Federal Requirements for Partnership Policies

The Deficit Reduction Act established requirements that an LTCI policy must meet to qualify for a QSLTCIP program. Policies meeting these requirements (and any additional state requirements) are called partnership-qualified (PQ) policies; those that do not are non-PQ policies.

A few notes before we begin:

• DRA requirements apply to both individual policies and group coverage certificates.
• These requirements apply to states establishing new programs. They do not apply to the four original state partnership programs.
• If a state imposes additional requirements on PQ policies beyond those of the DRA, it must impose those same requirements on non-PQ policies as well — to minimize differences between the two types and make partnership policies easier for consumers to understand.

All PQ policies nationwide must meet the DRA requirements. Individual states may impose additional requirements, but only if they impose them equally on non-PQ policies.

To be a partnership-qualified policy, an LTCI policy must meet these general requirements:

• Tax qualification — A PQ policy must be a federally tax-qualified LTCI policy. This means it must also adhere to all HIPAA requirements described in Chapter 3. The large majority of LTCI policies today are already tax-qualified.
• Issue date — A policy must be issued after the date on which the state partnership program goes into effect (the effective date of the approved State Plan Amendment). Unlike HIPAA, the DRA does not extend PQ status to policies already in force when a partnership program is established.
• State of residence — The insured must be a resident of the state sponsoring the partnership program when coverage first becomes effective. This does not preclude an insured from later moving to another state with a partnership program and enjoying Medicaid asset protection through reciprocity.

Although the list of required consumer protection provisions is long, most are already included in the majority of LTCI policies today — they are drawn from the NAIC LTCI Model Act and Model Regulation, which most states have incorporated into their LTCI requirements.

• Outline of coverage and guide to LTCI — An outline of coverage describing the policy’s benefits, exclusions, and provisions must be provided to each prospective insured at the time of application. Applicants must also receive a copy of the NAIC’s Shopper’s Guide to Long-Term Care Insurance (or the state’s own guide if it has one).
• Certificates for group coverage — Certificates issued to individuals covered by a group policy must describe the principal benefits, exclusions, reductions, and limitations, and state that the group master policy governs the contractual provisions.
• General disclosure — The policy must disclose information about renewability, benefit payment, limitations, eligibility conditions, tax consequences, and benefit triggers.
• Disclosure of rate increases — The policy must disclose whether the insurer has ever had any premium rate increases on this or related policy forms, so the consumer can know whether the insurer has raised rates in the past.
• Replacement coverage — The application must ask whether the applicant has other LTCI in force and whether the policy being applied for is intended to replace other coverage.

• Home and community care benefits — If a policy provides home and community care benefits, these must be at least equivalent to one half of one year’s nursing home coverage. For example, if the nursing home daily benefit is $180, total home and community care benefits must be at least $32,850 ($180 × 365 ÷ 2).
• No hospitalization requirement — The policy may not require a prior hospital stay before the insured can receive benefits.
• Extension of benefits — The policy must include an extension of benefits provision requiring nursing home benefits to continue to be paid even if the policy lapses, provided the insured was already receiving benefits when the lapse occurred and the nursing home stay continues. (Since most policies today include a waiver of premium for nursing home residents, this provision is rarely triggered, but is required.)

• Permitted exclusions and limitations — Only those exclusions and limitations specified in the NAIC Model Regulation (listed in Chapter 3) are allowed.
• Preexisting condition exclusions — If included, must be clearly disclosed. The insurer may exclude only conditions existing six months or less before the policy’s effective date, and benefits may not be denied for the condition for more than six months after the effective date.

• Renewability — The policy must be guaranteed renewable or noncancellable.
• Replacement of group coverage — If an employer replaces one group policy with another, the new coverage must be offered on a guaranteed issue basis to everyone covered by the old policy. The replacing policy may include a preexisting condition exclusion only if the old policy did, and it may not be more restrictive. Insureds who satisfied the preexisting condition exclusion under the old policy may not be required to satisfy it again.
• Continuation or conversion of group coverage — An employee whose employment status changes has the right to either continue group coverage or convert it to an individual policy providing the same coverage.
• Unintentional lapse — The policy must include a provision (such as impairment reinstatement) protecting the consumer against unintentional lapse due to failure to pay premiums.
• Nonforfeiture — The purchaser must be offered the shortened benefit period nonforfeiture option. If declined, the policy must provide contingent nonforfeiture benefits.

Post-claims underwriting is prohibited. This is the practice of accepting an applicant without obtaining adequate health information, then — when she files a claim — finding a reason to rescind coverage based on information she failed to provide. PQ policies must explicitly prohibit this practice.

Incontestability — An incontestability clause must be included, placing increasingly strict limits on the insurer’s right to contest the policy based on application misrepresentations:

• Sales practices — Insurers and agents must comply with training requirements and safeguards preventing abusive practices such as unfair policy comparisons, selling excessive insurance, misleading consumers, and high-pressure tactics.
• Advertising — The insurer must submit any advertisement intended for use in a state to the state insurance commissioner for review or approval as required by state law.
• Suitability — The insurer must assist the applicant in determining whether purchasing long-term care insurance is appropriate for her, based on her financial situation and preferences. The applicant must sign forms attesting that this has occurred.
• Thirty-day free look — The policy must include the 30-day free-look period described in Chapter 3.

Sales conduct is discussed in detail in Chapter 5.

In the area of inflation protection, PQ policies can differ significantly from other LTCI policies, as the DRA requirements go beyond those of HIPAA or the NAIC models. Requirements vary according to the insured’s age when the policy becomes effective:

• Age 60 or younger — Must have annual compound inflation protection.
• Age 61 to 75 — Must have some type of inflation protection. This need not be automatic annual compound increases; it could be simple rate increases, a guaranteed purchase option, or another form of inflation protection.
• Age 76 or older — Must be offered an inflation protection option, but is not required to purchase it.

These requirements are particularly stringent because, if benefit amounts are not kept current with rising costs, the purpose of the partnership program is defeated. From the state’s perspective, an insured without adequate inflation protection is more likely to exhaust benefits and qualify for Medicaid. From the insured’s perspective, falling benefit amounts mean paying more out of pocket even while insured, depleting the very assets the program is designed to protect.

The four original state partnership programs accepted only reimbursement LTCI policies. Under the DRA, however, policies that pay on a reimbursement, disability (cash), or indemnity basis — or some combination — can all qualify for PQ status.

The DRA specifically states that benefits received on a disability or indemnity basis count in determining the assets that are protected from spend-down requirements. Policies that do not exclude benefits for a service to the extent that Medicare pays for the same service — as disability and indemnity policies are permitted to do under HIPAA — are not disqualified from PQ status.