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Fastrack CA Long Term Care

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Copyright © D&H Investment Trust. Courses are provided with the understanding that we are not engaged in rendering legal or other professional advice unless we agree to this in writing, in ad-vance. Insurance and financial matters are complicated and you need to discuss specific fact situations concerning your personal and client needs with an appropriate advisor before using any information from our courses. Contact us: AFFORDABLE EDUCATORS, PO BOX 2048 Temecula, Ca 92593 (800)-498-5100 Orders@ceclass.com

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Table of Contents

What is long term care 6 Clinically speaking 8 Evolutionary process of chronic care 8 Care provided in hospitals 9 Long term care risk factors 9 Hospice services 13 Respite care 13 Public long term care programs 14 Long term care continuum 15 Long term care services and facilities 16 Skilled care 16 Formal care 18 Informal care 18 Nursing homes 18 Skilled nursing facilities 19 Residential care facilities for elderly (RCFE) 19 Skilled nursing care, levels 19 Continuing care retirement communities 20 Adult day care 21 Agencies on aging 22 Home care services 27 Home health care 27 LTC facilities, locating 30 Mandated Elements 33 Life settlements 38 Medi-Cal 41 Medicare and Medi-Cal 42 Long term care, paying for 44 Paying for long term care 44 Medicare pays only 45 Medicare supplements 46 Medicare advantage plans 46 HICAP 47 Long term care insurance 51 Group long term care insurance 52 Annuities with long term care benefits 55 Hybrid long term care policies 57 Maximum benefit payment, home care 61 Unlicensed providers and personal care 61 Tax qualified LTC policies, suitable for 62 Tax qualified policy, more restrictive 62 Benefit eligibility 62 California long term care legislation 62 Non-tax qualified long term care 63 Grandfathered Policies 63 Tax qualified long term care 64

Activities of daily living 65 Benefit triggers 65 Medical necessity 66 Covered services definitions 67 Licensed Health Care Practitioner 68 Pooled benefits 69 Elimination periods 70 Policy lifetime maximum 72 Restoration of benefits 75 Long term care contracts, three types 76 Guarantees 77 Health Insurance Portability Accountability 80 Federal legislation 80 HIPAA overview 80 TQ benefit triggers 82 Cognitive impairment 84 Long term care tax treatment 86 Substantial assistance 86 Long term care premium deductibility 87 Material Change 94 California LTC statutory provisions 103 California TQ vs. NTQ 103 California benefit triggers 104 Plan of care 111 California consumer protection 114 Five month reinstatement 117 Third party notification provision 117 Post claims underwriting 118 Prior hospital stay 119 Illustrations 121 Premium credits, policy replacement 122 Long term care personal worksheet 124 Group certificate of coverage 128 Agent commissions, replacement 129 California, Outline of coverage 130 Free look clause 133 Inflation protection provision 142 LTC agent responsibilities 143 California long term care training 144 Long term care training, California 144 Suitability standards 147 California Partnership 147 Unnecessary replacement 156 Outline of Coverage 160 Taking Care of Tomorrow Booklet 160 California consumer rate guide 161 California LTC marketing guidelines 164 Preexisting condition 168 California, rate stabilization 171 Rate stabilization 171 California LTC enforcement 180

California penalties 181 Cal Pers Long Term Care 186 Advantage, California LTC Partnership 187 California LTC Partnership, advantage 187 Living benefit rider 192 Long term care insurance alternatives 192 Medi-cal eligibility 198 Reverse annuity mortgage 199 Long term care advertising 209 Long term care marketing practices 211 Shoppers Guide 212 Appendix: Medi-Cal 215 Appendix: Tax Treatment of LTCI 216 Appendix: LTCI Laws 233

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Unit 1 Long-Term Care (LTC)

Introduction to Long Term Care

The Long-Term Care Crisis

With the aid of technology and today’s advanced healthcare systems, more people are living to age 80, 90 or beyond. This reflects the truth behind the marketing phrase “60 is the new 40”. Now, with on-going scientific programs beginning to offer hope of truly understanding the genetics of aging, we may soon see additional increases in life expectancy. Longer life expectancy increases a person’s need to plan for long-term care.

What is long-term care? Essentially, it is the inability to care for oneself due to a chronic (long term) medical condition. Every day more than 5,000 people in this country turn 65. More than 2.5 million are 85 or older. And the likelihood of chronic illness increases with age. The chance of a person currently age 65 being confined to a nursing home at some time in the future is now one in three. According to the U.S. Census Bureau, the over-85 population is the fastest growing segment of the U.S. population, and one out of four people in that age group today lives in a nursing home. Approximately 75 percent of nursing home residents are women.

The programs that many believe cover chronic long-term care events are not necessarily designed to do so. Medicare and Medicare Supplements primarily pay for the costs associated with acute (as opposed to chronic) medical conditions. And, while Medi-Cal (Medicaid) does provide long-term care benefits for many senior citizens, they must first exhaust most of their income and assets to qualify. It is no secret that many seniors are paying a growing proportion of their income in out-of-pocket costs for health care and long-term care services at home due to limited or no insurance coverage. Every day people move into Medi-Cal/Medicaid facilities because they have run out of money from paying these out-of-pocket expenses for home health care or assisted living facility care.

The long-term care problem is made even more complex by the ever-rising cost of services. A study conducted by Genworth Financial and published in March 2013 noted that the semiprivate nursing facility cost of long-term care in the U.S. is $207 per day or $75,555 per year and the median cost for “hands-off” homemaker services is $18 per hour. Are Americans planning for the costs associated with long-term care? In 2010 Gerontologist Ken Dychtwald (www.agewave.com) conducted focus groups that discovered the following:

• Uninsured medical expenses (including long-term care) are the top financial worry among men and women age 55 and older.

• People are over five times more worried about being a burden on their family than dying.

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• Almost two-thirds of people will actually require some long-term care, such as home care, assisted living or nursing home care after they reach age 65, but only 35 percent of people believe they will need such care.

• People greatly underestimate the financial, social and lifestyle impact of caregiving responsibilities.

• When someone needs long-term care, a wide circle of primary caregivers, secondary caregivers, other family, friends and community members often provide the care and are impacted by the responsibilities.

The answer is that consumers are concerned about long-term care issues and are looking for credible guidance from insurance agents, financial advisors and other sources.

Long-Term Care Insurance (LTCi) is a category of coverage designed to address these growing problems. Obviously, the ideal time to purchase long-term care insurance would be the day before you need it, but as we know, life doesn’t work that way. A 2012 study by the Life Insurance Marketing Research Association (LIMRA) indicated that the number one reason people purchase long-term care insurance is for asset and income protection in retirement. Policyholders also obtain peace of mind, secure their independence and preserve their assets by having coverage.

The concepts of long-term care and long-term care insurance are presented in this course in basic terms as we unfold a story that is important to consumers, insurance agents and financial advisors as well as employers. The reality is that long-term care has become one of the greatest health-care issues for older persons and their families and one of the most common catastrophic health-care expenses.

What is Long-Term Care? Defining Long-Term Care - Overview Long-term care is the services that are needed when an individual could no longer take care of themselves. Long-term care (LTC) insurance is defined as coverage available on an individual or group basis to provide medical and other services to patients who need constant care in their own home or in a nursing home. Long-term care insurance provides financial protection from long-term illness by paying the costs for long-term care in a nursing home or in one’s own home. By now almost everyone knows of a family member or friend who needs the insurance protection and services covered by a long-term care insurance policy. The largest percentage of people who could benefit from long-term care insurance, are the people who will end up in a nursing home and do not want to spend down all their assets to pay for it just to qualify for Medicaid assistance. Over half of all long-term care expenses are paid by patients or their loved ones directly. Long-term care insurance covers state-licensed nursing home care in skilled, intermediate and custodial care facilities. Some long-term care insurance policies may cover in-home services, such as skilled or unskilled nursing care, physical therapy, homemakers, and home health aides provided by qualified agencies. Many long-term care insurance policies also cover assisted living, adult daycare, alternate care, and respite care for the caregiver.

