programs and/or its grantees and contractors in 

cag out their respective responsibilties and are intended to provide independent 

asessments of HHS program and operations in order to reduce waste, abuse, and 

mimanagement and to promote economy and effciency throughout the Department. 

OFFCE OF INTIGATIONS 

. The OIG' s Offce of Investigations (01) conducts criminal, civi, and admitrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 

unjust enrchment by providers. The investigative effort of 01 lead to crmial convictions 

admtrative sanctions, or "cvi money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid 

program 

OFFCE OF EVALUATION AN INSPECIONS 

The OIG's Offce of Evaluation and Inpections (OEl conducts short-term management and 

program evaluations (called inspections) that foc on isues of concern to the Department 

the Congres, and the public. The fidings and recommendations contained in these 

inpection report generate rapid, accrate, and up-to-date information on the effciency, 

vulnerabilty, and effectivenes of departmental programs. This report was prepared in San 

Francisco under the direction of Regional Inpector General Kaye D. Kidwell and Deputy 

Regional Inpector General Paul Gottlober. Project staff included: 

Tom Purv


Elen Kotler 

Don Lob 

Vicki Greene, Headquarters 
Department of Health and Human Servces


OFFICE OF


INSPECTOR GENERA


STATE REGULATION


OF LONG-TERM CARE INSURANCE


Richard P. Kusserow 

INSPECfOR GENERA "0 

:t~0ia OEI­
09-91-00700 
EXECUTIVE SUMMAR 


PUROSE 

The purpose of this inspection was to obtain current information on consumer 

problems and State regulation of private long-term care (LTC) insurance. 

BACKGROUN 

Ths inspection was requested by Congressman Ron Wyden, Chairman of the House 

Small Business Subcommittee on Regulation, Business Opportunities, and Energy. 

Long-term care insurance policies provide "coverage for not less than 12 consecutive 

months...for one or more necessary...diagnostic, preventive, therapeutic, rehabilitative 

maintenance or personal care servces, provided in a setting other than an acute care 

unit of a hospita1." 1 Long-term care insurance has grown significantly only recently. 

The number of LTC policies has increased from 125 000 in 1986 to more than 

1.6 milion in 1990. 

In 1986, the National Association of Insurance Commissioners (NAIC) developed the 

first "Long-Term Care Insurance Model Act in collaboration with the Department of 

Health and Human Servces (HHS) and insurance industry representatives. The 

following year, it issued its first model regulation. The model act and regulation 

provide States with minimum standards to use in crafting LTC insurance laws and 

regulations. The NArC modifies the model act and regulation frequently to improve 

policyholder coverage and strengthen consumer protection. Both were revised most 

recently in December 1990. A lag exists before States adopt model changes, and 

new State standards usually do not apply to policies already in effect. 

While States have primary responsibility for regulating private insurance, the Federal 

government has played a role in regulating Medicare supplemental insurance 

commonly known as Medigap insurance. In 1980, Congress enacted the Baucus 

amendment to the Social Security Act. The amendment defies minimum standards 

that policies must meet before they can be marketed as certified Medigap policies. 

Congress enacted further Medigap controls in the Omnibus Budget Reconcilation 

Act of 1990. Currently, no Federal laws govern LTC insurance. 

lAs defined in section 4A of the NAIC Long-Term Care Insurance Model Act. 
METIODOLOGY 

In order to answer Congressman Wyden s questions about State LTC insurance 

regulation, we (1) analyzed all 50 States' LTC insurance laws and regulations 

(2) requested complaint and enforcement data from all State insurance 

commissioners, and (3) conducted telephone intervews with State insurance 

regulators and counselors in 8 States. We also conducted telephone intervews with 

NArC offcials, two industry representatives, and representatives of five national and 

three State consumer advocate organizations. 

FIINGS 

OnIv 17 States sustantiII meet both the mol act and mol regtin standards. 

We considered a State to "substantially meet" the model act and regulation if its 

provisions conform with all applicable sections of the model act or regulation even 

though the State language varies. We considered a State to "partially meet" the 

standards if its provisions conform with only a portion of the model act or regulation. 

Although all 50 States have LTC insurance laws, only 17 States substantially meet 

both the model act and the model regulation minimum standards. Specifcally, 

25 States substantially meet and 20 States partially meet the model act 

minimum standards, and 

18 States substantially meet and 10 States partially meet the model regulation 

minimum standards. 

State totals reflect State laws and regulations that had been adopted through March 

1991. Of all 50 States, 8 States are considering stronger LTC insurance laws, and 

14 are considering stronger regulations. 

Long-term care innce complaint data are incomplete and inoncluse. 

Twenty-one States reported receiving a total of 840 complaints in 1990. The major 

categories of complaints are: (1) claims handling delays, (2) premium and refund 

disputes, and (3) agent misrepresentation. Seventeen States were unable to provide 

complaint data because (1) they do not keep separate LTC insurance information, or 

(2) the data were not readily accessible. Twelve States did not respond to our 

request for complaint data. 
States report litle enforcement action a1!ainst TC inance companie and agents. 

Only 10 of the 30 States that responded to our request were able to provide data on 

the number of administrative and enforcement actions they had taken against LTC 

insurance companies and agents. Four States reported 26 actions in 1990, and 

6 States said they had taken no action. Penalties included monetary fines, license 

suspensions and revocations, and cease and desist orders. Twenty States do not 

maintain readily available enforcement 
 ata for LTC insurance. 

Alost all of the insurance counselors, consumer advocates, and industry 

representatives believe that State enforcement and monitorig need to be 

strengthened. Insurance regulators in four of the eight sample States volunteered 

that resource constraints prevent them from adequately enforcing their LTC 

insurance laws and regulations. 

MAITS FOR CONGREIONAL CONSIDERATION 

If Congress decides to impose minimum Federal standards for LTC insurance, it 

should consider that: 

strong laws and regulations will have limited effectiveness if they are not 

adequately monitored and enforced


minimum standards may improve consumer protection in some States 

opinion is divided on whether the NArC model act and regulation provide 

adequate consumer protection 

mandating more strigent consumer protection may increase premiums, and 

minimum standards should allow insurers flexibility to develop innovative 

products that could benefit consumers. 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

TABLE OF CONTENTS


PAGE


EXCU SUMY


INODUCTON . 

FIINGS . . . . . . . . . . . . . . . . 5 

Only 17 States substantially meet both the model act 

and model regulation standards 

Long-term care insurance complaint data are 

incomplete and inconclusive . 5 

States report little enforcement action 

against LTC insurance companies and agents . . . . . . . . . . . . . . . . . . . . . . . . 6 

MATTRS FOR CONGREIONAL CONSIDERATION . . . . . . . . . . . . . . . . . 7 

APPENDICE 

Appendix A: Summary of State Long-Term Care Insurance Provisions 

Appendix B: Organizations Intervewed by the OIG 

Appendix C: NArC's Long-term Care Insurance Model Act 

Appendix D: NArC's Long-term Care Insurance Model Regulation 
INTRODUCTION 

OBJCT 

We conducted this inspection at the request of Congressman Ron Wyden, Chairman 

of the House Small Business Subcommittee on Regulation, Business Opportunities 

and Energy. In January 1991, he asked the Offce of Inspector General (OIG) to 

obtain current inormation on consumer problems and State regulation of private 

long-term care (LTC) insurance. Specifically, he asked the OIG to: 

assess the extent to which States have adopted the National Association of 

Insurance Commissioners (NArC) Long-Term Care Insurance Model Act and 

Model Regulation or other significant laws or regulations; 

document the nature and range of consumer complaints about LTC insurance; 

determine how States monitor compliance with and enforce their LTC 

insurance laws and regulations; and 

obtain the views of selected regulatory offcials, insurance counselors 

consumer advocates, and industry representatives regarding (1) the major 

problems consumers are experiencing with LTC insurance, (2) tp.e adequacy of 

State regulation, and (3) the need for reform. 

BACKGROUN 

Long-term care insurance policies provide IIcoverage for not less than 12 consecutive 

months...for one or more necessary...diagnostic, preventive, therapeutic, rehabiltative 

maintenance or personal care servces, provided in a setting other than an acute care 

unit of a hospital."l These policies vary in terms of (1) the servces they cover 

(2) the amounts they pay per day, (3) the duration of coverage, and (4) coverage 

conditions or other restrictions. 

The need for long-term care is growing. During the past decade, life expectancies 

have increased and hospitals have discharged patients earlier to contain costs. While 

an individual's need for long-term care may be temporary, consumers purchase 

insurance to guard against financial ruin. 

Long-term care insurance has grown significantly only recently. According to a 1989 

General Accounting Office (GAO) report, only a few companies offered policies 

lAs defined in section 4A of the NAIC Long-Term Care Insurance Model Act. 
before 1986 when approximately 125 000 policies were in effect.2 As of July 1990 

more than 100 companies underwote more than 1.6 milion LTC insurance policies. 

State Regtin and the NAIC Modl Act and Regtin 

States have primary responsibilty for regulating the insurance industry. The NArC 

provides a forum for State insurance officials to discuss common problems 

standardize the annual reporting of financial information by insurance companies 

and develop model legislative acts for adoption by the States. 

In 1986, NArC developed its first model act which provides States with minimum 

standards to use in crafting LTC insurance laws and regulations. The model act 

goals are to (1) protect policy applicants from unfair or deceptive sales or enrollment 

practices, (2) faciltate public understanding and the comparison of policies, and 

(3) encourage flexible and innovative policy coverage. In 1987, NArC issued its first 

LTC insurance model regulation, which provides requirements specifically for 

implementing the model act. 

State insurance regulators, industry representatives, consumer advocates, and offcials 

from the Department" of Health and Human Servces (HHS) participated in drafting 

the model act and regulation. The NArC modifies the model act and regulation 

frequently to improve policyholder coverage and strengthen consumer protection. 

Both were last revised in December 1990. A lag exists before States adopt model 

act and regulation changes, and new State standards usually do not apply to policies 

already in effect. Neither the NArC nor States know what percentage of policies 

currently in effect, meet NArC standards. 

Fedal Regtin 

While States have primary responsibility for regulating the private insurance market 

the Federal government has played a role in regulating Medicare supplemental 

insurance, commonly known as Medigap insurance. In 1980, Congress enacted the 

Baucus Amendment of the Social Security Act establishing minimum standards that 

policies must meet before they can be marketed as certified Medigap policies. 

Congress enacted additional Medigap controls in the Omnibus Budget Reconcilation 

Act of 1990. Currently, no Federal laws govern LTC insurance. 

2Lne:-Term Care Insurance: State Rel!latorv ReQuirementS Provide Inconsistent Consumer 

ProteCtion. General Accounting Office, April 1989 

The Federal Role in Consumer Protection and Rel!lation of Long Term Care Insurance. 

Departmental Work Group on Consumer Protection and Long Term Care Insurance, U. S. 

Department of Health and Human Servce, January 1991, p. 1 
Prevus Stuie of LTC Insance Regutin and Cons Complaints 

During the past 3 years, Congress and others have undertaken several studies 

concerning long-term care: 

House Agg Subcmmttee on Health and Long-Term Cae Report on 

Priate LTC Inurance 

In May 1989, the House Aging Subcommittee on Health and Long-Term 

Care, chaired by Congressman Claude Pepper, issued a report entitled 

Private Long-Term Care Insurance: Unfit for Sale?" The Subcommittee 

found that, in 1987, 70 percent of the States had no LTC insurance laws or 

regulations and only 14 percent had any professional staff specifically assigned 

to LTC insurance issues. 

GAO Studies on State Regulatory Requirements for LTC Inurance 

An April 1989 GAO survey of all 50 States found that (1) about half the 

States had adopted LTC insurance legislation, (2) legislation varied in the 

extent to which it met the NAIC's standards , and (3) few States maintained 

statistics on LTC insurance complaints. The GAO currently is studying eight 

States to update its information. 

House Energy and Commerce Subcommttee on Oversight and Investigations 

Surey of LTC Complaits 

The House Energy and Commerce Subcommittee on Oversight and 

Investigations, chaired by Congressman John Dingell, surveyed States to 

identify LTC insurance complaints and State responses. In a 1990 hearing, 

Congressman Dingell expressed concern that (1) States did not identify 

complaints by tye of policy, and (2) State regulation continues to be 

inadequate. Other Subcommittee concerns include duplicate coverage 

inappropriate movement of consumers from one policy to another, lack of 

clearly defined policy benefits, and lack of sanctions against agents and 

insurers who mislead consumers. 

