INSURANCE DEPARTMENT OF BANKING AND INSURANCE DIVISION OF ACTUARIAL SERVICES Long-Term Care Insurance Proposed Repeal and New Rules: N.J.A.C. 11:4-34 Authorized By: Holly C. Bakke, Commissioner, Department of Banking and Insurance Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17:48-8.1, and 17B:27E-9, and P.L. 2003, c. 207 Calendar Reference: See Summary below for explanation of exception to calendar requirement. Proposal Number: PRN 2004-461 Submit written comments by February 4, 2005 to: Douglas A. Wheeler, Assistant Commissioner Department of Banking and Insurance Legislative and Regulatory Affairs 20 West State Street P.O. Box 325 Trenton, NJ 08625-0325 Fax: (609) 292-0896 E-mail: [email protected] The agency proposal follows: Summary The Department of Banking and Insurance (Department) is repealing the current long- term care insurance rules found at N.J.A.C. 11:4-34 and proposing new rules in their place. The Long-Term Care Insurance Act, P.L. 2003, c. 207, was enacted January 8, 2004, and is based on the National Association of Insurance Commissioners’ (NAIC) Model Act. The proposed new rules implement the Long-Term Care Insurance Act, and are based in part on the NAIC Model Regulation. The Department’s proposed new rules replace its current regulatory requirements for a more uniform regulatory structure. 2 The Department is proposing new rules at N.J.A.C. 11:4-34 to require every long-term care insurance policy form to be filed with the Commissioner for prior approval. Any form which is filed with the Commissioner and approved may be issued in this State until a subsequent withdrawal of the filing by the Commissioner after a hearing. The proposed new rules also require prior approval of initial rates and future rate changes. Rates must not be excessive, inadequate or unfairly discriminatory. The purpose of these rules is to promote the public interest, to promote the availability of long-term care policies, to protect applicants for long-term care insurance from unfair or deceptive sales or enrollment practices, to establish standards for long-term care insurance, to facilitate public understanding and comparison of long-term care insurance policies, and to facilitate flexibility and innovation in the development of long-term care insurance coverage. These rules apply to long-term care insurance policies delivered or issued for delivery in this State on or after the effective date of the Long Term Care Insurance Act. These rules are not intended to supersede the obligations of entities to comply with other applicable insurance laws insofar as they do not conflict with this Act, except that laws and regulations designed and intended to apply to Medicare supplement insurance policies shall not be applied to long-term care insurance. Additionally, the Life and Health Insurance and Health Maintenance Organization Form Approval Reform Act (the HMO Form Approval Reform Act), P.L. 1995, c.73, was intended to improve and facilitate the internal restructuring of the Department’s approval process for life insurance and health insurance policy and contract forms. The HMO Form Approval Reform Act includes a provision requiring all life and health insurance policies or contracts, annuities, or variable contracts delivered or issued for delivery in this State, including any application, rider, 3 or endorsement that is made a part of that policy or contract, to be filed with the Commissioner for approval. As a result the Department has adopted rules that establish procedures for carriers to obtain the Commissioner’s approval prior to use of all life, health and annuity forms, set forth general standards related to all forms for which the Commissioner’s approval is sought, and establish specific standards related to specific types of forms (see N.J.A.C. 11:4-40 through 48). Additionally, the Department’s proposed rules permit life insurance and long-term care insurance policies to be combined. These rules increase the disclosure requirements on carriers. The Department’s proposed new rules also add requirements for disclosure of a carrier’s rating practices to consumers. These proposed new rules require the designation of a third party to get notice of a lapse of coverage. The proposed new rules recognize two types of long-term care plans, qualified and non-qualified. The Department’s proposed new rules set forth a different rate review process, for long-term care policies. N.J.A.C. 11:4-34.1 sets forth the purpose and scope of the rules, which combines the current two provisions. N.J.A.C. 11:4-34.2 provides definitions for the words and terms used in this subchapter. This provision maintains definitions for the terms “carrier,” “Department”, “exceptional increase,” “incidental,” “insured,” “qualified actuary,” “qualified long-term care insurer contract,” “similar policy forms.” The rule does not include the term “guaranteed renewal”. The proposed new rules add definitions for the following terms: “activities of daily living,” “acute condition,” “adult day care,” “bathing,” “cognitive impairment,” “continence,” “dressing,” “eating,” “hands-on assistance,” “home health care services,” “personal care,” “toileting,” “transferring” and “usual, customary and reasonable.” 