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Formal long-term care (the kind of care one must pay for) is most often provided by professional skilled and unskilled workers. Long-term care is sometimes called "custodial care" or "personal care." Unskilled workers are often supervised by skilled medical personnel such as registered nurses. Informal long-term care is frequently provided by unpaid family members and friends. Services of long-term care can be provided in one’s own home or in a community program like an Adult Day Care Center, in an assisted living facility licensed as a Residential Care Facility for the Elderly (RCFE), or in a nursing home. About half of all nursing home stays last 6 months or less. Long-term care is not necessarily "long term." Some people only need long-term care for a few months, for example, while recovering at home from a broken hip, while others may need care for the rest of their life. A Guide To Long-Term Care Insurance Important? Skilled long-term care is generally needed for medical conditions that require care by skilled medical personnel such as registered nurses or professional therapists. The long-term care is usually provided 24 hours a day, ordered by a physician, and involves a treatment plan. Personal long-term care helps a person perform activities of daily living which include assistance with bathing, eating, dressing, toileting, continence and transferring Health care plans are designed to provide coverage when one receives care from a doctor or treatment in a hospital. Some may also cover nursing home care or home care; but typically, only on a short term or limited basis. Long-term care is different from other health care, and it's not generally covered under health insurance policies, HMO plans, Medicare or Medicare supplemental policies. Problem? The possibility of needing long-term care due to an illness or physical disability is something most people would rather not think about. Long-term care can range from simple assistance with activities in one’s own home or a residential care facility or it can mean highly skilled care in a nursing facility. Long-term care includes personal care, such as help with bathing, eating or dressing that one requires over a lengthy period. Long-term care coverage will help them live their life with dignity and with independence. That's why it can be very expensive. But as we get older, and because we are living longer, the likelihood that we will need some kind of assistance is very real. The assistance or supervision one may need when they are not able to do some of the basic "activities of daily living" (ADLs) like bathing, dressing or moving from a bed to a chair is Long-term care. They might need assistance with ADLs if they suffer from an injury like a broken hip, an illness, a stroke or from advanced age and frailty. Other people may need long-term care because of mental deterioration, called "cognitive impairment" that can be caused by Alzheimer’s Disease, other mental illness or brain disorders. Clinically Speaking CIC §10231.2 All products that contain any of the following benefit types to cover the costs associated with the care levels needed are included in long-term care insurance. They provide benefits for home care coverage including home health care, personal care, homemaker services, hospice, or respite car. They can provide benefits for community-based coverage including adult day care, hospice, or respite care. They also provide coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing facility, or personal care home.

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Clinically speaking, long-term care is the kind of help you need if you are unable to care for yourself because of a chronic illness or disability. Care that is rendered to an individual when they are treated and/or cared for in an acute care unit of a hospital or similar facility is not long–term care. Long-term care is care of all types that one has a need for when they can no longer take care of themselves and receives this care and treatment outside of a hospital. This can range from care in the home to one of a number of other service providers and facilities that provide direct care and assistance in many varied ways, depending on the nature and level of the assistance that a person requires in performing the activities of daily living. These ADLs will be discussed in more detail later in this course. Disability based long-term care policies are included in Long-term care insurance, but does not include insurance designed primarily to provide Medicare supplement or major medical expense coverage. CIC §10231.2 Per California Statute According to California statute 10231.2, "Long-term care insurance" includes any insurance policy, certificate, or rider advertised, marketed, offered, solicited, or designed to provide coverage for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes all products containing any of the following benefit types:

coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing facility, or personal care home;

home care coverage including home health care, personal care, homemaker services, hospice, or respite care; or community-based coverage including adult day care, hospice, or respite care.

Care that is designed to provide for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital is long–term care. The California Insurance Code regulates all long-term care policies, certificates, and riders. Long-term care benefits designed to provide coverage of 12 months or more that are contained in or amended to Medicare supplement or other disability policies and certificates are regulated under specific chapters in the California Insurance Code, as well. CIC §10231.2 Evolutionary Process of Chronic Conditions Relating to Delivery of Care & Services The delivery of care and services to our seniors needing long term care is constantly changing…it’s an evolution or continuum. Initially, chronic conditions may need only occasional assistance and support from a living spouse in their home. A chronically ill person may start out needing only “chore services” such as grocery delivery, lawn mowing, etc in the early stages. Most chronic conditions begin with a minor set of symptoms/conditions that impede an individual from easily performing all the activities of their daily living. As time goes by, they may need to have someone come to the home, either skilled or unskilled to render the care needed. This might be progress to the need for home visitors, meals on wheels, periodic adult day care, then home health care. The symptoms and aspects of the

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illness may and generally do worsen to the extent where the spouse can no longer provide the assistance needed due to their limited physical capacity and then to their limited medical competency to deal effectively with the chronically ill person. Chronic conditions may get worse to the point where the care and supervision cannot effectively be performed at the home. A Residential Care Facility for the Elderly or Adult Day Care Center may have to be utilized at this point where a person may need to be cared for or looked after through care and supervision at a facility outside the home. The person’s situation beyond these non-home interim care giving programs and facilities, may advance to where they need routine skilled medical care and they must be admitted to a skilled care facility where 24 hour skilled care is available. Occasionally, one may die during the time they are in these facilities or they may need at some point be admitted to a hospital for treatment where they die or where they recover and are able to go back to the skilled care center or to a level of care that matches their needs. However, there are programs and facilities that are available to accommodate one based on the aging process their lives take. “Nursing homes” are being less used due to a variety of new methods of care. It’s different for everyone. The supply of beds are lagging behind the demand by an ever increasing number of individuals that are requiring consistent assistance in their activities of daily living and for assistance in coping with cognitive and mental impairment in varying degrees. Counties are trying to assess what services they’ll be tapped to provide. The challenges facing today’s retirees will only become bigger when the number of seniors doubles in the next 20 years as the baby boomers retire. Care provided in hospitals and emergency rooms is called acute care. This care usually refers to conditions that are treatable and that one may fully recover from with the right medical attention. Some examples of this are stroke, heart attack, and pneumonia. Acute care conditions usually develop rapidly and can strike suddenly. Health insurance and Medicare will cover some or all of the expenses for acute care because it is usually skilled care. Examples of this are arthritis, diabetes, hypertension, and Alzheimer’s. Chronic care usually refers to conditions that are treatable, but generally not curable. Chronic care is the type of care that is usually provided in the person’s own home, nursing homes, and assisted living facilities. Health insurance and Medicare will usually not cover chronic care because it is not considered skilled care. A lot of times they are not noticed or are ignored in the initial stages. Something most of us would rather not think about is the possibility of needing long-term care. More than 40% of those who turn 65 will spend some time in a nursing home.(National Center for Policy Analysis, A Long-Term Solution to Medicaid Problems) Unless one plans ahead, paying for long-term care, either for yourself or a loved one, can mean sacrificing a lifetime of savings or losing your financial independence. Risk Factors Associated with Long-Term Care Almost anyone might need Long term care services at any time. Accidents or sudden serious illnesses can be the cause or it could be s a slow progressive condition. Events are likely to