America Asocation of Retied PeoplelProject Hope Study of State 

Reguation of LTC Inurance 

The American Association of Retired People has hired Project Hope to 

(1) survey all 50 States to evaluate conformity of State laws with NArC's 

model act and regulation and (2) assess the adequacy of State regulatory 

activity . 
House Joint Surey of State Insurance Regulatory Agencies 

The House Aging Subcommittee on Health and Long-Term Care, chaired by 

Congressman Edward R. Roybal, and the House Small Business Subcommittee 

on Regulation, Business Opportunities, and Energy, chaired by Congressman 

Ron Wyden, are conducting a direct survey of State insurance departments to 

obtain information about their regulation of LTC insurance policies. In March 

1991, Congressmen Wyden and Roybal jointly requested information on issues 

including budget levels, complaint data, agent regulation, and loss ratios. 

METIODOLOGY 

Congressman Wyden asked the OIG to answer a series of questions about each 

State s LTC insurance laws and regulations. Although NArC's model act and 

regulation were amended most recently in December 1990, we based our analysis 

priarily on the January 1990 model language because States have not yet had 

suffcient time to adopt the December amendments. Congressman Wyden 

questions cover most key issues pertaining to individual LTC insurance policies 

included in the model act and regulation. We did not review provisions dealing with 

group policies. 

Since some applicable laws and regulations are found in other sections of State 

insurance codes, we sent each State a copy of our analysis which was based on the 

LTC laws and regulations on file with NArC. We asked the State to verify our 

analysis and identify any 'other relevant provisions in the insurance codes. Three 

States (Alaska, New Jersey, and Nevada) did not respond. Two States (North 

Dakota and New Mexico) responded too late for their verification to be included in 

this report. Where necessary, we conducted telephone intervews to clarify the 

States' responses. 

We conducted detailed telephone intervews with eight State insurance regulators in 

eight sample States. We selected the States based on (1) the extent to which they 

have adopted strict LTC insurance laws and regulations and (2) the prevalence of 

LTC insurance counseling programs. The States with strong laws and regulations are 

Massachusetts, Minnesota, New York, and Wisconsin. The States with weak laws 

and regulations are Kentucky, Maryland, Texas, and Utah. The States with 

counseling programs are Maryland, Massachusetts, Texas, and Wisconsin. 

We conducted additional telephone intervews with NArC officials, six state insurance 

counselors, two industry representatives, and representatives of five national and 

three State consumer advocate organizations. Whenever possible, we coordinated 

with GAO and other agencies that are studying LTC insurance regulation. In 

selecting our sample of eight States for detailed intervews, we did not duplicate the 

eight States in GAO's current survey. 
FINDINGS


On 17 States substantiaI meet QQhe mod act and..el regu ation standards. 

The model act contains some provisions, such as a prohibition against requiring prior 

hospitalization that are not incorporated in the model regulation. On the other 

hand, some important provisions, such as inflation protection and post-claims 

underwting, are included only in the model regulation. Thus, some States may 

comply with the act but not the regulation and vice versa. 

Although all 50 States have LTC insurance laws, only 17 States substantially meet 

both the model act and model regulation minimum standards. 

STA1E COMPIlCE wr MODEL ACf AN REGUlTION 

Requirement Number of States in Compliance Act Regulation 

Substantially meet 

Partially meet 

Generally do not meet 

These totals reflect laws and regulations that States had adopted through March 

1991. Of all 50 States, 8 are considering stronger LTC insurance laws, and 14 are 

considering stronger regulations. It is possible that more States would meet model 

act and regulation standards if pending proposals are adopted. Appendix A details 

the extent to which States have implemented specific provisions. 

Long-term care insurance complait data are incomplete and inconclusive. 

Only 21 States provided complaint data. They received a total of 840 complaints in 

1990, a 78 percent increase from 1988. 

STA1E COMPIA DATA AR INCOMPLE 

1988 1989 199 TOTAL 

States reporting n/a 

Number of complaints 471 756 2067 

4We considered a State to "substantially meet" the model act and regulation if itS provisions 

conform with all applicable sections of the model act or regulation even though the State language 

varies. We considered a State to "partially meet" a standard if its proviions conform with only a 

portion of the model act and regulation. 
COMPI. REORTE TO STATE IN 199

Comon complaints Number 

Claim delays 104 

Premium and refund disputes 

Agent misrepresentation/misconduct 

Marketing and sales practices 

Claim denials 

Poor policyholder servce 

Unstisfactory settlements


Recisions 

Refusals to insure


Other 

Noncategoried complaints 388 

Total 840 

Seventeen States were unable to provide complaint data because they do not keep 

separate LTC insurance information or could not readily access the data. Twelve 

States did not respond to our request for complaint data. 

The NArC is developing a pilot project to track complaints in the "senior market 

(i. , both LTC and Medigap). It is requesting that all States use a standardized 

complaint form to ensure systematic collection of comparable data and to allow for 

automation. 

Thee of the State insurance commission staff and three of the consumer advocates 

attn'buted the small number of reported complaints to the fact that LTC insurance 

policies have become more common only recently. They believe problems may not

surface in signcant numbers until current purchasers begin filing claims many years from now. Two insurance commission staff attributed the small number of 

complaints to their States' strict LTC insurance laws and regulations. 

States report little enforcement acton against LTC insurance companies and agents. 

Of the 30 States that responded to our request for enforcement data, only 10 were able to provide the number of administrative and enforcement actions they had 

taken against LTC insurance companies and agents. Four States reported 26 actions 

in 1990, and 6 States said they had taken no action. Penalties included monetary 

fines, license suspensions and revocations, and cease and desist orders. Twenty States said they do not maintain readily available enforcement data for LTC 

msurance. 

Alost all of the insurance counselors, consumer advocates, and industry 

representatives believe that State enforcement and monitoring need to be 

strengthened. Insurance regulators in four of the eight sample States volunteered 

that resource constraints prevent them from adequately enforcing their LTC 

insurance laws and regulations. 
MATTERS FOR CONGRESSIONAL CONSIDERATION


If Congress decides to impose minimum Federal standards for LTC insurance, it 

should consider the following: 

Strong laws and regulations will have limited effectiveness if they are not 

adequately monitored and enforced. Almost all the industry representatives 

consumer advocates, and insurance counselors believe that State monitoring 

and enforcement of LTC insurance needs to be strengthened. A tyical 

comment came from a Health Insurance Association of America offcial: 

What we need is not new laws, but enforcement of existing laws. 

Minimum standards may improve consumer protection in some States. 

Opinion is divided on whether NAIC's model act and regulation provide 

adequate consumer protection. Industry representatives believe that NAIC's 

model act and regulation generally are a good basis for LTC insurance 

regulation. Most of the insurance counselors, consumer advocates, and State 

regulators believe that the model act and regulation are a good starting point. 

Some consumer advocates believe the model act and regulation are too weak. 

Mandating more stringent consumer protection may increase premiums. 

All of the insurance counselors and consumer advocates as well as five of the 

eight State insurance regulators identified the high cost .of premiums as a 

major problem. Previous studies have estimated that only 10 to 40 percent of 

seniors can afford private LTC insurance. 

Industry representatives and State regulators also caution that overregulation 

could reduce the number of companies willng to offer LTC insurance. 

Insurance regulators in three States (Massachusetts, Minnesota, and New 

York) said that fewer companies are willing to sell LTC insurance in their 

States because of their strict requirements. 

Minimum standards should allow flexibilty and innovation. The LTC 

insurance market is stil evolving, and flexibility that allows insurers to develop 

inovative new products could benefit consumers. 

The Federal Role in Consumer Protection and Re ulation of Lone-Term Care Insurance. draft 

discusion paper, The Department Work Group on Consumer Protection and Long-Term Care 

Insurance, U.S. Department of Health and Human Servce, January 1991, p. 1; and The 

Unaffordabiltv of Nursine Home Insurance. Familes USA Foundation, January 199. 
APPENIX A 

SUMY OF STATE LONG-TERM CAR INSURCE PROVISIONS 

Ths section summarizes our analysis of Congressman Wyden s specific questions. 

We will provide a detailed State-by-State analysis in a separate report. 

Twenty-eight States require po cies to pe guarntee4 renew 

Section 6A of the model regulation requires individual policies to be guaranteed renewable. Ths means that the insurer may not (1) unilaterally change any policy 

provision, (2) decline to renew a policy, except for nonpayment of premiums, and 

(3) revise premium rates, except on a class basis. 

Twenty-eight States substantially meet this model requirement. Although three 

States require guaranteed renewability, their definition does not meet all model 

regulation criteria. Three other States do not require guaranteed renewability, but 

insurers must meet model regulation criteria if they use the term. We found no 

provision in 12 States' LTC insurance laws or regulations and were unable to 

determine requirements for 4 States. 

Section 6B of the model act contains a more limited renewability requirement which 

prohibits insurers from cancellng or not renewig an individual's LTC insurance 

policy based on age or health deterioration. All but four States substantially meet 

this requirement. 

No State requires policies to be noncacellable. 

Although neither the model act nor the model regulation requires policies to be 

noncancellable, section 6A of the regulation establishes a standard definition that 

policy must meet if the term "noncancellable" is used: (1) the policy may not be 

cancelled, except for nonpayment of premiums, and (2) the insurer may not make 

any unilateral changes in the policy provisions or premium rate. 

Although no State requires policies to be noncancellable, 23 States require policies to 

meet the model regulation s standard definition if the term "noncancellable" is used. 

Five States use a standard defiition partially based on the model, and one has a 

stricter definition. We found no provision in 17 States and were unable to determine 

the requirements in 4 States. 

Twenty-seen States have no post-claims underwtig provsions. 

Post-claims underwting refers to the practice of medically underwting a policy 

when a claim is fied rather than at the time of application. If the insurer discovers 
any "incorrect or untrue answer" in the application, the insurer may yoid the policy 

or deny the claim. The model regulation requires insurers to (1) ascertain the 

applicant s health condition and (2) provide disclaimers informing the consumer of 

the insurer s right to rescind the policy if further underwting uncovers an untrue or 

incorrect statement. For applicants over the age of 80, additional medical 

inormation is required prior to the issuance of a policy. 

Only 12 States have adopted the model regulation liting post-claims underwting. 

State has a provision partially based on the model, 4 have other requirements 

and 27 have no provision. We were unable to determine coverage for six States. 

States conform with or exceed the NArC contestable period stadard. 

The contestable period is the time during which an insurer may deny a claim or void 

a policy because of a misstatement that the insured made in an application.6 The 

contestable period usually appears in the general section of a State s insurance code 

and tyically applies to all lines of life and health insurance, including LTC 

insurance. The NAIC's Uniform Individual Accident and Sickness Policy Provision 

Model Law provides for a maxmum 3-year contestable period for individual 

policies.7 Al the States for which information was available conform with or exceed 

this standard, i. , have shorter contestable periods. 

CONTABLE PEROD STANAR 

Requirement Number of States 

6-month contestable period 

year contestable period


year indivdua1/-year group 

year contestable period


Information unavailable


Seventeen States require ination protecton as an optional provision. 

Although the model regulation does not require that policies include infation 

protection, it does require that insurers offer consumers optional protection. 

offered, the inflation protection must be at least as favorable as one of the following 

options: (1) compounded annual increases, (2) the right to periodically increase 

benefit levels without requiring evidence of health status, or (3) a percentage of 

actual charges. The December 1990 amendments to the model regulations added 

the requirement that the increases be compounded annually at a rate not less than 

5 percent, but did not specify an index on which to base the rate. 

6 These time limitations generally do not apply in the cae of fraudulent misstatements. 

7 Th NAIC has not established a contestable period for group policies. 
Although no States require that all policies include inflation protection, 17 States 

require inflation protection as an optional provision. We found no provision in 

28 States and were unable to determine if there was a provision in 5 States. Of the 

17 States that require inflation protection as an option, 14 require compound rate 

increases; the other 3 require simple rate increases. Five of the 17 States specif the 

Consumer Price Index (CPI), the CPI for Urban Areas, or the Medical CPI as the 

basis for calculating interest. The other 12 States do not specify an index. 

Although 20 States defie ski interme4iate cae. o fie cut04ial care. 