4 N.J.A.C. 11:4-34.3 establishes the guidelines for the use of certain terms in a long-term care insurance policy delivered or issued for delivery in this State. N.J.A.C. 11:4-34.4 addresses policy practices and provisions for renewability, limitations and exclusions, extensions of benefits, continuation or conversions, discontinuance and replacement, the purchase of additional coverage, in addition to annuity contracts and life insurance policies. N.J.A.C. 11:4-34.5 addresses unintentional lapses which is a new requirement. This provision requires notice before lapse, termination and restoration of coverage. N.J.A.C. 11:4-34.6 requires that long-term care insurance policies contain the following disclosure provisions: renewability, riders and endorsements, payment of benefits, preexisting condition limitations, other limitations or conditions on eligibility for benefits, and benefit triggers. N.J.A.C. 11:4-34.7 provides the requirements for the disclosure of rating practices to consumers. Additionally this provision requires that carriers provide the applicant with an explanation of potential premium rate revisions, have them sign an acknowledgment, and provide notice of upcoming premium rate schedule increases. N.J.A.C. 11:4-34.8 addresses the initial filing requirements which apply to any long-term care insurance policy or certificate issued on or after July 1, 2005. This provision also requires that carriers provide the Commissioner with premium rates, rate schedules or rating formula, and an actuarial certification prior to making an long-term care insurance form available for sale. N.J.A.C. 11:4-34.9 provides the prohibitions against post-claims underwriting. This provision requires applications for long-term care insurance policies or certificates except those 5 that are guaranteed issue to contain clear and unambiguous questions designed to ascertain the health condition of the applicant. N.J.A.C. 11:4-34.10 establishes the minimum standards for home health and community care benefits in long-term care insurance policies and certificates. N.J.A.C. 11:4-34.11 addresses the requirements for offering inflation protection. N.J.A.C. 11:4-34.12 provides the requirements for application, enrollment forms and replacement coverage. This provision prohibits application forms from including provisions, statements or questions that pertain to race, creed, color, national origin or ancestry of the proposed insured. N.J.A.C. 11:4-34.13 addresses the reporting requirements of these rules. These rules require carriers to maintain records for each agent’s sales. Carriers are required to report this information for the preceding year to the Commissioner by June 30 of each year. N.J.A.C. 11:4-34.14 provides that a producer is not authorized to sell, solicit or negotiate with respect to long-term care insurance except as authorized by the New Jersey Insurance Producers Licensing Act. N.J.A.C. 11:4-34.15 states the discretionary powers of the Commissioner which currently appear in N.J.A.C. 11:4-34.10 of the proposed repealed rules. N.J.A.C. 11:4-34.16 sets forth the reserve standards when long-term care is provided through the acceleration of benefits under group or individual life policies or riders. N.J.A.C. 11:4-34.17 provides the loss ratio requirements for individual long-term care policies except those covered pursuant to N.J.A.C. 11:4-34.8 and 34.18. This provision also outlines the information that should be included in the actuarial memorandum. 6 N.J.A.C. 11:4-34.18 addresses premium rate schedule increases and applies to any individual long-term care policy issued in this State on or after 30 days after the effective date of these rules. In accordance with this provision, carriers shall request approval of a revised premium rate schedule at least 60 days prior to the notice to the policyholder. Additionally, this provision sets forth requirements that all premium rate schedule increases must meet. N.J.A.C. 11:4-34.19 requires a carrier, prior to offering or placing in force group long- term care insurance coverage to or on a resident in this State under a group policy issued in another state, to file with the Commissioner evidence that the group policy or certificate thereunder has been approved by a state having statutory or regulatory long-term care insurance requirements substantially similar to those adopted in this State. N.J.A.C. 11:4-34.20 requires every carrier issuing a long-term care insurance or benefit in this State to provide a copy of any long-term care insurance advertisement intended for use in this State. N.J.A.C. 11:4-34.21 establishes standards that every carrier shall adhere to in marketing long-term care insurance coverage in this State. N.J.A.C. 11:4-34-22 applies to life insurance policies and annuity contracts providing long-term care benefits except those that only accelerate benefits for long-term care. This provision requires every carrier marketing long-term care insurance to develop suitability standards. N.J.A.C. 11:4-34.23 addresses prohibitions against preexisting conditions and probationary periods in replacement policies or certificates. N.J.A.C. 11:4-34.24 sets forth the standards for complying with the nonforfeiture benefit requirements. 7 N.J.A.C. 11:4-34.25 provides the standards for benefit triggers. N.J.A.C. 11:4-34.26 states the additional standards for benefit triggers from qualified long-term care insurance contracts. N.J.A.C. 11:4-34.27 interprets the provisions of N.J.S.A. 17B:21E-6e in prescribing a standard format and the content of an outline of coverage. N.J.A.C. 11:4-34.28 requires that a long-term care insurance shopper’s guide developed by the NAIC be provided to all prospective applicants of long-term care insurance. N.J.A.C. 11:4-34.29 governs form filings that must be submitted to the Department for review. N.J.A.C. 11:4-34.30 provides the penalties for violating the provisions of this subchapter. The Appendix contains reporting forms, a worksheet and a suitability letter and notices to prospective and current policyholders and certificate holders. A 60-day comment period is provided for this notice of