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happen at any age and with both males and females. In addition, women seem to have more chronic diseases that impair mobility such as arthritis and osteoporosis. Men have more acute health episodes that lead to an earlier and quicker death. Geography Countries allocate from one-third to one-half of total health care expenditures for elderly people. Japan spends the largest proportion of health expenditures on elderly people (47%), while Germany spends the least (34%). The United States is near the middle, spending 38%. In looking at the ratio of per capita spending for people age 65 and older compared with those under age 65, Japan spends proportionally the most on elderly people (4.8 times), while Germany spends the least (2.7 times). The percentage of gross domestic product (GDP) spent on health care for elderly people ranged from 2.5% in New Zealand to 5.0% in the United States. The age distribution of the population cannot explain the difference in the level of health spending across the eight countries: no statistically significant correlation exists between the percentage of GDP spent on health care for people age 65 and older and the percentage of the population in this age group. Housing Our Elders specifies serious challenges for the elderly population in the three key dimensions of housing conditions - adequacy, affordability, and accessibility - and shows that a fourth dimension, appropriateness, needs to be added. Six percent of seniors (1.45 million households) live in housing that needs repair and/or rehabilitation. While the worst housing conditions affect homeowners and renters alike, homeowners are much more likely to have the financial resources to address repair or rehabilitation needs. High costs are the most widespread housing problem among older Americans, with more than 7.4 million households paying more than they can afford. Thirty percent of elderly households have high housing costs, paying more than 30 percent of their income for shelter. Not surprisingly, affordability problems are highly concentrated among lower income households with few assets (approximately 1.7 million seniors with low incomes spend more than half their income on shelter. There is also a shortage of fully accessible housing in both the owner-occupied and the rental stock. Policy towards the elderly faces a range of challenges. What is required is not only to tackle existing problems in elderly care, but also to adapt society in the long-term to a different demographic structure, with a higher proportion of over-65. New views of aging and the citizen’s role are called for. In the future, as now, elderly policy needs to focus on giving elderly people scope for living an independent life and providing those in need with high-quality services, health care and social care. We need to be aware of the implications of how the emergent information society has changed the situation for elderly people, their access to information or means of carrying out postal and banking transactions, for example. Gender Women not only have longer life spans, they often out-live their spouses. Women are at a much higher risk of needing to pay for formal long-term care for several reasons. When they need long-term care in their older years, there is often no one to care for them at home and they are more likely to need institutional care as a result of all these factors. There are differences between qualified and non-qualified policies and how they acknowledge who needs and qualifies for benefits under the two tax sensitive approaches. In addition, while we all need care and help from time to time, regardless of our age, whether it be for an hour, a day, or a month due to colds, flu, accidents, muscle pulls, etc., the conditions for needing or qualifying for what we call formally long-term care is quite specific in the regulations as well as how it is dealt with in long-term care policies.

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Age In a state where citizens over 85 represent the fastest growing segment of the population, legislators continually put new policies in place to assist older Californians. These help keep families together by providing the services older Californians need to remain in their own homes, instead of nursing homes. It also is designed to dramatically increase the availability of innovative, community-based alternatives to nursing home care, while at the same time, enhancing the quality of care in California's nursing homes. Marital/Domestic Partner Status Many factors determine one’s personal risk of needing long-term care. Some of those are their health history, how long they live, and whether they have a spouse/domestic partner or family member who can provide some of the care they may need. Availability of Family Caregivers If family members are unable to provide care, and one cannot pay someone to take care of them, then a nursing home may be the only available option. If one has a spouse or other family members who can provide care they are more likely to be able to remain in their own home when they need care. The condition that causes them to need care, and the severity of that condition, may determine whether they can be cared for at home or whether institutional care is the only option. For instance, a severe stroke could be so disabling that care at home is impossible, or an Alzheimer’s patient may need constant supervision. CA Long-term care Rate Guide-A Guide to Long-Term Care Medical History If one knows that certain health conditions run in their family, they may have a greater risk of needing long-term care than another person of the same age and gender. Certain health conditions, like Alzheimer’s or a stroke, can cause a need for long-term care. Unfortunately, it may be that this known health condition could also make one ineligible to buy this type of insurance. CA Long-term care Rate Guide-A Guide to Long-Term Care Those who live to be 95 years old or older are much more likely to have spent five or more years in a nursing home than those who die in their mid-70’s. Much less is known about the use of home care services. The longer one lives, the more likely it is that they will need long-term care. Financial Factors What are the older person’s income, assets, and expenses? Will they need financial assistance to take care of their needs? Is the older person competent to handle financial affairs? If not, what legal steps must be taken to protect him or her? Most older people want to remain independent as long as possible. After an individual has gathered information about how their loved one gets along on a daily basis, they may want to call a family conference to discuss what has been learned and to evaluate his or her needs. Include the older person in the conference. Invite everyone who is a caregiver and those who will be asked to become caregivers. Give family members the opportunity to share care giving responsibilities. Remember, most people want to show their affection, loyalty, and respect for the older person by helping to care for them. If a family member is unable to commit to definite responsibilities because of their personal circumstances, be supportive. Perhaps there is a small task they can accomplish so they feel they are participating in the care of the loved one.

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CA Long-term care Rate Guide-A Guide to Long-Term Care

The LTC Services and Facilities that Provide Care There are many types of facilities that provide long-term care. The amount or type of care that a patient receives depends on the kind of facility that he/she is staying at. For example, a skilled nursing facility provides both custodial care and skilled nursing care. But a residential care facility for the elderly provides only custodial care. Custodial care (or personal care) refers to assistance with activities of daily living such as bathing, dressing, toileting and eating. Skilled nursing care refers to care that must be given or supervised by registered nurses and rehabilitative staff such as injections, tube feeding and physical therapy. Assisted Living facilities are state-licensed facilities that provide a range of services, but they are not skilled nursing facilities. The distinction is important because agents must understand the places where a particular policy will pay benefits, and where it will not. Home Care and Community-Based Services As time goes by there is a continuing growth in the development of different ways to accommodate an increasingly large number of seniors. As these services and providers change and grow, agents and insurers will need to acknowledge, understand, and adapt to those changes for the benefit of their clients and the public at large. Long-Term care insurance covers any of the following:

• Care in a Facility that is not an acute-care hospital. Some of the terms used to describe these "facilities" that can provide long-term care services include nursing homes, Residential Care Facilities for the Elderly (RCFE) often called Assisted Living Facilities, convalescent facilities, extended care facilities, custodial care facilities, skilled nursing facilities or personal care homes.

• Home Care including Home Health Care, Personal Care, Homemaker Services,

Hospice Services or Respite Care. (Some Hospice and Respite care can also be received in a facility like a nursing home.)

• Community-Based Care such as Adult Day Care or Hospice Facility Care.

All long-term care policies except “Home Care Only” cover this kind of care. Most skilled, intermediate and custodial care is delivered in nursing homes that are licensed as "skilled nursing facilities".

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RCFEs are not nursing homes, but living arrangements where a person can also receive personal care or supervision. Some RCFEs are large retirement homes, while others are small group homes. Policies sold after October, 2001 (except Home Care Only policies) are required to include a benefit to cover care in an assisted living facility licensed as a Residential Care Facility for the Elderly (RCFE). Some insurance policies sold before October, 2001 also include this benefit. In California, all long-term care policies and/or certificates that provide benefits for home care or community-based services must provide for, at least, the following: CA Long-Term Care Rate Guide-A Guide to Long-Term Care Home Health Care, Adult Day care, Personal Care, Homemaker Services, Hospice Services, and Respite Care The policy definitions of these benefits, according to the statutes, may be no more restrictive than the following:

"Home health care" is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker.

"Adult day care" is medical or non-medical care on a less than 24-hour basis, provided in a licensed facility outside the residence, for persons in need of personal services, supervision, protection, or assistance in sustaining daily needs, including eating, bathing, dressing, ambulating, transferring, toileting, and taking medications.

“Personal care" is assistance with the activities of daily living, including the instrumental activities of daily living, provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. "Instrumental activities of daily living" include using the telephone, managing medications, moving about outside, shopping for essentials, preparing meals, laundry, and light housekeeping.

"Homemaker services" is assistance with activities necessary to or consistent with the insured's ability to remain in his or her residence, that is provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.

"Hospice services" are outpatient services not paid by Medicare, that are designed to provide palliative care, alleviate the physical, emotional, social, and spiritual discomforts of an individual who is experiencing the last phases of life due to the existence of a terminal disease, and to provide supportive care to the primary care giver and the family. Care may be provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.

"Respite care" is short-term care provided in an institution such as a nursing

home, in the home, or in a community-based program, that is designed to

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relieve regular care giver in the home. This is a separate benefit with its own conditions for eligibility and maximum benefit levels.