Many long-term care insurance policies contain definitions of terms such as skilled 

intermediate, and custodial care. Insurers may condition eligibility and set benefit 

levels based on these definitions. Section 5 of the model regulation defines home 

health care, skilled nursing care, intermediate nursing care, personal care, and home 

care "in relation to the level of skill required, the nature of the care, and the setting 

in which care must be delivered. It also defines providers in relation to servces and 

facilities required and the licensure or degree status of the provider. It does not 

define custodial care. 

We found that 20 States substantially adopted the model definitions. Four States 

had their own specifc defiitions for skilled, intermediate, and custodial care. Eight 

States defined the terms based on State facilty licensing laws or other definitions. 

We found no provision in 14 States' laws and regulations and were unable to 

determne the definitions in 4 States. 

Most States prohibit prior institutionalition requirements for home care benefits. 

State requirements regarding home care benefits vary greatly. Both NArC and the 

States have evolved gradually--from allowing insurers to require a 3-day prior 

hospitalization to the current model regulation that prohibits requirng prior institutionalization for 
 any benefits, including home care. 

With exceptions, Section 6D of the model act prohibits companies from conditioning 

eligibilty for any benefits on (1) prior hospitalization or (2) the receipt of a higher 

level of institutional care. Most States have adopted a provision that meets or 

exceeds the model act prohibition. The following table summaries the State laws 

and regulations. 
PROIDmON AGAlSf REQUIG PRIOR CONFME 

Requirement Number of States 

Conforms with or exceeds the 

model act prohibition 

Prohibits prior hospitaliztion only


Allow prior hospitaliztion or 

institutionaliztion if an identical


policy is offered that prohibits prior

hospitaliztion or institutionaliztion 

No provion found


Unable to determine 

Most States prohibit the sale of LTC insurance policies that lit coverage to skied 

nursing care only or offer more generous coverage for skied than nons kied care. 

Section 6B(3) of the model act states that "no LTC insurance policy shall provide 

coverage for skilled nursing care only or provide significantly more coverage for 

skilled care in a facility than coverage for lower levels of care." It does not define or 

specify a measurement for "more coverage. 

Several States require that coverage be measured by the number of days of care. 

We found that 44 States have prohibited policies that limit coverage to skilled 

nursing care only. We found no provision in five States and were unable to 

determine coverage in one State. 

Thirt-eight States also have provisions prohibiting policies that provide significantly 

more coverage for skil1 d care in a facilty than coverage for lower levels of care. 

One State allows significantly greater coverage. Another State has no provision but 

would reject a policy if the benefits were unreasonable. Nine states have 

provisions. We were unable to determine the provision in one State. 

Whe all States have maxum preexistig condition exclusion periods. 23 do not 

meet current NArC standards. 

Section 6C of the model act requires that individual policies use a definition of 

preexisting condition" no more restrictive than: "... a condition for which medical 

advice or treatment was recommended by, or received from, a provider of health 

care servces, within six (6) months preceding the effective date of coverage on an 

insured person." The act further prohibits policies from excluding coverage for a 

preexisting condition unless loss or confinement begins within 6 months following the 

effective date of coverage of an insured person. 
Although all 50 States limit preexisting condition exclusions, 23 States do not 

conform with NArC's model act. For example, previous versions of the model act


defined preexisting conditions as the presence of symptoms which would cause an


ordinarily prudent person to seek diagnosis, care, or treatment. Although this
 definition has been eliminated, nine States stil include it. Another 14 States have


provisions which do not confonn with the model act because they contain prior 

coverage restrictions which depend on the policyholder s age or some other variation. 

Most States require coerage for Aleimer s disease and related dementia. 

Model regulation sections 6B(2) and 16EI0 specifically require coverage for 

Alzheimer s disease and related degenerative and dementing ilnesses. Most States 

require coverage for these conditions. 

AL'S AN DEM COVEGE 

Requirement Number of States 

Alzheimer s Dementia 

Specific coverage required 

State indicates it requires


coverage based on other


laws/regulations


No specific coverage


requirement


Unable to determine 

Although most States require insurers to cover Alzheimer s disease and related 

dementia, insurers may use other allowed policy restrictions (e.g., medical necessity, preexisting conditions) to deny claims. An industry representative identified this as an important loophole that should be closed. 

Although 48 States require stadard-Ilies of coverage. onll substantiall meet 

all model act and regulation requirements. 

Section 6G of the model act requires that insurers furnish applicants a standard outline of coverage before a sale is made. Section 16 of the model regulation prescribes a standard format for the outline of coverage. 

REQUI STANAR OUT OF COVEGE PRIOR TO SAL 

Requirement Number of States 

Substantially meet model act


and regulation


Partially meet model act and


regulation







Require standard outline, but do not 

specify when it must be provded 

Require standard outline, but allow 

it to be delivered after sale (at time 

policy is delivered) 

No outline requirement found 

Nineteen States require that lie inurace policies providing long-term cae benefits 

conform to the model act and regulation. 

The model act (section 4A) defies LTC insurance as including LTC coverage or 

supplemental coverage that is provided as a benefit in a life insurance policy. For a 

State to substantially conform with the model act and regulation, its defiition of 

LTC insurance must include term care insurance. life insurance policies that provide or supplement longREGUlTION OF LI INSURCE POUCI TIT PROVIE 

LONG-TE CA BEN 

Requirement Number of States 

Provion substantially basd on model 

No provion found, but State report 

life insurance policies are covered 

by LTC laws/regulations 

Other provsion in laws not basd 

on model


No provion found


Unable to determine 

Onl 11 States spe require poticy summaries for lje insurance poijcies t1; provde LTC benefits. 

Section 61 of the model act requires that, if a life insurance policy provides LTC 

benefits, a policy summary must be provided to the applicant at the time the life 

insurance policy is delivered. The policy summary is similar to the required outline 

of coverage in intent, but it also includes a detailed explanation of how long-term 

care benefits interact with the rest of the life insurance policy. Some States believe 

that the policy summary requirement duplicates the requirement for an outline 

coverage. 

Only 11 States specifically require policy summaries. Seven more require delivery of 

some sort of outline or summary with a life insurance policy. We did not find a 

provision in 25 States and were unable to determne coverage in 7 states. 
, 

... , 

Seven States mandate standard or mium LTC benefit packages. 

Three States mandate standard benefit packages for all LTC insurance. Minnesota 

establishes two long-term care insurance policy categories and sets minimum 

standards and minimum coverage for each. New York mandates specifc coverage 

and payment amounts, and Wisconsin mandates a detailed list of coverage 

agreements and payment amounts. Four States have mandated minimum benefit 

packages, and three States have mandated partial benefit packages for home care 

servces. Thirt-four States have not mandated a standard benefit package. We 

were unable to determine coverage in six States.


Industry and consumer representatives disagree on the value of mandating benefit 

packages. According to industry representatives, such a mandate may drive some 

insurers from the market. They argue that no one policy is best for everyone 

because people s needs vary based on their financial and family resources, health 

and other circumstances. On the other hand, national consumer advocates urge 

greater standardization.


Th-one States p.ave mium loss ratio requirements tp.at meet mode 

standards. 

Section 6E of the model act authorizes the State insurance commissioner to establish 

loss ratio (i.e., benefits paid out divided by premiums earned) standards for longterm care insurance policies. Section 14 of the model regulation requires the 

expected loss ratio for individual policies to be at least 60 percent. 

Approximately half of the individuals we intervewed volunteered an opinion that 

States should not currently emphasize loss ratio regulation because LTC insurance is 

too new to calculate loss ratios precisely. Because of the substantial lag time 

between purchase and use, neither companies nor regulators can project anticipated 

claims or premiums. An industry representative stated that with the declining 

average age of individuals purchasing LTC insurance policies actual loss ratio 

experience will take a minimum of 10 years to develop." A State insurance 

commission representative noted we want the companies to be around to pay 

benefits, and if we are too tough in loss ratio requirements in the early years by 

making companies sell only to high-risk people at first, then the companies may go 

under. 

Thirt-one States have loss ratio requirements set at least as high as the model 

regulation s suggested 60 percent. Seven States have established loss ratios at less 

than 60 percent. Four of these base their loss ratios on the different terms of 

renewabilty; for example, 50 percent for optional renewabilty, 55 percent for 

guaranteed renewabilty, and 60 percent for noncancellable policies. Eight States 
have the authority to establish loss ratios but have not done so. We found no 

provision in two States and were unable to determine requirements in two States. 

Eleven States reported specic procdures for loss ratio enforcement. 

Although the model act and regulation do not provide specifc procedures for 

enforcing LTC insurance loss ratios, general provisions in most State insurance codes 

cover enforcement. No States reported taking any actions concerning loss ratio 

enforcement, although 11 have specific enforcement procedures. Oklahoma and 

Wisconsin indicated that they annually review loss ratios. Most other States review 

them only upon initial rate filing and when insurers seek rate increases. If the loss 

ratio is not met, States usually require rate reductions. They also can impose 

penalties. 

Th States consider expected premiums and claims wp.en evaluatig loss ratios. 

Calculation of LTC insurance loss ratios is a complex task. Since policies usually are 

bought years before a claim is fied and since LTC insurance policies are so new 

quantitative descriptions of expected premiums earned and benefits paid out may not 

be accurate. At present, 30 States use expected premiums and claims to measure 

loss ratios. Four States consider both actual and expected claims and benefits, and 

three consider only actual. We found no provisions in eight States and were unable 

to determine coverage in five States. 

Nine States mandate refunds to policyholders when loss ratios are not met. 

The model act and regulation do not require that States mandate refunds to 

policyholders if loss ratios are not met. However, nine States have adopted such a 

requirement. The refund usually is granted in one of three forms--premium 

reduction, cash refund, or extra benefits. Thee of the nine States have specific 

regulations calling for refunds. The remaining six States have laws but no 

implementing regulations. We found no provisions in 33 States and were unable to 

determine coverage in 8 States. 

Sixeen States have strct prior rate approval requirements. 

Under a prior rate approval system, policy rates are reviewed and approved by the 

State before a LTC insurance policy can be issued. Under a "file-and-use" system 

an insurer submits the rate to the State and, if the rate is not specifcally 

disapproved, proceeds to issue LTC insurance policies. Most States specify a period 

(usually 30 to 60 days) within which the regulatory agency must act on a company 

request. 

1\-­
The model act and regulation do not address the issue of prior rate approval for 

LTC insurance. According to NArC, most States require rate approval in the 

general insurance codes. We were able to identify only one State (Rhode Island) 

that specifically requires rate approval as part of its LTC insurance provisions. 

PRIOR RATE APPROV AL-ANUSE REQUI 

Requirement Number of States 

State has a strict prior rate 

approvl requirement


Prior approval in practice, but 

State technically allow file-and-use 

State allows file-and-use 

Dual option--prior approval or fileand-use depending upon whether insurer 

has met specified criteria 

State does not approve rates 

Unable to determine 

Whe al States have fical solvency requirements. none has specic provisions for 

long-term cae inurace. 

According to NArC, all States have fiscal solvency requirements that apply to all 

lies of insurance. No States have fiscal solvency requirements that are specific 

LTC insurance. 

Regulation of solvency is complex and detailed, involving legal criteria, surveilance 

and enforcement. The most important criteria are dollar requirements to fund initial 

and on-going capital assets and surplus reserves to meet future claims. The NArC 

issues standard instructions and examiers handbooks specifically designed for 

surveilance of fiscal solvency. The NArC coordinates the auditing of some 

companies using teams of examiners from the company s home State and other 

States in which the company does business. State agencies take informal action or 

issue formal orders to remedy fiscal solvency problems. 

Thee State insurance regulators and two consumer advocates expressed concerns 

about the future fiscal solvency of LTC insurance companies. They are concerned 

because the market is new and policyholders may not start filng claims in large 

numbers for many years. Insurance companies may not be pricing policies 

appropriately. By the time they recognize insolvency, it may be too late to take 

corrective action. The NArC is developing fiscal solvency accreditation guidelines. 
Twenty-three States reported minimum specific dollar requirements for capital and 

surplus funds.


FICA SOLVECY REQUI 

Aggegate of Minimum Capital Asts 

and Surplus ReQuirements Number of States 

$100 00 to $500 

:: $500,00 to $1 millon 

:: $1 millon to $2 milion


:: $2 millon


No specific dollar amount 

Unable to determine 

States have broad authority to impose penalties againt both agents and insurers. 