proposal and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, the proposal is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars. Social Impact These rules provide consumer safeguards in terms of policy renewability, relationship of premium to benefits (loss ratio), policy limitations and exclusions, and conversion or continuation of group coverage. These rules also establish definitions for eligible covered services, which will enable interested consumers to effectively compare policies. These rules are necessary to ensure that there is consistency in policy benefits, definitions, limitations and 8 restrictions, in policies. Inconsistencies in the areas can considerably reduce the likelihood of the insured ever receiving benefits. These rules promote the public interest by establishing long-term care policies that protect applicants from unfair or deceptive sales or enrollment practices. These rules establish standards for long-term care insurance that facilitates the public’s understanding and comparison of long-term care insurance policies. The proposed new rules should provide the consumer with more choices because carriers will not be offering different products. These rules also increase the disclosure requirements on carriers and require the designation of a third party to get notice of a lapse of coverage. Both of these requirements are beneficial to consumers. The Department’s proposed new rules adopt the NAIC Model and benefit carriers by providing uniform rules governing long-term care insurance. These rules should encourage carriers to offer different type of long-term insurance products. Some carriers may not benefit from these rules. Carriers offering products which do not comply with the prescribed standards would not be permitted to continue marketing their products as “long-term care” policies. However, most insurers currently marketing long-term care products should be able to comply with these rules since they are similar to the rules the Department is repealing. Economic Impact These rules will ensure that future long-term care insurance policies will pay benefits for a variety of services not covered by most health insurance policies or Medicare, while restricting certain policy exclusions and limitations that previously reduced the likelihood of receiving benefits. With the availability of viable long-term care insurance products, it is possible to reduce costs to some State Medicaid programs and to reduce long-term care out-of-pocket costs 9 to individuals and families. Consumers should see more rate flexibility as a result of these rules as well as more products and choices. The Department’s proposed new rules adopt the NAIC long-term care insurance model regulation thereby providing uniform rules for carriers to follow which should be beneficial to carriers. As a result, these rules should make it easier for carriers to utilize approaches that are appropriate and consistent with the types of products they provide in other jurisdictions. Promulgation of these rules should not result in additional costs to any State agency. Since the Department of Banking and Insurance currently has prior approval authority with respect to long-term care insurance products, regulatory costs to the Department should remain constant. Federal Standards Statement A Federal standards analysis is not required because these rules regulate the business of insurance and are not subject to any Federal requirements or standards. Jobs Impact The Department does not anticipate jobs being generated or lost as a result of the proposed repeal and new rules. Agriculture Industry Impact Pursuant to N.J.S.A. 4:1C-1 et seq., the Right to Farm Act, and N.J.S.A. 52:14B-4(a) of the Administrative Procedure Act, the Department does not expect any agriculture industry impact from the proposed repeal and new rules. 10 Regulatory Flexibility Analysis Pursuant to the Regulatory Flexibility Act, at N.J.S.A. 52:14B-17, a “small business” means any business resident in this State which employs fewer than 100 employees; full-time is independently owned and operated; and is not dominant in its field. Some carriers affected by these new rules may meet this definition. Carriers can expect to incur modest additional administrative expenses, but compliance with the proposed new rules requires only minimal additional reporting and should impose little or no change in the companies’ present operations. It is the Department’s understanding that the carriers presently maintain, or otherwise provide for, all professional services which may be required in order to comply with the new rules. Consequently, all companies should be able to easily absorb these costs. The Department does not anticipate that professional services will have to be employed in order to comply. Because the cost of compliance with these proposed new rules is minimal, and imposes no adverse economic impact upon small businesses, no exceptions for compliance by small insurers have been incorporated into the rules. The Department has determined that these proposed new rules and repeal are reasonable and necessary for the purposes expressed herein and to further implement the changes to the governing law resulting from the enactment of P.L. 2003, c.207, codified at N.J.S.A. 17B: 27E-1 et seq. These rules will apply to all long-term care insurance policies, certificates and riders etc. (see N.J.A.C. 11:4-34.1B) delivered or issued for delivery in this State by insurers, fraternal benefit societies, and health, hospital and medical service corporations. Given the foregoing, no differentiation was made in the controlling statute with respect to long-term care policies issued