Home Care Benefits must not excluded or be limited by any of the following:

Limiting benefits to those provided by licensed or skilled personnel when other providers could provide the service, except where prior certification or licensure is required by state law.

Defining an eligible provider in a manner that is more restrictive than that used to license that provider by the state where the service is provided.

Requiring "medical necessity" or similar standard as a criteria for benefits. Requiring a need for care in a nursing home if home care services are not

provided. Requiring that skilled nursing or therapeutic services be used before or with

unskilled services. Requiring the existence of an acute condition. Limiting benefits to services provided by Medicare-certified providers or

agencies.

CA Long-term care Rate Guide-A Guide to Long-Term Care Every comprehensive long-term care policy or certificate that provides for both institutional care and home care and that sets a daily, weekly, or monthly benefit payment maximum, shall pay a maximum benefit payment for home care that is at least 50 percent of the maximum benefit payment for institutional care, and in no event shall home care benefits be paid at a rate less than fifty dollars ($50) per day. Insurance products approved for residents in continuing care retirement communities are exempt from this provision. “Every such comprehensive long-term care policy or certificate that sets a durational maximum for institutional care, limiting the length of time that benefits may be received during the life of the policy or certificate, shall allow a similar durational maximum for home care that is at least one-half of the length of time allowed for institutional care.” CIC §10232.9 (a) Public Programs Multipurpose Senior Services Program (MSSP) This program provides social and health case management to assist persons aged 65 and over, eligible for Medi-Cal and certifiable for skilled nursing care, to remain safely at home. In-home Supportive Services (IHSS) The IHSS Program will help pay for services provided to seniors so that they can remain safely in their own home. To be eligible, they must be over 65 years of age, or disabled, or blind. Disabled children are also potentially eligible for IHSS. IHSS is considered an alternative to out-of-home care, such as nursing homes or board and care facilities. The types of services which can be authorized through IHSS are housecleaning, meal preparation, laundry, grocery shopping, personal care services (such as bowel and bladder care, bathing, grooming and paramedical services), accompaniment to medical appointments, and protective supervision for the mentally impaired.

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The eligibility criteria for all IHSS applicants and recipients includes physically residing in the United States, be a California resident, have a Medi-Cal eligibility determination, live at home or an abode of their own choosing (acute care hospital, long-term care facilities, and licensed community care facilities are not considered "own home"), and must submit a completed Health Care Certification form. Programs of All-Inclusive Care for the Elderly (PACE) The BBA included a State option known as Programs of All-Inclusive Care for the Elderly (PACE). PACE provides an alternative to institutional care for persons aged 55 or older who require a nursing facility level of care. The PACE team offers and manages all health, medical, and social services and mobilizes other services as needed to provide preventative, rehabilitative, curative, and supportive care. This care, provided in day health centers, homes, hospitals, and nursing homes, helps the person maintain independence, dignity, and quality of life. PACE functions within the Medicare program as well. Regardless of source of payment, PACE providers receive payment only through the PACE agreement and must make available all items and services covered under both Titles XVIII and XIX, without amount, duration, or scope limitations and without application of any deductibles, copayments, or other cost sharing. The individuals enrolled in PACE receive benefits solely through the PACE program.

The Availability of LTC Services and Facilities

Some people have families in their geographic area who are able and willing to lend a hand with needs that require unskilled assistance. Some do not. The reason that one needs long-term care takes many forms; from unskilled assistance at home by family caregivers to skilled care required and delivered in an institutional facility such as a nursing home. These different venues and types of assistance required many times are determined by one’s support system. Some have a long time personal physician or access to a professional to develop and execute a plan of care on their behalf. Some do not. With regard to the LTC Continuum, long term care can be received in a variety of venues depending on the level of incapacity of the individual. Care is needed in varying degrees depending on the severity of the incapacity and/or inability to perform the ADLs and mental capacity of an individual. Ideally, there would be services and facilities that match the spectrum, or continuum, of the aging and long-term care process, especially as it relates to a person going from limited/minor inability to perform ADLs, to complete inability to perform ADLs to ultimately death, and everything in between. All these factors have been taken into consideration in California when they have and continue to make regulations and requirements for making available resources for residents to have services, programs, and facilities for people experiencing the many different levels of care needed. The have also put into place specific requirements for policies to acknowledge the existence of and provide coverage and benefits for the variety of needs of people experience along the long-term care continuum. LTC Continuum Long-term care is sometimes called "custodial care" or "personal care." The long-term care continuum in California is comprised of many layers of care ranging from the individual needing assistance as an institutionalized patient requiring 24-hour skilled nursing care to care giving assistance in their home. The services are generally classified into two

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categories. They are Community Based Services and Institutional Care Services. There is also, in addition to these two formal categories, the Informal Network that consists of one’s friends and family members providing for their assistance generally at home. LTC Services Available Agents need to understand the continuing evolution of long-term care services and providers. Range Long-Term Care encompasses a wide array of services. In general, California law defines long-term care as a coordinated continuum of services that:

Addresses the individual’s health, social, and personal needs. Maximizes the individual’s ability to function independently outside of an institution.

Long-term care services assist the individual in accomplishing routine daily activities, depending on an individual’s level of need. For example, a long-term care service may provide a disabled person with assistive technology that allows that person to accomplish routine activities independently. In another case, an individual may receive assistance in the home with meal preparation; housework or shopping; or with eating, bathing, and dressing. Generally, long-term care does not include medical care. Health insurance, including Medicare, provides for acute medical care, but generally does not cover non-medical support services needed to perform daily routine activities. Supportive services, therefore, are made available by other providers and payers of long-term care such as Medicaid; family caregivers (spouses, adult children, and relatives); and private long-term care insurance. Some long-term care services, notably skilled nursing facilities, adult day health care, and the Program for All-Inclusive Care for the Elderly (PACE) nevertheless do provide some medical care, which is incorporated into the service provider’s rates for overall long-term care. A variety of care services and facilities match the different levels of assistance and care that individuals require as they age and approach the end of their lives. It’s different for everyone. In conjunction with the continuing evolution of long-term care services and providers, they range from skilled services by highly skilled personnel (e.g. physical therapist) to a lower level of care (e.g. personal care attendant) delivered by unskilled personnel. Skilled Care to Non-skilled We take a more specific peek at the skilled and non-skilled care area to ensure a better feel for the differences before checking out the variety of care services and facilities that speak to the varying needs of people in the LTC continuum, Skilled This type of care that is usually delivered in skilled nursing homes and hospitals, but can be received in the home, as well. If the skilled care meets strict criteria set forth by Medicare, then the facility providing it is referred to as a skilled nursing facility (SNF). Medicare defines skilled care as services and rehabilitation that require the skills of technical or professional personnel such as registered nurses, licensed practical nurses, and physical or occupational therapists.

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If Betty had a hip replaced, she is expected to recover fully. Betty needs physical therapy to be able to walk again. She was admitted to a skilled nursing facility to receive her therapy. She will remain there as long as she needs therapy on a daily basis and continues to improve and move towards getting better. Non-Skilled Care The type of care that is provided to persons who need help or consistent assistance on a regular basis with their activities of daily living because of a physical limitation, chronic problem, or a cognitive problem is defined as Non-skilled care. This type of care can be provided by a personal care attendant, a family member or by unskilled personnel. It does not have to be performed by a medical professional like skilled care does. Non-skilled care is also known as “custodial care”. Facilities that Provide Care There are many types of facilities that provide long-term care. The amount or type of care that a patient receives depends on the kind of facility that he/she is staying at. For example, a skilled nursing facility provides both custodial care and skilled nursing care. But a residential care facility for the elderly provides only custodial care. Custodial care (or personal care) refers to assistance with activities of daily living such as bathing, dressing, toileting and eating. Skilled nursing care refers to care that must be given or supervised by registered nurses and rehabilitative staff such as injections, tube feeding and physical therapy. Assisted Living facilities are state-licensed facilities that provide a range of services, but they are not skilled nursing facilities. The distinction is important because agents must understand the places where a particular policy will pay benefits, and where it will not. Low Level of Care This represents “assistance” care for people who need help meeting daily living requirements such as getting in and out of bed, dressing, personal hygiene and maintaining their current health condition. Licensed medical personnel are not required. Current policies may now lump custodial and intermediate care into a category called Level 1. Most care is for custodial, not intermediate or skilled and this represents the most expensive aspect of long-term care. Skilled Services Skilled Service is the highest level of care provided by a Registered Nurse (R.N) or a Licensed Practical Nurse (L.P.N) 24 hours a day. It is prescribed by a physician for the most severely impaired person who cannot perform their own personal needs. The basic rules are that Medicare beneficiaries who are homebound are entitled up to 35 hours per week of free skilled nursing and home health where they require skilled nursing services on an intermittent basis or skilled therapy services. The skilled care of a registered nurse must be reasonable and necessary to the diagnosis and treatment of illness or injury. Intermittent basis means fewer than five days per week or as little as once every 60 to 90 days. But once one has met eligibility criteria, it can cover for up to 35 hours per week. Skilled nursing services must be needed on a part time or intermittent basis.