Al States have authority in the general section of their insurance codes to impose 

penalties against agents and insurers who violate State insurance laws or regulations 

including those that apply to LTC insurance. The penalties usually include fines 

license suspensions, revocations or nonrenewals, and cease and desist orders. If 

certain conditions are present, penalties also may include restitution, jail sentences 

or referrals for felony prosecution. 

According to NArC, all States have adopted at least a modifed version of the NArC 

Unfair Trade Practices Model Act. This model act authories penalties against both 

agents and insurers for a wide range of prohibited practices, including 

misrepresentations. Monetary penalties are set at $1 000 for most violations and 

$25 000 for either flagrant violations or violations of cease and desist orders. 

Because each individual act or practice (each policy sale) constitutes a separate 

violation, the total fines can escalate rapidly. The act caps aggregate penalties at 

$100 000 for most violations and $250,000 for flagrant violations or violations of cease 

and desist orders. 

The NAIC did not establish specific penalties for LTC insurance violations until 

December 1990. Section 24 of the model regulation now prescribes penalties against 

companies and agents for violations of any LTC insurance laws or regulations 

including prohibited marketing practices. The regulation calls for fines of up to 

three times the amount of the commissions paid for each policy involved in the 

violation or up to $10 000, whichever is greater. These fines are in addition to any 

other penalties authorized by State law. At least six States have penalty provisions in 

their LTC insurance laws or regulations. 
Few States currently lit commssion qjferentia s for the sa e of new and renewa 

policies. 

Although NArC did not have any agent compensation standards for LTC insurance until December 1990, four States had adopted them by March 1991. The agent

compensation standards currently are the only optional provision in the model act or 

regulation. 

The drafting language that accompanies the December amendments cites two 

competing considerations to explain why the provision is optional. On the one hand 

it acknowledges that the senior market "has been identified as being susceptible to abusive marketing practices." On the other hand, it notes that "not all policy replacements are improper" because "LTC insurance and LTC insurance regulations 

are continually changing.


The NArC's optional provision restricts first year commission per policy to no more than 200 percent of second year commission. It also requires that (1) the 

commission received in subsequent years be equal to the amount received in the 

second year and (2) the commission be provided for a "reasonable number of years (the model language does not define what constitutes a reasonable number of years). 

Industry representatives believe it is inappropriate to limit commission differentials 

for the sale of new and renewal policies and oppose the NAIC optional provision. They maintain that differential commissions should be permitted because long-term care is a complex product and initial sales require significantly more agent time than 

renewals. 

No State specicay prohibits the sale of multiple or d.!licatie !ong-term care 

insurance policies. 

Although no State has a specific prohibition against the sale of multiple or 

duplicative LTC insurance policies, all States have the authority to regulate their sale. The regulatory authority is based on the NArC Model Unfair Trade Practices Act that all States have adopted. Furthermore, section 20 of the December 1990 LTC 

model regulation amendments requires that "in recommending the purchase or replacement of any LTC insurance policy or certificate an agent shall make reasonable efforts to determine the appropriateness of a recommended purchase or replacement." Although this provision could be used to regulate sales of 

inappropriate multiple or duplicative policies, few States have adopted it since it is so new. Nine States specifically identified this act or other provision as a basis for 

regulating the sale of multiple policies, and 13 States identified provisions regarding 

the sale of duplicative policies. 
APPENDIX B


ORGANTIONS INRVIWED BY TH OIG 

Insurance Commissioners' Offces: 

Kentucky


Maryland


Massachusetts


Minnesota


New York 

Texas


Utah


Wisconsin


Consumer Advocate Organizations: 

Consumer Health Advocates, Boston, Massachusetts


Texas Citizen Action, Austin, Texas


American Association of Retired Persons, Washington D.


Consumers Union, Washington D.


Families USA, Washigton D.


Older Women s League, Washigton D.


United Seniors Health Cooperative, Washington D.


Center for Public Representation, Madison, Wisconsin


Counseling Programs: 

Seniors Health Insurance Counseling and Advocacy Program, Baltimore 

Maryland 

Servng Health Information Needs of Elders, Boston, Massachusetts 

Ombudsman Program, State Department of Aging, St. Paul, Minnesota 

Senior Federation, St. Paul, Minnesota 

Insurance Board, Senior Concerns and Issues Section, Austin, Texas 

Wisconsin Bureau on Agig, Madison, Wisconsin 

Industry Representatives: 

Health Insurance Association of America, Washington D.


LTC Incorporated, Kirkland, Washington

APPENDIX C Model Reation ServCl- Januar 

G- TER CARE I SURA.. CE MODEL ACT

Table of Contents 

Secon l. Puose 

Secon Scope 

Secon 3. Short Title 

Secon Defitions 

Secon 5. ExtraterrtOrial Jurdicton - Group Long-Term Car Inurce 

Secon Disclosur and Performce Stadards for Long-Term Car Insurance 

Seon Admistratie Procedurs 

Secon 8. Severabilty Seon Effece Date 

Section 1. Puose 

The purose of this Act is to promote the public interest, to promote the avaiabilty of long-term 

car insurance policies, to protet applicants for long-term ca insurance, as defied, from unai 

or deceptie sales or enrollment practices, to estalih stadar for long-term car insurance, to 

faciltate public understadig and comparon of long.term ca insurance policies, and to facitate flexibilty and innovation in the development oflong-term ca inurance coverage. 

Comment: The purse clause evidences legilatie intent to prote th publi whe regng th nee to permt flexbilty and inovation with respec to long-term ca insurance coverage. 

Comment: The Task Force regnizes the viabilty of a long-term car prouct fuded thugh a lie insurance vehicle. and th Ac is not intended to prohibit approval of th prouct Seon 4 now spey addr th prouct However. state must exame their exitig statute to determe whethr amendments to othr coe seons such as th defition of lie inurance and accident and heath reserve stadar and fur reviions ar necsar to authorie 

approval of the prouct 

Section 2. Scope 

The reuiments of th Act sha apply to policies deliere or issued for deliery in th state on 

or afr the effectie date of th Act Th Act is not in nded to supersede th obligations of

entities subjec to th Ac to comply with th substace of other applicale insurce laws insofar 

as they do not confct with th Act, except tht laws and reguations designed and intended to 

apply to Medcar supplement insurance policies shal not be applied to long-term ca insurance. 

Note: Se Secon 61. 

!=omment: Th secon makes clea tht entities subjec to the Act must contiue to comply with other applicale U1urance legilation not in confct with th Ac 

Section 3. Short Title 

Th Act may be known and cite as the "Long-Term Car Insurance Ac(' 

Section 4. Defitions 

Unless the context reuis otherwse, the defitions in th secon apply thoughout th Act. 

A. "Long-term car insurce" meas any insurance policy or rider adverted, makete, 

offere or designed to provide coverage for not less th,.lve (12) consecutie months for each covere person on an expense incur, indemnty, prepaid or other basis; for one or 

more necessar or medcally necessar diagnostic, preventie, therapeutic, rehabiltatie

matenance or personal car servces, provided in a settg other than an acute car unt 

Copyrght :SAlC 
Long Term Car Insurance Model Act 

of a hospital. Such term includes group and individual annuities and lie insurance policies 

or ride!'s which provide dictly or which supplement long-term car insurance. Such term 

also includes a policy or rider which provides for payment of benefitS based upon cogntie impaient or the loss of fuctional capacity" Long-term car insurance may be issued by 

insurers: fraternal benefit societies: nonprofit heath. hospital. and medcal servce corporations: prepaid heath plans: heath matenace organations or any siar organation 

to the extent they are otherv.,-ise authoried to issue life or health insurance. Long-term car 

insura.'1ce shan not include any insurance policy which is offere priy to provide 

basic 1edicare supplement coverage. basic hospita expense coverage, basic medcalsurgical expense coverage, hospital confiement indemnity coverage, major medcal expense coverage. disability income or relate asset-protecton coverage, accident only 

coverage. specifed diseae or speced accident coverage, or lite benefit heth coverage. 

B. "Applicant " mea.'1s: 

.n) In the case of an individual long-term car insurance policy, the person who seeks to 

contract for benefits, and 

- - (:21 In the case of a group long-term car insurance policy, the proposed certcate holder. 

C. "Certcate" means. for the puroses of th Act, any certcate issued under a group long- state. term care insurance policy, which policy has ben deliere or issued for deliery in this

D. " Commissioner" means the Insurance Commissioner of th state. 

Drafting :Sote: \\nere the word "Commissioner appears in th Act, the appropriate designation for the cmefinsurance supervisory offcial of the state shouid be substitute. 

E. "Group long-term care insurance" meas a long-term car insurance policy which is delivere or issued for delivery in this state and issued to: 

(1) One or more employers or labor organations, or to a tnt or to the trstes of a fud 

estalished by one or more employers or labor orgaations, or a combination thereof 

for employees or former employees or a combination thereof or for members or former 

members or a combination theref, of the labor organations; or 

(2) Any professional. trade or occupational association for its members or former or rerid members, or combination thereof, if such assocation: 

(a) Is composed of indiduals al of whom ar or were actely engaged in the same profession, trade or occupation; and 

(') Has been maitaed in good faith for puroses other than obtag insurance; 

(3) An 
 association or a trst or the trste(s) of a fud established, crete or mataied for the benefit of members of one or more associations. Pror to advertsing, maketig or offerig such policy withi this SLate, the association or associations. or the insurr of the association or associations, shal fie evidence ..ith the Commissioner that the 

association or associations have at the outset a mium of 100 persons and have been organized and mataied in good faith for puroses other than that of obtaig insurance. have been in active existence for at least one yea; and have a constitution and bylaws which provide that: 

640-2 
! 

Model Reation Sece-Januar 

(a) The assocation or assocations hold reguar meetigs not less tha annualy to fuer puroses of the members; 

(b) Except for crt unons, the assocation or associations collec dues or solicit 

contrbutions frm members; and 

(c) The members have votig prieges and representation on the governg board and committs. 

Th (30) days afr such fig th assocation or assoctions wi be deemed to satisfy such organational reuiments, uness th Commsioner maes a fidig that the association or assocations do not satify those orantiona reuiments. 

(4) A group other than as descrbed in Subsecons E(l), E(2) and E(3), subjec to a fidig by the Commisioner that: 

(a) The issuance of the group policy is not contrar to the bet interest of th public; 

(b) The issuance of the group policy would result in ecnomies of acquiition or administration; and 

(c) The benefits ar reonable in relation to th premium ched. 

. F. "Policy" meas, for the puroses of th Act, any policy, contract subscrber agrment rider or endorsement deliere or issued fur deliery in th state by an inurr, fratern benefit socety; nonprofit heath, hospita, or medca servce corpration; prepaid heth plan: heath matenance organation or any siar orgation. 

Drafting l'ote: 

whther issued by insurrs: frternal benefit 

Th Ac is intended to apply to th speed grup and indidual poli. contrC'. and certcate

prepaid heth soties: nonprofit heth. hospita. and medca serv coations:

each state should plans; 

identi thm in 

heth matenace orgns or any si oron. In or to include suc oranons. accrdance with ita statUtory upon state law telogy or by spec sttUto citatin. Depedig

the leglation should provide that the 

, insurance deparent jurcton and othr factrs. separte leglation may be reui In any event, parar telogy us for. or added to by th plans and Oltions may be substitUte

and reations, th corrpondig terms us in t. Ac Th te "reatins" should be replace by the tes "rues " or "rues" as may be approrite under st law. 

Th defition of "

intensity and level. long-term 

whe aaurg tht ca inurance" under th Ac is desgned to alow maum flexbilty in benefit sc.

met. Th Ac is intended to permt th pur' renale expetions for a long-term ca inurce policy long-te ca inurce rehailtatIe. matenace or peona ca se polici to cover eithr diagntic, pretIe. thrapeutic. the . or an combition thref. and not to madate coverage for each of

policy or a rider to such a policy, e. ty of servces. Puruant to th deftin. long-term ca inurce may be eithr a grup or indidual inurce

an acute car unt of g.. lie or accdent and sickes. language in th defition concerng "othr than a hospita" is inteded to alow payment of for. and duly linse or certed as a benefita whn a porton of a hospita ha be desigte long-term ca proder or swig 

Secton 5. Extatrrtorial Jursdcton - Group Long-Term Car Insurance 

No group long-term car insurance coverage may be offere to a resident of th state under a grup policy issued in another state to a grup descrbe in Secon 4E( 4), uness th state or another state havig statUtory and reguatory long-te ca inurance siar to those reuiments substatialy adopte in th state ha made a determtion that such met. reuiments have been

ote: By liitig extraterrtorial JurCton Over other heath policies should jurdicton to "ditiona grups:' it is not the drafrs ' intention tht be lite in th maer. 

