Long Term Care Insurance: New Regulations

New regulations covering long-term care insurance might be on their way to your state. The regulations will broaden care and help reduce premiums.

The regulations were drafted by the National Association of Insurance Commis-sioners. Insurance is regulated by each state. This group drafts model statutes and regulations that each state is encouraged to adopt. In the latest model regulations covering long-term care contracts, protections and benefits are enhanced several ways. If the regulations are adopted in your state, expect the following benefits.

• Insurance companies will be required to cover out-of-state long-term care services. Most policies do not cover care expenses incurred in a state other than the one in which the insured lived when the policy was issued. Insurers priced the policies based on the cost of long-term care in the insured’s state, and costs vary widely from state to state.Excluding out-of-state care can leave a lot of care uncovered, because the choice of a long-term care facility usually is made by an adult child or the spouse of an adult child of the insured, often a daughter or daughter-in-law. The decision maker is likely to choose a care facility near his or her home, not the insured’s.

  In addition, under current rules the insured can lose coverage without realizing it by moving. If the policyholder is uninsurable after moving or premiums have increased since the original policy was purchased, he or she might be unable to obtain affordable coverage in the new location.

  The new regulation will ensure that policyholders have the coverage they thought they had.

• Reducing premiums also will be easier under the new regulations.We long have demonstrated how premiums on long-term care policies can be reduced by tailoring the policy terms to an individual’s needs or budget. For example, instead of paying for unlimited lifetime care, the insured can choose a policy that covers two to five years of care. Five years of care covers most situations but costs much less than lifetime care.

  The regulation requires each policy to include a provision allowing the policyholder of an existing policy to reduce coverage and lower the premium by reducing the maximum benefit or reducing the daily, weekly, or monthly benefit amount. Other ways of reducing coverage and premiums on already-issued policies are allowed at an insurer’s discretion. The policy also has to describe how premiums can be reduced. If the policyholder chooses to reduce coverage, the new premium must be computed using the insured’s age when the old premium was computed, not the current age.

  The insurer also must provide a written reminder of this provision before a policy lapses. Many long term care policies lapse because the policyholders either cannot afford the premiums any longer or do not see any benefit from the premiums. A reminder that premiums can be reduced might keep more policies in force.

  This provision applies only to policies issued 12 months after the regulations are adopted.

• A third change requires insurers to notify policyholders when it initiates new policies with new coverage that is materially different from coverage previously available from that insurer. This provision also does not apply to policies already in effect when the regulations are adopted. This provision makes it more likely that policyholders will upgrade policies as coverage improves.

Each state must adopt the regulations. You will have to check with your state’s insurance commissioner to determine their status.