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Highly Skilled Personnel Highly Skilled Care is needed for medical conditions that require care by specially trained nurses or therapists and licensed by the state for 24 hours a day care in a person’s home with help from practical, as opposed to registered, nurses. Qualified LTC expenses, prescribed by a licensed health care practitioner, are acquired with skilled nursing care for a “chronically ill individual.” who is unable to perform at least two activities of daily living (ADLs) for a period of at least 90 days. Formal Care Formal care is care in a facility that is not an acute-care hospital. Terms used to describe these "facilities" that can provide long-term care services include nursing homes, Residential Care Facilities for the Elderly (RCFE) often called Assisted Living Facilities, convalescent facilities, extended care facilities, custodial care facilities, skilled nursing facilities or personal care homes. CA Long-term care Rate Guide-A Guide to Long-Term Care The kind of care you must pay for formal long-term care is most often provided by professional skilled and unskilled workers. Unskilled workers are often supervised by skilled medical personnel such as registered nurses. Informal Long-Term Care Frequently provided by unpaid family members and friends is regarded as informal long-term care. Long-term care services can be provided in your own home or in a community program like an Adult Day Care Center, in an assisted living facility licensed as a Residential Care Facility for the Elderly (RCFE), or in a nursing home. About half of all nursing home stays last 6 months or less. Some people only need long-term care for a few months, for example, while recovering at home from a broken hip, while others may need care for the rest of their life. Long-term care is not necessarily ‘long term’. Facilities that Provide Care Nursing Homes Skilled Nursing Facilities Around-the-clock nursing supervision and care is provided for residents who need help with dressing, eating, bowel and bladder care, and taking prescription medications. Different types of therapy, such as physical, speech or occupational, is also provided. This type of care is very institutional and being run mostly by large corporations for profit. Skilled nursing facilities provide short-term, intensive medical care and monitoring for people recovering from acute illness or injury. Other facilities -- called nursing homes, board and care homes, sheltered care homes or something similar -- provide custodial care, long-term room and board and 24-hour assistance with personal care and other healthcare monitoring, but not intensive medical treatment or daily nursing. Services ranging from custodial care, intermediate care and skilled nursing care are common in institutional facilities.

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Skilled Nursing Care Rehabilitative, short term, intensive 24 hour care, usually following an illness or injury requiring acute care first. Assuming a three-day hospital stay, Medicare and other health insurance policies cover room and board for skilled care only in a nursing facility. The average stay is less than 20 days. SNF's are licensed by the California Department of Health Services and funded by Medicare with certain qualifications, Medi-Cal, or private insurance. Skilled nursing care is provided by licensed nurses for patients needing more intensive care. Convalescence from surgeries or serious illness fall under this definition. The cost can range from $125 to $175 and above per day, depending on the geographic area (Source: Taking Care of Tomorrow,California Department of Aging). Three Levels of Skilled Nursing Care: Twenty-four hour care, the first level is in a skilled nursing facility. This type of facility is licensed by the Department of Health Services and Medi-Cal certification is required. It can be paid for by Medicare, Medi-Cal, and private insurance. Medicare paid it for because she was hospitalized first. Hospitalization is a condition for which Medicare pays. Intermediate care can also be paid for by Medicare, Medi-Cal, and private insurance. Intermediate care, the second level, is also licensed by the Department of Health Services. Medi-Cal certification is required, but the level of health-care is not as extensive as skilled nursing care. Rehabilitative care for up to six months which requires less than 24-hour supervision by a nurse. Intermediate care provides health care such as giving shots, medications and therapy Custodial care is the third level of care. Under this type of care, a doctor prescribes a plan of care and a nurse aids in the care. Medicare does not cover it, but it can be covered by Medi-Cal. Care necessary due to a chronic or permanent illness or injury, which is less intensive, but which may continue indefinitely. This care helps a person perform activities of daily living or supervises a person if cognitive impairment exists. Custodial care is the care needed by the patient as determined by a professional who has planned. Residential Care Facilities for the Elderly (RCFE) Residential Care Facilities could include the following facilities. Retirement housing generally provides each resident with an apartment or room that includes cooking facilities. This setting may be appropriate for persons in the early stage of Alzheimer’s who can still care for themselves independently and live alone safely. Assisted living facilities (or board and care homes) bridge the gap between living independently and living in a nursing home. Facilities typically offer a combination of housing and meals; supportive, personalized assistance, and health care services. Skilled nursing facilities may be the best choice when a person needs round-the-clock care or ongoing medical treatment. Most nursing homes have services and staff to address issues such as nutrition, care planning, recreation, spirituality, and medical care. In these facilities, a person may receive all of the different levels of care on one campus but may need to be moved between buildings to receive different services. These facilities provide assistance with personal care. Residential Care Facilities or the Elderly (RCFE) in California, also referred to as Assisted living facilities, are stand alone or can be part of a larger facility. Residential care facilities provide room and board and necessary supervision.

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RCFEs are for people who need assistance with their daily activities of living while residents maintain some level of independence. Residents usually have their own room or small apartment. If medical or other health care or service is needed, there is help available. The resident may need various types of care and ssistance with preparing meals, doing laundry, llight housecleaning and transportation. These services are paid for by the client, by Medi-Cal, if qualified, or private insurance. These facilities are licensed by the Department of Social Service. The following features must also include provisions in every long-term care policy or certificate covering confinement in a nursing facility with:

• Care in a residential care facility must be covered in California. "Residential care facility" means a facility licensed as a residential care facility for the elderly or a residential care facility as defined in the Health and Safety Code.

• For care in a residential care facility the benefit amount payable must be no

less than 70 percent of the benefit amount payable for institutional confinement. (Section 10232.92(b) of the CIC)

• While confined in a residential care facility, all expenses incurred by the

insured for long-term care services are to be covered. This includes those that are necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance or personal care services needed to assist the insured with the disabling conditions. These are the ones that cause the insured to be a chronically ill individual and must be covered and payable up to the maximum daily residential care facility benefit of the policy or certificate. (Section 10232.92(c) of the CIC)

• No restriction may be placed on who may provide the service or a

requirement that services be provided by the residential care facility, as long as the expenses are incurred while the insured is confined in a residential care facility. The reimbursement cannot exceed the maximum daily residential care facility benefit of the policy or certificate. The services cannot conflict with federal law or regulations.