Copyrght NAlC 199 
Long Term Car lnuranc:e Model ACt 

Section 6. Disclosure and Performance Standards for Long-Term Care Insurance 

A. The Commissioner may adopt reguations that include stadards for fu and fai diclosur settg forth the maner, content reui disclosurs for the sale of long-term car and 

insurance policies , terms of renewabilty, intial and subsequent conditions of eligibilty, 

non-duplication of coverage proviions, coverage of dependents, prexitig conditions termination of insurance. contiuation or converson, probationary periods, litations

exceptions. reuctons. elition period. reuimenrs fur replacement, rent condions 

and defiitions of terms.


Comment: Thi tion permitS the adoption of regulations estalihig diclosur stadar. renewabilty and eligibiJit\. terms and conaitlons. and other performc:e reuimentS for long.term c:ar insuranc:e. Reguations under subsecion should reolOnize the developing and unque natur of long.term ca inurance and th dicton between 

grup and indi..idual long. term care insurace policies. 

B. :\0 long.term car insurance policy may: 

( 1 ) Be cancelled, nonrenewed or otherwe termate on th grounds of the age or the deterioration of the mental or physical heath of the insur indidual or certcate 

holder: or 

(2) Contain a provision estalishig a new waitig period in the event extig coverage is convertd to or replaced by a new or other form with the same company, except with respect to an incrse in benefits voluntay selec by the insur incfdual 

group policyholder; or 

(3) Provide coverage for skied nuring car only or provide signcantly more coverage for skiled car in a facity than coverage for lower levels of ca. 

C. Prexitig condition: 

(1) No long-term care insurance policy or certcate other than a policy or certcate thereunder issued to a group as defied in Secon 4E(1) shal use a defition of 

condition meas a condition for which medcal 

prexisting condition" which is more restctie than the followig: Prxitig advice or trtment was reommended by, or reeived from a provider of heath car servces, with six (6) months preedg the effectie date of coverage of an inur person. 

(2) No long.term car insurance policy or certcate other than a policy or certcate thereunder issued to a group as defied in Secon 4E(1) may exclude coverage for a loss or confiement which is the result of a prexitig condition uness such loss or confiement begis with si (6) months followig the effectie date of coverage of an insur person. 

(3) The Commissioner may extend the litation periods set forth in Sections GCm and (2) above as to specc age grup categories in spec policy forms upon fidigs that the extension is in the best interest of the public. 

(4) The defiition of "prexitig condition" does not prohibit an insurr from using an application form designed to elicit the complete heath history of an the basis of the answers on that application applicant and 

, from underwtig in accordance with that insurer s establihed underwtig stadards. Unless otherwse provided in the policy or certcate, a prexistig condition, regardless of whether it is disclosed on the application, need not be covere unti the waitig period descrbed in Section GC(2)
 expires. No long-term care insurance policy or certcate may exclude or use war' ers or 

64()4 
Model Reguation Servce- July 199 

riders of any kind to exclude. lit or reuce coverage or benefits for s ..caly named 

or described prexistig diseases or physical conditions beyond the waitig period 

described in Section 602). 

D. Prior hospitalization institutionalation: 

(1) :\0 long-term care insurance policy may be deliere or issued for deliery in thi state 

if such policy: 

(aJ Conditions eligibilty for any benefits on a prior hospitaation reuiment; 

(bl Conditions eligibilty for benefits. provided in an institutional ca settg on the 

reeipt of a higher level of institutional car; or 

Ie) Conditions eligibilty for any benefitS oth th waer of preum ponfement, 

post.acute care or reuperatie benefits on a prior insttutionalation reuiment. 

(2) (al	 A long-term car insurance policy contag post- confement, post-acute ca 

recuperatie benefits shal clealy label in a separate paragraph of the policy or 

certcate entitled "Liitations or Conditions on Eligibilty for Benefits" such 

liitations or conditions, includig any reui number of days of confement. 

(b) A long-term care insurance policy or rider which conditions eligibilty of non- . 

institutional benefits on the prior reeipt of institutional ca sha not reui a 

prior institutional stay of more than thi (30) days. 

Drafting Note: The amendment to the secon is priy intended to reui immedate and clear diclosur whe 

long-term car insurance policy or rider conditions eligibilty for non-institUtional benefits on prior reipt of intitUtional 

ca. 

(3) No long-term ca insurance policy or rider which provides benefits only followig institutionalation sha condition such benefitS upon admsion to a facity for the 

same or relate conditions with a period of less th th (30) days afr diche 

frm the intitution. 

Drafting Note: The Dee 1988 amendment to th secon eliate the t.ay prior hospitation scrn for new 

long-term ca inurce polici. Some stte may wih to consider a "dual-option" alternt:e to th tota prohiition agat th prior hospitatin sc bas on th sts parcuar demogrphi gegrphi an maket ch.

If so, the followig proviion is such an alternt:e: "No long.term ca inurce policy whch conditions th elbilty of benefits on prior hospitaation may be delere or issued for deliery in th State unless the insurr or othr entity 

offerig that policy alo offers a long-term ca inurce policy whch doe not condition eligibiltY oibenefits on such a reuimen 

Editors Note: Seon SD(3) is language frm the orgi model act whch did not prohibit prior insttUtionaltion. Th drrs intended that Seon SD(2) would be elite afr adoption of th amendments to th seon whch prohibit prior institUtionalation. State should exame thir Seon cafuy durg th pros of adoption or amendment of th Act 

E. The Commsioner may adopt reguations estalihig loss ratio stadar for long-term ca insurance policies provided that a spec reference to long-term ca insurance 

policies is contaed in the reguation. 

F. Right to retu . fr look: 

Long.term ca inurance applicants sha have th right to retu th policy or certcate with th (30) days of its delery and to have th preum reded if, afr examtion 

of the policy or certcate, the applicat is not satified for any reon. Long-term inurance policies and certcate sha have a notice promiently prite on th fit page 

Coyr NAlC 
Long.Term Car Insurance Mocel Ac: 

or attched thereto statig in substace tht the applicat shal have the right to retu 

the policy or certcate withi thirty (30) days of itS deliery and to have the premium

refuded if, afr examation of the policy or certcate, other than a certcate issued 

pursuant to a policy issued to a group defied in Section 4Eil) of thi Act, the applicant is 

not satisfied for any reason. 

G. (1) A. outline of coverage shal be deliere to a prospectie applicant for long-term care 

insurance at the rie of intial solicitation though mea which promiently dit

the attntion of the repient to the document and itS purose. 

(a) The Commsioner shal prescrbe a stadard formt. includig style, arangement 

and overal appearance, and the content of an outle of coverage. 

(bl In the case of agent solicitations, an agent must delier the outle of coverage 

prior to the presentation of an application or enrollent form. 

' (C) In the case of di response solicitations, th outle of coverage must be presente 

in conjuncrin with any application or enrollent form. 

(2) The outle of coverage shal include: 

(a) A descrption of the pricipal benefits and coverage provided in the policy; 

(b) A statement of the pricipal exclusions, reuctons, and litations contaed 

the policy;


(c) A statement of the terms under which the policy or certcate, or both, may be contiued in force or dicontiued, includig any reservation in the policy of a 

right to change premium. Contiuation or conversion proviions of group coverage shal be speccalydescribed; 

(d) A statement that the outle of coverage is a summa only, not a contract of 

inurce, and tht the policy or grup mater policy contas governg contractal 

provisions; 

(e) A descrption of the terms under which the policy or certcate may be returned 

and premium refuded; and 

(f) A brief descrption of the relationship of cost of care and benefits. 

H. A certcate issued. pursuant to a group long-term car insurance policy which policy is deliere or issued for deliery in th st9te shal include: 

(1) A descrption of the pricipal benefitS and coverage pro\.ided in the policy; 

(2) A statement of the pricipal exclusions, reductions and limitations contained in the 

policy; and 

(3) A statement that the group mater policy determes governg contractual provisions. 

Comment: The above provisions are deemed appropriate due to the parcular nature of long.term care insurance. and 

are consistent with g1oup insurance laws. Specific stadards would be contaned in reguations Implementing this Act. 

At the tie of policy deliery, a policy sum shal be delivered for an indriduallie 

insurance policy which provides long-term car benefits ..ithi the policy or by rider. In 

640­

Model Reguation Servce - July 199 

the case of dit response solicitations. th insurr shal delier the policy summa upon 

the applicant s reuest. but regaress of reuest sha mae such deliery no later than at 

the tie of policy deliery. In addition to complyig with al applicable reuiments. the 

summa shal also include: 

(1) An explanation of how the long.term car benefit interacts with other components of 

the policy, includig deductions from death benefits; 

(2) An ilustration of the amount of benefits, th lengt of benefit, and the guarante lietie benefitS if any, for each covere person; 

(3) .Ay exclusions, reuctions and litations on benefits oflong-term car; and 

(4) If applicablp. to the policy tye. the sum shal alo include: 

(a) A diclosur of the effects of exerciing other rights under the policy; 

(b) A disclosur of guarantees relate to long-term car costs of insurance charges, 

and 

(c) Curnt and projecte maum lietie benefits. 

J. Any tie a long-term ca benefit, fuded though a lie inurcs vehicle by th acceleration 

of the death benefit, is in benefit payment statu, a monthly report shal be provided to the 

policyholder. Such report shal include: 

(1) Any long-term car benefits paid out durg the month; 

(2) An explanation of any changes in the policy, e.g. death benefits or cash values, due to 

long-term car benefits being paid out; and 

(3) The amount oflong-term ca benefits exitig or remag. 

K. Any policy or rider adverted, makete or offered as long-term car or nursing home 

insurance sha comply with the provisions of this Act. 

Section 7. Admnistrate Procedures 

ReguationS" adopte puruant to th Act shal be in accordance with the provisions of (cite section 

of state insurance code relatig to the adoption and promulgation of rules and reguations or cite 

the state s admintratie procedurs act, if applicable). 

Section 8. Severabilty 

If any provision of ths Act or the application theref to any person or circumstace is for any 

reson held to be invald, the remader of the Act and the application of such provision to other 

persons or circumstaces shal not be afecte thereby. 

Section 9. Effective Date 

Th Act shall be effece (insert date). 

pyrght NArC 640- "; 
Long.Tenn Car Insurance Model Act 

Legistar' e H tory (011 references are to the Proceedintls of the NAICJ 

1987 Proc. 111 19. 655. 6;7.080, 700 (adopted).


1987 Proc. 1115. 23. 632.633. 727, i30. i34 (amended and reprinted).


1988 Proc. 19. 20.21. 629.630. 652. 66I.665/amended and reprintedl.


1989 Proc. I 9. 2S. 703, i54- 755. i89. 793 (a.mendedl.


1989 Proc. 1113. 23.24. .J6B. 476-4";7. 479-484 (a.mended and reprintedl.


1990 Proc. 16. 27.28. 477. 541. 5.J2. 556-561 (a.mended a. reprinted).


640­

APPENDIX D


Model Reguation Servce-Januar 199 

LONG-TERM CAR INSURA"iCE MODEL REGULATION 

Table of Contents 

Section l. Purose


Section 2. Authority


Section 3. Applicabilty and Scope


Section 4. Defitions


Section 5. Policy Defitions


Section 6. Policy Practices and Proviions


Section 7. Reui Diclosur Proviions


Section 8.
 Prohibition Agait Post Clais Underwtig Section 9. Policies Minum Standards for Home Heath Car Benefits in Long-Term Car Insurance

Section 10. Reuiment to Offer Ination Protetion


Section 11. Reuiments for Replacement


Section 12. Discretionar Powers of Commsioner


Section 13. Reserve Standards


Section 14. Loss Ratio


Section 15. Filg Requiment


Section 16. Stadard Fonnt Outle of Coverage


Section 1. Puose 

The purose of thi reguation is to implement (cite section of law which sets Long- forth the NAlC Term Car Insurance Model ActJ, to promote the public interest, to promote the avaiabilty oflongunai 

term car insurance coverage. 

or deceptie sales or 

to prote applicants for long-term car insurance, as defied, from

of longenrollent practices, to facitate public understadig and comparon term ca inurce coverages, and to facitate flexibilty and inovation in the development oflong-term car insurance. 

Section 2. Authority 

Th reguation is issued puruant to the authority veste in the Commissioner under (cite sections oflaw enactg th 

authority to issue reguations NAlC Long-Ter Car Inurce Model Ac and estalihig th Commis.sioner

Section 3. Applicabilty and Scope 

Except as otherwe specifcaly provided, thi reguation applies to all long- policies deliere or term car insurance issued for deliery in ths state on 

fraternal benefit or afr the effectie date heref, by insurrs; societies; nonprofit heath, hospita and medcal servce heath plans; heath corporatioQ.s; prepaid matenance organations and al simar organations. 

Drafting Note: This reguation. like the NAlC
 concractS. subscriber a Long-Term Car Insurance Model Act. is intended to apply to mentS. riders and policies.
 endorsementS whether issued by insurers: nonprofit heath. hospita and medcal servce fraternal benent societies: corporations: prepaid heath plans: health all simar organations. In matenance organations and order to include such organations. reguations should tut:ry terminol gy or by specc identi them in accordance with StatUtory citation. Dependig upon state Junsdictlon. an9 otner factors. separate reguations may be law and reguation. insurance deparent

Parcular te!"ology used reui. In any event. the reguation should provide that the by these plans. organizations and arangementS (e. member! may be substitute for. or added to, the corrspondig terms used in th reguation. 

g.. concract. policy. certcate. subscriber 

P:1 

641­
Long-Term Car Insurance Mociel Reguation 

Se(:tion 4. Definitions 

. For the purose of this reguation, the terms "long-tenn car insurance;' "group long-term car insurance;' " commissioner," "applicant:' " policy" and " cert.icare " shall have the meanings set . forth in Section of the AlC Long-Term Car Insurance Model Act. 

Drafting Note: '.""'ere ,he word " Cornmissione " appears in this regulation. :he approp 3:te desilmaaon ior the c iei insurance supeI"-1sol';: "ffic:;11 oi ,he state should be subsatuted. To the extent hat ,he moael act IS not aaupted. the rull definition of the above terms cont.ine; i. ,hat model act should be tncorporat. lntO ,hlS Sel:lonSe(:tion 5. Policy Definitions 

No long-term care insurance policy deliered or issued for deliery in thi state shal use the terms set fort below, unless the term ar defied in the policy and the defitions satify the followig requirments: 

A. "Acute condition" means that the indidual is medcaly unstale. Such an indidual reuis frquent monitorig by medical professional, such as physicians and registere nures, in order to matai his or her heath statu. 

B. "Home health car servces" means medical and nonmedcal servces, provided to il disabled or infi persons in their residences. Such servces may include homemaker servces, assistance with actities of daiy lig and respite car services. 

C, "Medicare" shall be defied as "The Heath Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as Then Constitute or Later . Par I of '\ended;' or "Title I, Public Law 89- , as Enacted by the Eighty-Ninth Congrss of of America and popularly known as the Health Insurance the Unite States

for the Aged Act constitute and any , as then later amendments or substitutes thereof,' or words of simar import. 

D. "Menta or nervous diorder" shal not be defied to include more than neurosis, psycho­ neurosis, psychopathy, psychosis, or menta or emotional diseae or disorder. 

E. "Skied nuring car;' " intermediate car;' "personal car;' "home car;' and other servces shal be defied in 

settg in which 

relation to the level of ski reui, the nat1l of the car and the car must be deliered. 

F. Al providers of servces, includig but not lite to "skied nuring facilty, ca facilty, extended

facity,

intermedate car facity;' " convalescent nuring home;' " personal car " and "home car agency" shal be defied in relation to the servces and facilties reui to be avaiable and the 

the servces. The licensur or degr statUs of those providig ot' supervsing defition may requi that the provide: be appropriately licensed or certed. 

D:afting ote: State laws relacig to relerence to or i.corporation of the nuring and other faciities and agencies are nOt uniiorm. Accordigly, i.di-idual State law specc may be requi i. struCtur_'lg' each deiiition. 

Co:nment: This section is intende; ,0 spear;.. reuid definitional elements of sever:ll terms commonly fOW1d in lon!r' term C::t" tnsur:Jce policies. while ;11l0Wtng 


some c1exibility i. ,he deiiitions themselves.


Se(:tion 6. Policy Practices and Provisions 

Renewability. The terms "

in any inciduallong-term car guaranted renewable" and "noncancellable" shal not be used insurance policy without accordance with the fuher e."'planatory language in disclosur reuiments of Section 7 of this reguation. 

641. 
Model &!guation ServCt-: Januar 199


(1) No such policy issued to an indidual shal conta renewal pr?vi ions less favora?le to the insur tha "guarante renewable:' However, the Comnussloner may authonze nonrnewal on a statewide basis, on terms and conditions deemed necessaI by the Commissioner, to best pro t the interests of the insurs, if the insurr demonstrat€s: 

(a) That renewal wi jeopardie the insurr s solvency; or 

(b) That: 

(i) The actual paid clais and expenses have substatialy exceeed the premium and investment income associate with the policies; and 

(ii) The policies wil contiue to experience substatial and unexpecte losses over their lifetie; and 

(Ui) The projecte loss experience of the policies canot be signcantly improved or mitigated though reonable rate adjustments or other and reonable methods;

(iv) The insurer has made repeated and good faith attempts to stabilize loss
 experience of the policies, includig the tiely fig for rate adjustments. 

(2) The term "guaranteed renewable" may be used only when the insur has the right to contiue the long-term car insurance in force by the tiely payment of premiums and when the insurr has no unateral right to mae any change in any provision of the policy or rider whie the insurance is in force, and cannot declie to renew, except that rates may be revied by the insurr on a class basis. 

(3) The term "noncancellable " may be used only when the insured has the right to contiue the 

durg which period the 

long-term car insurance in force by the tiely payment of premiums insurr has no right to unilaterally make any change in any proviion of the inurance or in the premi ur rate. 

B. Litations and Exclusions. No policy may be deliere or issued for deliery in this state as long-term car insurance if such policy liits or excludes coverage by trtment, medcal condition or accident tye of iless , except as follows: 

(1) Prxistig conditions or dieaes; 

(2) Mental or nervous diorders; however, this shal not permit benefits on the basis of Alheimer exclusion or liitation of

s Disease' 

(3) Alcoholism and drg addiction; 

(4) Illness, tratment or condition arsing out of: medcal 

(a) VIlar or act of war (whether declard or undeclard); 

(b) Parcipation in a felony, riot or insurtion; 

(c) Service in the aned forces or unts auxar thereto; 

(d) Suicide (sane or insane), attmpte suicide or intentionaly self-inflcte injury; or 

(e) Av;atidn (this exclusion applies only to non-farpayig passengers). 

COPYrght NAlC 1990 

641. 
, 

, 

Long-Term Car Insurance Model Reguation 

(5) Trtment provided in a governent facilty (unless otherwse requid by law), servces for which benefits ar avaiable under Medca or other governental program (except Medcaid), any state or federal workers ' compensation, employer s liabilty or 

occupational diseae law, or any motor vehicle no-fault law, servces provided by a member or the covere person s immedate famy and servces for which no charge is nonny made in the absence or insurance. 

(6) Th Subsection B is not intended to prohibit exclusions and liitations by 

provider or terrtorial litations. tye or 

Drafting Note: Pargraph (6) is intended to permt (al exclusions and litations for payment for servces provided outside the Unite States and (bl legitite varations in benefit levels to reflec dierences in provider rates. 

C. Extension or Benefits. Termation of long-term car insurance shal be without prejudice to any benefits payable ror institutionalation if such institutionalation began whie the long.term car insurance was in force and contiues without interrption afr termation. Such extension or benefits beyond the period the long-term car insurance was in force may be 

benefits and may be 

liite to the duration of the benefit period

subjec to any policy , if any, or to payment of the maum

waitig period, and al other applicale proviions or the policy. 

D. Contiuation or Conversion. 

(1) Group long-term car insurance issued in this state on or afr the effectie date of this section shall provide covere indiduals with a basis for contiuation or conversion of 

coverage. 

(2) For the puroses of thi section a basis ror contiuation or coverage" meas a policy proviion which maitais coverage under the existig group policy when such coverage would otherwse termate and which is subject only to the contiued tiely payment or premium when due. Group policies which restrct proviion of benefits and servces to, or conta incenties to use cert providers andlor racities may provide contiuation benefits which ar substatialy equialent to the benefits of the exitig group policy. The Commsioner shal make a determation as to the substatial equialency of benefits, and in doing so, shal tae into consideration the dierences between maaged car and non-maaged car plans, includig, but not lited to provider system arangements, servce avaiabilty, benefit levels and admtrative complexity 

(3) For the puroses or thi section a basis for conversion of coverage" meas a policy provision that an indidual whose coverage under the group policy would otherwe terminate or has been termate for any reson, includig dicontiuance of the group policy in its entity or with respect to an insur class, and who has been contiuously insur under the group policy (and any group policy which it replaced), for at least SLX months imedately prior to termation, shal be entitled to the issuance of a convert policy by the insurr under whose group policy he or she is covered thout evidence or LasurabUity. 

(4) Forthe puroses of ths section. "convert policy" meas an ind.dual policy or long- term car insurance providig benefits identical to or benefits determined by the Commsioner to be substatialy equialent to or in excess or those provided under the group policy from which conversion is made. Where the group policy from which conversion is made restrcts provision of benefits and servces to, or contas incenties to use cert providers and! or facities, the COmmsioner. in mag a determation as to the substatial equIalency or benefits, sha tae Lato consideration the dierences 

641-4 
Model Reguation Servce Januar 199 

betw n maaged car and non-maaged car plans. includig, but not lite to provider system arangements, servce avaiabilty, benefit levels and admstratie 

complexity. 

(5) Written application for the convert policy shal be made and the fist premium due. if any, shall be paid as dited by the insurr not later than thir-one (31) days afr termination of coverage under the group policy. The convened policy shall be issued effective on the day folloy."ing the termation of coverage under the group policy, and 

shal be renewable annualy.


(6) Unless the group policy from which conversion is made replaced previous group coverage, the premium for the convert policy shal be calculate on the basis of the insurd' s age at inception of coverage under the group policy from which .conversion is made. \Vhere the group policy from which conversion is made replaced previous group 

coverage, the premium for the convert policy shal be calculate on the basis of the insured' s age at inception of coverage under the group policy replaced. 

(7) Continuation of coverage or issuance of a convert policy shal be madatory, except where: 

(a) Termination of group coverage resulte from an indidual's faiur to make any requid payment ofpremiwn or contrbution when due; or 

(b) The terminating coverage is replaced not later than thi-one (31) days afr termination, by gTOUP coverage effectie on the day followig the termation of coverage: 

(i) Providig benefits identical to or benefits determed by the Commisioner to be substatialy equialent to or in excess of those provided by the termatig coverage; and 

(ii) The premium for which is calculated in a maner consistent with the requie­ ments of Paragraph (6) of ths section. 

(8) Not\l"ithstadig any other provision of thi section, a convertd policy issued to an indidual who at the tie of conversion is covere by another long-term car insurance policy which provides benefits on the basis of incur expenses, may conta" a provision which results in a reuction of benefits payable if the benefits provided under the additional coverage, together with the fu benefits provided by the convertd policy, would result in payment of more than 100 percent of incux expenses. Such provision sha only be included in the convertd policy if the convert policy also provides for a premium decrease or refud which reflects the reuction in benefits payable. 

(9) The convertd policy may provide that the benefits payable under the convert policy, together with the benefits payable under the group policy from which 

made, shall not exceed those that would conversion is 

have been payable had the individ ual' coverage under the group policy remaed in force and effect. 

(10) Notwithstandig any other provision of thi section, any insurd indi"idual whose eligibilty for group long-term car coverage is based upon his or her relationship to another person, shal be entitled to contiuation of coverage under the group policy upon termination of the qua.g relationship by death or disolution of maage. 

opyrght NAlC 1990 

641­
Long-Term Car Insurce Model Reguation 

(11) For the purposes of thi section: a "Managed-Car Plan" is a heath car or assiste living arrangement designed to coordiate patient care or control costs through utiation re\-1.ew, case maagement or use of specifc provider networks. 