Eligible providers outside California are facilities that are engaged primarily in providing ongoing care and related services sufficient to support needs resulting from impairment in activities of daily living or, if any, impairments in cognitive ability facilities that meet licensure standards. They must provide care and services on a 24-hour basis, have a trained and ready-to-respond employee on duty in the facility at all times to provide care and services, provide three meals a day, accommodate special dietary needs, have agreements to ensure that residents receive the medical care services of a physician or nurse in case of emergency, and have appropriate methods and procedures to provide necessary assistance to residents in the management of prescribed medications. Continuing Care Retirement Communities (CCRC/LCC) CCRCs are privately organized residential communities where home/apartment maintenance and long-term care services are available on an ‘as needed’ basis. They have various degrees of support for health care and activities of daily living requirements. The response to the needs of those entering their retirement years and wanting to have continuous support and care for the

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rest of their lives without having to move to other locations or facilities are called Continuing Care Retirement Communities. Upon entering a CCRC, a resident is required to sign a legal binding contract. Residents pay a relativey large one-time entry fee plus a monthly mainatence fee in exchange for the assurance of lifetime long-term care. Since this contract has serious financial implications, this decision should be discussed with a financial planner and the contract should be reviewed by an attorney. The different levels of services are available as the need arises. The residents have their own living quarters if little or no care or help is needed. If some assistance is needed, it can be provided for. As an added provision in the community, nursing home beds are there for anyone who needs complete care. It is funded by membership fees and many are owned by churches and other private organizations. The nursing home and assisted living functions are licensed by the Departments of Social Services and/or Health Services Adult Day Care Settings In addition to the following overview of the types of Adult Day Care Facilities and programs available in California Adult Day Care Center types there are many other supportive programs that California provides. They support elders in their need for all type of assistance on issues specific to the aging process and growing old. Department of Health Care Services (DHC) Services & Programs Adult Day Health Care (ADHC) Adult Day Health Care (ADHC) is a licensed community-based day care program providing a variety of health, therapeutic, and social services to those at risk of being placed in a nursing home. This program provides health, therapeutic, and social services to serve the specialized needs of frail elderly as well as adults with functional impairments at risk of institutionalization and is a day care program. California Department of Health Services licenses the centers. Their role is to administer the program and certify each center for Medi-Cal reimbursement. Objectives of the program are primarily to restore or maintain optimal capacity for self-care to frail elderly persons and other adults with physical or mental disabilities; and to delay or prevent inappropriate or personally undesirable institutionalization. In some situations, individuals already institutionalized may be placed back in the community with ADHC assistance and support services. This is a partnership with the participant, the family, the physician, and the community in working towards maintaining personal independence. Each ADHC location has a multidisciplinary team of health professionals who conduct a comprehensive assessment of each potential participant to determine and plan the ADHC services needed to meet the individual's specific health and social needs. Services provided at the center include: medical services; nursing services; physical, occupational and speech therapy; psychiatric and psychological services; social services; planned recreational

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and social activities; hot meal and nutritional counseling; and transportation to and from the center. California Department of Aging (CDA) Website Alzheimer's Day Care Resource Centers (ADCRC) The centers provide respite as well as training and support for families and professional caregivers. The centers provide respite as well as training and support for families and professional caregivers. This is a day care for persons with Alzheimer's disease and other related dementias who are often unable to be served by other programs. ADCRCs provide a positive experience and care for persons with Alzheimer's disease and other dementia. The primary purpose of the ADCRCs are to: prevent premature or inappropriate institutional placement of persons with moderate to severe levels of impairment due to dementia; provide support and respite for caregivers; serve as models of the optimum type and level of day care services that are needed by persons with dementia; make training opportunities available to professionals and other persons providing care and treatment for this population; and increase public awareness and knowledge about Alzheimer's disease and related disorders. Individual care plans are developed for each program participant with activities scheduled in accordance with these plans. The overall objective is to keep the participants as healthy and active as possible by helping them maintain their highest level of functioning and to improve the quality of their lives while providing respite to caregivers. The centers provide services that support the physical and psychosocial needs of persons with Alzheimer's disease or related dementia. Targeted are those persons having moderate to severe levels of care needs and behavioral problems which make it difficult for them to participate in other care programs. Persons who have been diagnosed as having Alzheimer's disease or other dementia are eligible to participate, without regard to age or financial resources. Approximately one-third of the sites are administered under Adult Day Health Care licensure and certification, permitting them to accept Medi-Cal eligible persons. Participants are requested to share in the cost of care through fees based on the cost of services and a sliding fee scale that is specific to each site. California Department of Aging (CDA) Website Area Agencies on Aging The California Department of Aging contracts with and provides leadership and direction to Area Agencies on Aging (AAA) that coordinate a wide array of services to seniors and adults with disabilities at the community level and serve as the focal point for local aging concerns. You can locate a AAA in your area by calling 1-800-510-2020. A wide array of services to seniors and adults with disabilities are coordinated by the Area Agencies on Aging at the community level and serve as a focal point for local aging concerns. Brown Bag Program There is no fee charged to participants, although voluntary contributions can be made. This program is a State-funded program that provides surplus and donated edible fruits, vegetables and other food products to low income individuals 60 years of age and older. The food is distributed to help supplement the nutritional needs of these older individuals. Low-income seniors receive surplus food from volunteers who collect and distribute it. Volunteers, the

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majority of whom are older individuals, help provide the time and energy to sort and distribute these food items, thereby gaining an increased sense of purpose and the satisfaction of helping others. The food is distributed at various locations throughout the State. The types and amounts of food distributed vary depending on the season and other factors. The Brown Bag Program was established in 1981 and is currently authorized under the Older Californians Act. The Area Agencies on Aging contract with local organizations to obtain food and distribute the food to California's eligible population. These foods are procured at minimal or no cost from farmers, food manufacturers, grocery stores, and food banks. Information on the Brown Bag Program can be obtained by calling the statewide toll free line at 800-510-2020 or the local Area Agency on Aging. California Department of Aging (CDA) Website California Long-Term Care Ombudsman Program The primary responsibility of the program is to investigate and endeavor to resolve complaints made by, or on behalf of, individual residents in long-term care facilities. The California State Long-Term Care Ombudsman Program is authorized by the federal Older Americans Act and its State companion, the Older Californians Act. These facilities include nursing homes, residential care facilities for the elderly, and assisted living facilities. The Long-Term Care Ombudsman Program investigates elder abuse complaints in long-term care facilities and in residential care facilities for the elderly. Professional staff and trained volunteers investigate and resolve complaints made by or on behalf of residents of long term care facilities. It develops policy and provides oversight to the local Long-Term Care Ombudsman Programs. OSLTCO staff confers with State licensing agencies regarding difficult cases, meet with the California Department of Aging Staff Counsels to clarify laws and develop plans for implementing them, define program roles, and provide ongoing statewide Ombudsman training. The Ombudsman's advocacy role takes two forms: 1) to receive and resolve individual complaints and issues by, or on behalf of, these residents; and 2) to pursue resident advocacy in the long-term care system, its laws, policies, regulations, and administration through public education and consensus building. The goal of the State Long-Term Care Ombudsman Program is to advocate for the rights of all residents of long-term care facilities. Residents or their family members can file a complaint directly to the local Long-Term Care Ombudsman or by calling the CRISISline. All long-term care facilities are required to post, in a conspicuous location, the phone number for the local Ombudsman office and the State CRISISline number 1-800-231-4024. This CRISISline is available 24 hours a day, 7 days a week to receive complaints from residents. The Long-Term Care Ombudsman Program is a community-supported program. Volunteers are an integral part of this program. The OSLTCO and its 35 local Ombudsman Program Coordinators are responsible for recruiting, training, and supervising the volunteer Ombudsmen. Ombudsman services are free and confidential. Contact your local LTC Ombudsman Program for the following resident services including questions or concerns about quality of care, questions or concerns about financial abuse, suspected physical, mental or emotional abuse of residents, witnessing services for advanced directives, requesting an Ombudsman to attend a resident care plan meeting, and requesting an Ombudsman to attend a resident or family council meeting. The State CRISISline number is1-800-231-4024. This CRISISline is available to receive complaints 24 hours a day, 7 days a week. Foster Grandparent Program Children who have exceptional needs are worked with by low-income senior volunteers.