Section 7. Requied Disclosure Provisions 

A. Renewabilty. Individual long-term car insurance policies shall contai a renewabilty provision. Such provision shall be appropriately captioned, shall appear on the fist page of the policy. and shal clealy state the duration, where lited, of renewabilty and the duration of the term of coverage for which the policy is issued and for which it may be renewed. Ths provision shal not apply to policies which do not conta a renewabilty provision, and under which the right to nonrenew is reserved solely to the policyholder. 

" Drafting :-ote: The last sentence of this subsection is intended to apply to long-term combined with life insurance policies. since lie insurance policies car policies which ar par of generaly do not conta renewabilty proviions. 

B. Riders and Endorsements. Except for riders or endorsements by whch th inurr effecate a request made in wrtig by the insux under an indiduallong.term car insurance policy, all riders or endorsements added to an afr indidual long-term car insurance policy date of issue or at reinstatement or renewal which reuce or eliate benefits or coverage in the policy shal reui signed acceptace by the indidual IDsux. Afr the date of policy issue, any rider or endorsement which increses benefits or coverage with a

signed by the insured

concomitant increase in premium durg the policy term must be agr to in wrtig

Where a separate additional , except if the incresed benefits or coverage ar requi by law premium is charged for benefits provided in connection with riders or endorsements, such premium charge shal be set forth in the policy, rider or endorsement. 

C. Payment of Benefits. A long-term car insurance policy which provides for the payment of benefits based on stadar descrbe as 

or words of usual and cutomary, reonale and custoID simar import shal include a defition of such terms and an explanation of such terms in its accompanyig outle of coverage. 

D. Litations. If 

with 

a long-term car insurance policy or certcate contas any litations repe to Prexitig conditions. such litations sha appe as a separate paragraph of the policy or certcate and sha be labeled as "Prxistig Condition Litations:' 

E. Other Litations or Conditions on Eligibilty for Benefits. A long-term car insurance policy or certcate contaig any litations or conditions for eligibilty other than those prohibite in (insert 

Car Insurance Model Act) shal set forth a description of 

citation to state law corrspondig to Section 6D(2) of the LDng-Term

such litations or conditions
 includig any requi number of days of confieme , in a separate paragraph of the policy or certcate and shal label such paragraph "Litations or Conditions on Eligibilty for Benefits:' 

Section 8. Prohibition Against Post-Claims Underwiting 

A. All applications for long-term 

guaranteed issue shal COntai clea 

car insurance policies or certcates except those which are 

health condition of the applicant. ascert and unambiguous questions designed to the 

B. (1 If an application for long-term car insurance contais a question which asks whether the applicant has had medication prescrbed by a physician applicant to list the medcation that has been , it must also ask the

prescribed. 

641-6 
Model Reguation Servce-Januar 199 

(2) If the medcations liste in such application were known by the ins , or should have been known at the tie of application. to be ditly relate to a medcal condition for which coverage would otherwse be denied, then the policy or certcate shal not rescinded for that condition. 

c. Except for policies or certcates which ar guarante issue: 

(1) The following language shal be set out conspicuously and in close conjunction with the applicant's signatur block on an application for a long-term car insurance policy or certcate: 

Caution: If your anwers on th appliC3on ar incorr or untre, (company) has the right to deny benefits or rescind your policy. 

(2) The follo..ing language, or language substatialy simar to the followig, shal be set out conspicuously on the long-term car insurance policy or certcate at the tie of deliery: 

Caution: The issuance of this long-term care insurance (policy) (certificate) is based upon your responses to the questions on your application. A copy of
 your (application) (enrollment form) (is enclosed) (was retaied by you when you applied). If your answers are incorrect or untre, the company has the right to deny benefits or rescind your policy. The best time to clear up any questions is now, before a claim arses! If, for any reason, any of your answers are incorrect, contact the company at this address: (insert address) 

(3) Pror to issuance of a long-term car policy or certcate to an applicant age eighty (80) or older, the insurer shal obta one of the followig: 

(a) A report of a physical examination; 

(b) An assessment of fuctional capacity; 

(c) An attndig physician s statement; or 

(d) Copies of medcal reords. 

D. A copy of the completed application or enrollment form (whichever is applicable) shal be
 deliered to the insur no later than at the tie of deliery of the policy or certcate uness it was retaed by the applicant at the tie of application. 

E. Every insurr or other entity sellg or issuig lon?-term care insurance matai a benefits shal record of al policy or certcate rescissions, both state and countrde, except

to the Insurance Commissioner in the 

those which the insur voluntay effectuate and shal annualy fuh ths inormtion formt prescribed by the National Association of Insurance Commissioners. 

Section 9. Minimum Standards for Home Health Care Benefits 


in Insurance Policies Long-Term Care 

A. A long-term care insurance policy or certcate may not. if it provides benefits for home health car services, lit or exclude benefits: 

(1) By requig that the insurd/clait would nee skied car in a skied nursing facilty if home heath car servces were not provided; 

Copyrght NAlC 1990 

6-H­
Lollg-Term Car Insurance Model Reguation 

(2) By reuig that the insu.clait fit or simultaeously reeive nursing an /or

therapeutic servces in a home or community settg before home health car ser.i1ces 

ar covere;


(3) By liiting eligible semces to servces provided by registered nurses or licensed practical nurses; 

(4) By requig that a nurse or therapist provide servces covered by the policy that can 

be provided by a home heath aide. or other licensed or certed home car worker actig withi the scope of hi or her licensur or certcation. 

(5) By reuig that the insurclait have an acute condition before home heath car servces ar covere; 

(6) By litig benefits to servces provided by Medcarerted agencies or providers. 

B. Home heath car coverage may be applied to the nonhome heath car benefits provided in . the policy or certcate when determg maximum coverage under the terms of the policy or certcate. 

Drafting Note: Subsection B permits the home health car benefits to be counte toward the maum length of long- term care coverage under the policy. The subsection is not intended to 

would make the benefit ilusory. It is restrct home heath car to a period of tie which suggeste that fewer than 40 visits amount to ilusory home heath car benefit. an 

Section 10. Requirement to Offer Inflation Protection 

A. No insurr may offer a long-term car insurance policy uness the insurr alo offers to the policyholder the option to purchase a policy that provides for benefit levels to incrse with
 benefit maums or reasonable durations which ar meagf to account for reonably anticipate incres in the costs of long. term car servces covere by the policy. Insurrs must offer to each policyholder, at the tie of purchase, the option to purchase a policy with an ination protetion featU no less favorable than one of the followig: 

(1) Increses benefit levels annualy, (in a maner so that the increses ar compounded annualy); 

(2) Guarantes the insur indidual the right to periodicaly incrse benefit levels without providig evidence of insurabilty or heath status so long as the option for the previous period has not been declied; or 

(3) Covers a specifed percentage of actual or reonable charges. 

B. Where the policy is issued to a group, the requi offer in Subsection A above shal be made to the group policyholder, except, 
 ii the policy is issued to a group defied in (Section 4E(4) of the Act) other than to a contiuig care retiment communty, the offerig shal be made to each proposed certcateholder. 

C- The offer in Subsecrion A above shal not be requi of: 

(1) Lie insurance policies or riders containg accelerate long-tenn car benefits. nor 

(2) Expense incurd long-term car insurance policies. 

641­
, .

Mode! Reguation Servce- January 199 

D. Insurers shall include the foUowig informtion in or with the outlie of coverage: 

(1) A graphic comparson of the benefit levels of a policy that increses benefits over the policy period \\'1th a policy that does not increse benefits. The graphic comparson 

shal show benefit levels over at leat a twenty (20) yea period. 

(2) Any expected premiwn increses or additional premiwns to pay for automatic or optional benefit increses. If premium increses or additional premiums -.1 be based on the atted age of the applicant at the tie of the increse, the insurr shal also disclose the magntude of the potential premium the applicant would n to pay at ages 75 and 85 for benefit incrses. 

An insurer may use a reasonable hypothetical, or a graphic demonstration, for the puroses of th diclosur. 

Drafting Note: It is intended that meaingf inflation protetion be provided. It is suggeste that a minmum of fie

benefit 

percent (5%) (compounded) annual cost miimums or durations could include 

incrse be used as a base for determg futu costs and premiums. Meagf providig increes to atted age, or for a period such or for some multiple of the policy maum benefit. or throughout the period of coverage. as at leat 20 yea 

Section 11. Requirements for Replacement 

Question Concerning Replacement. Indidual and dit response solicite long-term car insurance application forms shall include a question designed to elicit informtion 

whether the proposed insurance policy is intended to replace as to 

any other accident and sickness or long-term car insurance policy presently in force. A supplementa application or other form to be signed by the 
 pplicant contag such a question may be used. 

B. Solicitations Other than Dirt Response. Upon determing that a sale 'N involve replacement, an insurer; other than an insurr using dict response solicitarion methods, or its agent; shal fuh the applicant, prior to issuance or delivery or the individual long- term car insurance policy, a notice regardig replacement of accident and sickness or long-term car coverage. One copy of such notice shal be retaied by the applicant and an additional copy signed by the applicant shal be retaied by the insurr. The notice shal be provided in the foUowig reui

maner: 

NOTICE TO APPLICANT REGARDING REPLACEMENT 

OF INDIVIDUAL ACCIDENT AND SICKNESS OR LONG­TERM CARE INSURANCE 

According to (your application ! (information you have furnished), you intend to lapse or otherwise terminate existing accident and sickness or long term care insurance and replace it with an individual long- insurance policy to be issued by (company nameJ Insurance Company. Your new policy provides thirt term care

days within which you may decide. (30) without cost. whether you desire to keep the information and protection policy. For your own , you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy. 

Health conditions which you may presently have (preexisting conditions). may not be immediately 

or fully covered under the new pOlicy. This could result in deniaior delay in payment under the new policy. whereas a similar claim might have been payable under your present of benefits

policy. 

2. You may wish to secure the advice of your present insurer or its agent regarding the proposed 

replacement of your present policy. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacIng your present coverage, 

opyrght NArC 1990 

641. 
LoI1g-Term Car Inurance Model atioI1 

3. If, after due consideration, you stll wish to terminate your present policy and replace it with new

coverage, be certin to trfuJly and completely answer aJl questons on the application concerning your medical healt history. Failure to include aJl material medical information on an application may provide a basis for the company to deny any fure claims and to refund your premium as though your policy had never been in force. After the application has been completed and before 

your sign it, reread it carefully to be certain that all information has been properly recorded. 

The above "Notice to Applicant" was delivered to me on: 

(Date) 

(Applicant' s Signature) 

C. Dit Response Solicitations. Insuxrs using di response solicitation methods sha delier a notice regardig replacement of accident and sickness or long-term car coverage to the applicant upon issuance of the policy. The reui notice sha be provided in the followig maner: 

NOTICE TO APPLICANT REGARDING REPLACEMENT 

OF ACCIDENT AND SICKNESS OR LONG-TERM CARE INSURANCE 

According to (your application) (information you have furnished), you intend to lapse or otherwise terminate 

existing accident and sickness or longinsurance. policy delivered herewith issued by (company name) Insurance term care insurance .and replace it with the long-term care

Company. Your new policy provides thirt (30) days within which you may decide. without cost whether you desire to keep the 

For your own information and protecton policy. , you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy. 

1. Healt conditions which you may presently have (preexisting conditions), may not be immediately 

or fully covered under the new policy. This could result in denial or delay in payment of benefits under the new policy, whereas a similar claim might have been payable under your present 

policy. 

2. You may wish to secure the advice of your present insurer or its agent regarding the proposed 

replacement of your present policy. This is not only your right, but it is also in your best interest to 

make sure you understand all the relevant factors involved in replacing your present coverage. 

3. (To be included only if the application is attached to the 

wish to terminate your present policy and replace it with new coverage, read policy.J If, after due consideration, you still

application attached to your new policy and be sure that all questions are 	 the copy of the 

correctly. Omissions or misstatements in the application could cause an otherwise valid claim answered fully and

be denied. Carefully check the application and write to lcompany name and addressl within 

(30) 	 days if any information is not correct and complete. or if any past medical history has been left thirt

out of the application. 