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Volunteers, regarded as Foster Grandparents, provide person-to-person support to children up to age 21. Volunteers serve in schools, hospitals, drug treatment centers, juvenile offender facilities, Head Start programs, childcare centers, and other community sites. The Foster Grandparent Program is an intergenerational volunteer program that provides valuable aid to children and youth with special and exceptional needs. Dual purpose -- the program enhances the lives of children with special needs through a loving, caring relationship and to provide a high-quality experience that enriches the lives of the volunteers and the children they serve. Health Insurance Counseling and Advocacy Program (HICAP) The Health Insurance Counseling and Advocacy Program (HICAP) assists individuals and families with Medicare problems and other health insurance concerns. Over 600 trained and registered volunteer counselors provide objective information on Medicare, Medicare supplement insurance, managed care, long-term care planning and health insurance. Community education, individual counseling and some legal services are available in all 58 counties. This program provides both community education sessions open to the public and individualized one-to-one counseling on Medicare, managed care, and other private health insurance issues. Counselors are available for appointments in a wide range of settings such as Area Agencies on Aging, senior centers, senior nutrition sites, libraries, hospitals and community centers. Counselors may also visit homebound individuals unable to come to a site. It helps an individual file Medicare or other health insurance claims, understand his or her coverage and consumer rights, assist with managed care issues and long-term care planning, and evaluate his or her insurance or health care needs. HICAP serves current Medicare beneficiaries and those planning for future health and long term care needs. HICAP counseling is confidential and free of charge - call your local HICAP at 1-800-434-0222. California Department of Aging (CDA) Website Legal Assistance The Department of Aging funds Legal Services Projects for older persons through the network of local Area Agencies on Aging. The projects identify legal problems and legal service needs of older individuals and adults with disabilities within their communities. Community programs provide legal information, advice, and counseling, as well as administrative and judicial representation for seniors. The Department provides individual and group technical assistance to senior legal service projects and assist the state's seniors and adults with disabilities with a variety of legal problems concerning housing, consumer fraud, elder abuse, Social Security, Supplemental Security Income (SSI), Medicare, Medi-Cal, age discrimination, pensions, nursing homes, protective services, conservatorships, and other matters. The senior or adult with disabilities who needs assistance can locate a Legal Services Project by calling the local Area Agency on Aging at 1-800-510-2020. California Department of Aging (CDA) Website Linkages Linkages staff take a holistic approach in addressing client needs. The Linkages care manager begins assisting the client by completing an in-depth assessment of each person's situation in

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the home. Based on that assessment, the client, the family, and the care manager decide what the client needs and make a plan to meet those needs. This plan may include linking the individuals and their families to existing community services, such as:

transportation meals in-home care housing assistance adult day care programs

Each site serves approximately 100 elderly adults or adults with disabilities. There are 36 Linkages sites located throughout California. California Department of Aging (CDA) Website Multipurpose Senior Services Program (MSSP) This program has the goal of arranging for and monitoring the use of community services to prevent or delay premature institutional placement of these frail clients. MSSP sites provide social and health care management for frail elderly clients who are certifiable for placement in a nursing facility but who wish to remain in the community. The services must be provided at a cost lower than that for nursing facility care. This program provides social and health case management to assist persons aged 65 and over, eligible for Medi-Cal and certifiable for skilled nursing care, to remain safely at home. Alternative Living Settings/Arrangements Retirement Homes Most retirement homes are licensed as board and care homes and have staffs that can accommodate custodial care needs, such as assistance with medicine, dressing and bathing. They also offer aid in getting out of bed or going to the bathroom or dining room. Generally, retirement homes will not accept a wheelchair-dependent resident or those who are not self-managed incontinent. Retirement homes also accept residents with varying degrees of dementia. Some have installed specialized wings in their buildings designed for those residents with advanced Alzheimer's who may wander. These areas, not permitted to be locked, provide a safe environment by utilizing “wanderguard” systems. One example is a home that monitors the location of a wanderer by requiring him/her to wear a special bracelet that trips an alarm when a door in this section is opened. Although some retirement homes offer suites and two-bedroom units, most offer only a furnished room with a private bathroom. Meals are provided in a large group dining room. The rooms usually do not have ovens and stoves, although, hot plates, microwaves and small refrigerators are usually permitted. A shared room typically costs between $950 and $1100 per month; a private room costs between $1,500 and $3,500 per month, depending on the location of the home, size of the room and care provided. Not all services and levels of care are generally available in one place here. But, many varieties of these have more or less than one would want. People here are encouraged to find one that matches best what they want in variety, convenience and budgetary concerns. Retirement homes are self contained facilities where people who like this style of living with lots of community activities that match what they feel would be enjoyable, convenient, and within their budgets.

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Life Care Communities These are usually large campuses where all three levels of care (minimal services, custodial care and skilled nursing) are provided. These communities are attractive to residents who do not want to move as increased care needs develop. Some of these settings require a large entry fee for admittance. Others charge for services on a month-to-month basis. Continuing Care Communities require big campuses and there are generally very few of them in the city. Generally, there is a sizable lump sum deposit required with a monthly fee as well. These are great for people who want everything they will need from retirement to death in one location. This allows them to not have to be moved from place to place as the age and need varying types of services and levels of care along the way. These communities have almost everything that a person or couple would want and need for their retirement life. There are many more of these private, many times very exclusive, communities that cater to those people who want to retire in a self-contained retirement environment with all the amenities and long-term capable centers which are located within the community. In the event a resident would need assisted living resources, they are right there on the campus. Should they need nursing and/or skilled care, that is there also. At the end of life, if hospice and other specialized services are needed, those are available, too. Family Care As the California population ages and becomes increasingly more diverse, changing patterns of family life are increasing the demands placed on family caregivers who provide long-term care to a loved one with cognitive impairment. The need for emotional support, respite care, and other home and community-based service options to help families in their care-giving role continues to grow dramatically. Family members generally can provide unskilled care and some receive specialized training to be able to provide care at more specialized level should the situation warrant. Many families still take care of their “own’, so to speak. Here, children and relatives provide one’s care in their own home or in the elder’s home, depending on the situation. Sometimes care is provided partially by the family with outside professionals and specialists filling in the rest. This is done for financial reasons as well as out of love and respect for the parents and the desire for them to be able to stay at home or close to their families. While the cost consideration is aided by this type of care; the human, time, and emotional cost is, nevertheless, significant. Fraternal, Religious, Union Organizations A religious, fraternal, religious organization, or social group to which an individual belongs will be eligible for residence in some facilities which are run by specific organizations. In a few cases, these facilities are open only to organization members, though most admit members of the general public as well. For some individuals, this commonality of interests with other residents may reduce some of the anxiety of moving to a long-term care setting. The facility profiles indicate which facilities have organizational affiliations. Like the Life Care Communities, also referred to as Continuing Care Communities, there are groups many times referred to as “fraternal” that try to provide for similar life care communities needs with a similar result. These are typically lifetime living and long-term care capable facilities operated and funded through religious entities, fraternal organizations, and certain

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large national unions. They provide for and concentrate on providing this care and those services to the members of the special group. As with the other communities care communities, it is important and necessary to investigate the particular facility itself, first hand. Because the down payment lump sum is generally significant, it is necessary look at all of the specifics of having lifetime care provided through this avenue. Home Care and Providers of Home and Community Care Home Health Care The benefits of good home healthcare can be enormous, but it’s not always the best solution. In recent years, more and more elders are turning to home care to meet their personal and healthcare needs. This trend is particularly welcome in light of public health surveys indicating that up to half of all nursing facility residents could live independently if they had adequate and affordable home care services. And other studies have shown that the longer people remain independent from institutional care, the better their overall physical and emotional health. Unfortunately, though, long-term home care is not always a practical solution. Home care may be adequate and affordable if the elder needs help with some physical movements around the home - bathing and getting meals, for example - or with exercise, physical therapy or monitoring a chronic health condition. But if the elder needs extensive medical treatment or close monitoring for many hours each day, the difficulty of arranging different types of care may make home care impractical - and the cost may become prohibitive. In most cases, long-term home care also requires family members to fill in gaps that the outside care services do not cover. For many people without such family assistance, long-term home care is simply not an option. Home Care Benefits "Home health care" is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker. Included in Home Care are Home Health Care, Personal Care, Homemaker Services, Hospice Services or Respite Care. (Some Hospice and Respite care can also be received in a facility like a nursing home.) If home care or community-based services are written into the policy, California Code requires that they must provide: CIC 10232.9