(Company Name) 

G41 
Model Reguation Servce-Januar 199 

Section 12. Discretionar Powers of Commssioner 

The Commissioner may upon wrttn reuest and afr administratie hearg, issue an order an to modi or suspend a specifc provision or provisions of this reguation ..-ith respect to a specifc long- nn care insurance policy or certcate upon a wrttn fidig that: 

A. The modication or suspension would be in the best interest of the insurs; and 

B. The purposes to be achieved could not be effectiely or effciently achieved without the
 modication or suspension; and 

C. (1) The modication or suspension is necessar to the development of resonable approach for insurg long-term car; or 

an innovatie and 

(2) The policy or certcate is to be issued to residents of a lie car or contiuig car retiment communty or some other residential communty for the modication or elderly and the suspension is reasonably relate to the specal nee or natur of such a comm unity; or 

(3) The modification or suspension is necessar to permit long-term car insurance to be sold as par of, or in conjunction with, another insurance product. 

Drafting ote: This provision is intended to provide the accommodate specifc and inno\" Commissioner with lite discrtion and flexibilty to ative long-term care insurance product interest. This provision is intended to be used which ar shown to be in the public s best sparigly for this purose. 

Section 13. Reserve Standards 

A. When long-term care benefits ar provided through the acceleration of benefits under 

group or indidual lie policies or riders to such policies, policy reserves for such benefits 

shal be determined in accordance with (cite the stadard valuation law for lie insurance which contais a section referrg to "special benefits" for which tales must be approved by the commissioner). Clai reserves must also be established in the case when such policy or rider is in clai status. 

Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utig al relevant decrements except for voluntar termation Single decrement rates. approxitions ar acceptale if the calculation produces essentialy simar reserves, if the reserve is clealy more conservatie, or if the reserve is immaterial. The calculations may take into account the reduction in lie insurance benefits due payment of long- to the term car benefits. However

term car , in no event shal the reserves for the long- benefit and the lie insurance benefit be less than the reserves insurance benefit assumg no long-term car benefit. 

for the lie 

In the development and 
calculation of reserves for subsection policies and riders subject to this , due regard shall be given to the applicable policy methods, administratie procedurs and al other provisions, marketig

considerations which have an impact on projected clai costS. includig, but not lited to, the followig: 

(1) Definition of insured events;


(2) Covered long-term care facilties; 

(3) Existence of home convalescence car coverage; 

(4) Defiition of facilties; 

CoPyrght N.\lC 1390


tr­
Long.Term Car Insurance Model Reguation 

(5) Existence or absence of barers to eligibilty; 

(6) Premium waier provision:


(7 Renewability;


(8) Ability to raise premiums; 

(9) Marketig method;


no)U nderwtig procedurs;


(11) Clais adjustment procedurs; 

(12) Waitig period; 

(13) Maxum benefit; 

( 14) Avaiabilty of eligible facilties; 

(15) Margis in claim costs; 

(16) Optional nature of benefit; 

(17) Delay in eligibilty for benefit; 

(18) Inflation protection proviions; and 

(19) Guaranteed insurabilty option. 

Any applicable valuation morbidity tale shal be certed as appropriate as a statutory val uation tale by a member of the American Academy of Actuares. 

B. When long-term car benefits are provided other than as in Subsection A above, reserves shal be determed accordance with (cite law referrg to mium heath insurance in 

reserves, the NArC version of which reui reserves "using a tale estalihed for reserve puroses by a qualed actuar and acceptale to the commissioner 

Section 14. Loss Ratio 

Benefits under inclduallong-term car insurance policies shal be deemed reasonable in relation to premiums provided the expecte 

which provides for adequate loss ratio is at leat sixty percent, calculated in a maner reservg of the long-term car insurance rik. In evaluatig the expecte loss ratio, due consideration shal be gien to al relevant factors, includig: 

A. Statistical credibility of incurd clais experience and earned premiums; 

B. The period for which rates ar computed to provide coverage; 

C. Experienced and projected trnds; 

D. Concentration of experience with early policy duration; 

E. Expected clai fluctuation; 

4J­
Model Reguation Servce-: Januar 

F. Experience refuds, adjustment. or didends; 

G. Renewabilty featurs; 

H. .-'1 appropriate expense factors;


Interest;


J. Experiental natur of the coverage; 

K. Policy reserves;


L Mi of business by risk classifcation; and


M. P lits. oduct featurs such as long eliation periods, high deductbles and high maum

Drafting Note: The enumeration of the t.n items includes factrs traditionaly not alowed in calculatig rate. Because of the desir to foster development of the long-term ca prouct the drafrs' intention is that th consideration of these factors wi provide sufcient latitude to achieve the sixty percnt 1088 ratio. 

Section 15. Filng Requiement 

Pror to an insurer or similar organation offerig grO\.P long-term car insurance to a resident of th state pursuant to S€(tion 5 of the Long-Term Car Insurance Model Act, it shal fie with the Commssioner evidence that the group policy or certcate thereunder has b n approved by a state havig statutory or regulatory long-term car insurance reuiments substatialy simar to those adopte in th state. 

Section 16. Standard Format Outlie of Coverage 

Ths section of the reguation implements, interprets and makes specc, the proviions of (Secon 6G of the Long-Term Car Insurance Model Act) (cite provision oflaw reuig the Commsioner to prescrbe the formt and content of an outle of coverage) in prescrbing a stadard formt and the content of an outle of coverage. 

The outlie of coverage shal be a frstadig document, using no smaer than ten point tye. 

B. The outlie of coverage shal conta no material of an advertsing natur. 

C. Text which is capitaed or underscore in the standard f':!1t outlie of coverage may be emphasized by other meas which provide prominence equialent to such capitaation or underscorig. 

D. Use of the text and sequence of text of the 

unless otherwise specifcaly indicate. 

stadard formt outle of coverage is madatory 

E. Formt for outle of coverage: 

opyrght NAlC 1990 

641. 
Long-Te Car Inurance Model Reguation 

rCOMPANY NAME) 

(ADDRESS - CIT & STATE) 

(TELEPHONE NUMBER) 

LONG-TERM CARE INSURANCE


OUTLINE OF COVERAGE


(Policy Number or Group Master Policy and Certificate Number) 

(Except for policies or certificates which are guarantee issue, the following caution statement, .or language substantially similar. must appear as follows in the outine of coverage. 

Cauton: The issuance of this long-term care insurance (policy) (certficate) is based upon your responses to the questons on your application. A copy of your (application) (enrollment formj (is enclosed) (was retained by you when you applied). If your answers are incorrct or untre, the company has the right to deny benefits or rescind your policy. The best time to clear up any questions is now, before a claim arises! , for any reason, any of your answers are incorrect. contact the company at this address: (insert address) 

1. This policy is 
 an individual policy of insuranceJ(a group

jurisdiction in which group policy was issued)). policyj which was issued in the (indicate 

2. PURPOSE OF OUTLINE OF COVERAGE. This outline of coverage provides a very brief description of the important features of the policy. You should compare this outline of coverage to outlines of eoverage 

for other policies available to you. This is not an insurance contract, but only a summary of coverage. 

Only the indivdual or group policy contains governing contractual provisions. This means that the policy or group policy sets fort in detail the rights and obligations of both you and the insurance company. Therefore, if you purchase this coverage, or any other coverage, it is important that you READ YOUR POLICY (OR CERTlFICATE) CAREFULLY! 

3. TERMS UNDER WHICH THE 

REFUNDED. 

POLICY OR CERTIFICATE MAY BE RETRNED AND PREMIUM

tree 

(al (Provide a brief descripton of the right to return look" provision of the policy. 

(bl (Include a statement that the policy either does or does not contain provisions providing for a refund or partial refund 
 at premium upon the death at an insured or surrender at the policy or certficate. If the policy contains such provisions, inciude a description of them. 

4. THIS IS NOT MEDICARE SUPPLEMENT COVERAGE. If you are eligible for Medicare, Medicare Supplement Buyer's Guide available from the insurance company. review the

(a) For agentsj Neither insert company namej nor its agents represent Medicare, the federal government or any state government 

(b) (For direct responseJ (insert company namej is not representing Medicare, the 


or any state government federal government 

5. LONG-TERM CARE COVERAGE. Policies of this category are designed to provide coverage for one 

or mare necess or medically necess diagnOSc, prvent, therapeutc, rehabilitatie, maintenance. or persona! care servces. provided in a setting 

nursing home, in the community or in the home. other than an acute care unit of a hospital, such as in a 

641­
Model Reguation Servce Januar 199


This policy provides coverage in the form of a fixed dollar indemnity benefit for covered long-term care 

expenses. subject to policy (limitations) (waiting periods) and (coinsurancej requirements. (Modify this 

paragraph if the policy is not an indemnity policy. 

6. BENEFITS PROVIDED BY THIS POLICY. 

(a) (Covered servces. related deductible(s), waiting periods. elimination periods and benefit maximums. 

(b) (Institutional benefits. by skilievel.j 

(c) (Non-institutonal benefits, by skilleve!.) 

(Any benefit screens must be explained in this section. If these screens differ for di erent benefits, explanation of the screen should accompany each benefit description. If an attending physician or other specified person must certfy a certain level of functonal dependency in order to be eligible for benefits. this too must be specified. If actties of daily livng (ADLs) are used to measure an insured' need for long-term care, then these qualifying criteria or screns must be explained. 

7. LIMITATIONS AND EXCLUSIONS. 

(Describe: 

(a) Preexisting conditions;


(b) Non-eligible facilities/provider; 

(c) Nan-eligible levels of care (e.g., unlicensed providers, car or treatment provided by a family member, etc. 

(d) Exclusions/exceptions;


(e) Umitations.


(Tis section should provide a brief specific description of any policy provisions which limit. exclude, 

restct reduce, delay, or in any other manner operate to qualify payment of the benefits described in (6) above. 

THIS POLICY MAY NOT COVER ALL THE 

CARE NEEDS. 

EXPENSES ASSOCIATED WIT YOUR LONG-TERM

8. RELATIONSHIP OF COST OF CARE AND BENEFITS. Because the casts of long- will likely increase over time, you should consider whether and how the benefits of this plan may be term care services

adjusted. (As applicable, indicate the following:


(a) That the benefit leve! will not increase over time; 

(b) Any automatic benefit adjustment provisions; 

(c) Whether the insured will be guaranteed the option to buy additional benefits and the basis upon 

which benefits will be increased over time if not by a specified amount or percentage: 

(d) If there is such a guarantee, include whether additional underwriting or health screening will be required. the frequency and amounts of the upgrade 

limitations: options, and any significant restrictions or 

(el And finally, describe whether there will be any additional premium charge imposed. and how that is 

to be calculated. 

Copyrght NAlC 1990


641. 
Long-Term Car Insurce Model Reguation 

9. TERMS UNDER WHICH THE POLICY (OR CERTIFICATE) MAY BE CONTINUED IN FORCE 

DISCONTINUED. 

((a) Describe the policy renewability provisions: 

(b) For group coverage, specifically describe continuation!conversion provisions applicable to the 

certificate and group pOlicy: 

(c) Describe waiver of premium provisions or state that there are not such provisions; 

(d) State whether or not the company has a right to change premium, and if such a right exists. describe clearly and concisely each circumstance under which premium may change. 

, O. ALZHEIMER' S DISEASE AND OTHER ORGANIC BRAIN DISOROERS. 

(State that the policy provides coverage for insureds clinically diagnosed as having Alzheimer's disease or related degenerative and dementing ilnesses. Specifically describe each benefit screen or 

other policy provision which provides preconditions to the availabilty of policy benefits for such an 

insured. 

. PREMIUM. 

((a) State the total annual premium for the policy; 

(b) If the premium varies with an applicant's choice among benefit options. indicate the portion of 

annual premium which corresponds to, each benefit option. 

, 2. ADOmONAL FEATURES. 

((a) Indicate if medical underwriting is used: 

(b) Describe other important features. 

Legilatve History (al references are to the Proceedines of the NA/C/ 

1988 P1'c. 19. 20.21. 629. 630. 652. 656-661 (adopted). 1989 P1'c. 19. 24-25, 703, 754- 755. 791. 794 (amended). 1989 ?roc- 1113. 23.24. 468. 476-477 484-493 (amended and reprinted). 1990 ?roc. (amended an reprinted). 

641.