Adult Day Care Home Health Care Personal Care Homemaker Services Hospice Services Respite Care

No policy may be advertised, marketed, or offered as long-term care or nursing home insurance unless it complies with this chapter. CIC10233.7

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Informal Care – Care Provided by a Family Member or Friend When we are old and being taken of at home, occasional need for specialized, skilled assistance may be sought when needed. Both part and full time, unskilled care provided by family members on an informal basis may be the answer to the elder’s needs. This is an economical way, if possible, to provide care and assistance to an elder needing care. Elders and family both would prefer this as the method of assisting the elders. This works best if family members are still located in proximity to the parent. The parent needs to be willing to have the family care for them. They do not want to be a burden. Many want to feel independent. It is a difficult situation sometimes. Home Care can range from Informal Care by a family member to a Formal Care by a highly trained professional. It can be assistance and care that is given to and performed for the elder in their home by a family member or unskilled worker who is asked to do work for a person in their home. Home care is provided in the home by a person or professional company that is paid by the patient. Non-medical aid is provided and may include housekeeping, companionship, shopping, or cooking; in addition to daily living assistance. It can take place in the patient's home or in a relative’s house. These people may come from a company who provides workers to do home care or from private individuals who have formed a business for themselves to provide unskilled care for those who need help in their homes. For different geographical areas, the cost varies, but is usually charged by the day and can range from $15 per day to $25 per hour and above for a personal aid not living in the home. It can be personal services that do not require medical assistance to assistance getting around, eating, taking medicines, shopping. Policies do not pay a benefit for those services if a family member performs these services or cares for the elder, most as no fee is required for a family member to perform the work. Under some conditions, with specialized training and other requirements, a family member is eligible to be paid and a benefit paid for the policy covered service. An agent should be aware of what the policy they are selling specifies in all these areas. They should also be able to review someone’s existing coverage to know what if any, of these things are covered by one’s current policy, especially in a replacement situation. Formal Care by a Highly Trained Professional Formal care by a highly trained professional can be highly skilled medical care that is performed by only those who have completed required trained and are licensed and/or certified professional. This type of service allows a patient to remain at home only with assistance that can include bathing, dressing and medical help following a plan of care prescribed by a doctor. Supplying this care can be a licensed nurse or a non-medical person who is paid either by the patient, or with certain qualifications, by Medicare. Some insurance plans may also cover this type of care. If a licensed nurse is needed for help, this costs approximately $150 to $170 per visit. A professional has usually developed a plan of care for the patient. They may come from companies that have specialized in recruiting and finding home health care situations and people who need skilled assistance and care in the home as the core of their business. They can be self-employed individuals who have the certification and proper licenses to perform these services. The California Agency on Aging will have a list of those available and qualified in this area.

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California Insurance Code definitions of Community-based service and care situations:

"Home health care" is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker.

"Adult day care" is medical or non-medical care on a less than 24-hour basis,

provided in a licensed facility outside the residence, for persons in need of personal services, supervision, protection, or assistance in sustaining daily needs, including eating, bathing, dressing, ambulating, transferring, toileting, and taking medications.

"Personal care" is assistance with the activities of daily living, including the

instrumental activities of daily living, provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. "Instrumental activities of daily living" include using the telephone, managing medications, moving about outside, shopping for essentials, preparing meals, laundry, and light housekeeping.

"Homemaker services" is assistance with activities necessary to or consistent

with the insured's ability to remain in his or her residence, that is provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.

Code Specifications and Restrictions CIC 10232.9 Policy definitions cannot be more restrictive for Adult Day Care as specified by the California Insurance Code, section 10232.9. ADC is medical or non-medical care for less than 24 hours in a licensed facility outside the residence. Help is provided with activities of daily living and/or supervision that are in accord with each client’s needs. Home Health Care is skilled nursing or other professional services in the home which include, but not limited to, Part-time and Intermittent skilled nursing services, home health aid services, physical therapy and medical social services by a social worker. Personal Care is assistance with activities of daily living and other aids developed by a professional medical worker in a plan of care. Homemaker Services are services that help the insured to stay in his or her own home under a doctor's a plan of care. Hospice Services are outpatient services that provide palliative care to alleviate the physical, emotional, social and spiritual discomforts of a person with a terminal disease. Respite Care is designed to relieve a primary care giver taking care of the patient and is a short-term rest either in the home or a special program. Home care benefits, as stated by the Insurance Code, also states that will not be limited or excluded by the following: (Source: California Insurance Code 10232.9)

Requiring the existence of an acute conditional problem. Limiting benefits to services provided by Medicare certified providers or

agencies.

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Defining an eligible provider in a manner that is more restrictive than that used to license that provider by the state where the service is provided.

Requiring a need for care in a nursing home if home care services are not provided.

Requiring that skilled nursing or therapeutic services be used before or with unskilled services.

Requiring “medical necessity” or similar standard as a criteria for benefits Locating Information on Services and Facilities that Provide Long-Term Care Information & Assistance Providers assesses the needs of the individual calling for assistance, links the caller to specific services, and then provides follow-up to ensure, when possible, that the needed services were received. Staff provide information as well as assistance and follow-up to link seniors and adults with functional impairments and their families with programs and services in their community. I&As give accurate and up-to-date information to seniors and adults with disabilities and their families about programs and services in their community. The Aging Department supports a toll-free information line for use from anywhere in the state. Regardless of the county in which you live, dial 1-800-510-2020 and you will be automatically connected with the service provider in your local area. If you need information about other areas, you will be referred to service providers in those regions. When seeking information and assistance resources outside of California, go to the Eldercare Locator site (eldercare.gov) or call 1-800-677-1116. California Department of Aging (CDA) Website How and Where to Locate the Facilities In addition, the following is a list of the many departments that California provides for the health and welfare of its residents.

• California Department of Insurance Consumer Services Division 300 South Spring Street, South Tower Los Angeles, CA 90013 Telephone: (800) 927-HELP (4357) within California or (213) 897-8921 Out-of-state Callers Website: www.insurance.ca.gov

• California Partnership for Long-Term Care

California Department of Health Services MS 4100 P. O. Box 997413 Sacramento, CA 95899-7413 Telephone: (800) CARE-445 (227-3445) Website: www.dhs.ca.gov/cpltc

• Centers for Medicare and Medicaid Services

75 Hawthorne Street, Suite 408 San Francisco, CA 94105

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Telephone: (415) 744-3602 Website: www.medicare.gov

• Health Insurance Counseling and Advocacy Program (HICAP)

California Department of Aging 1600 K Street Sacramento, CA 95814 Telephone: (800) 434-0222 Website: www.aging.state.ca.us

• National Association of Insurance Commissioners (NAIC)

2301 McGee St., Suite 800 Kansas City, MO 64108-2604 Telephone: (816) 842-3600 Website: www.naic.org

• California Department of Health Services

(Consumer Assistance Center for Long-Term Care Facilities are listed below:

Alameda District Office 2151 Berkeley Way, Annex 2 Berkeley, CA 94704 Telephone: (866) 247-9100

County of Los Angeles 5555 Ferguson Drive, Third Floor City of Commerce, CA 90022 Telephone: (800) 228-1019

Southern San Diego District Office 7575 Metropolitan Drive, Suite 211 San Diego, CA 92108 Telephone: (866) 706-0759

Bakersfield District Office 1200 Discovery Plaza, Suite 120 Bakersfield, CA 93309 Telephone: (866) 222-1903

Orange County District Office 2150 Towne Centre Place, Suite 210 Anaheim, CA 92806 Telephone: (800) 228-5234

Northern San Diego District Office 7575 Metropolitan Drive, Suite 104 San Diego, CA 92108 Telephone: (800) 824-0613

Chico District Office 1367 E. Lassen Avenue, B-1 Chico, CA 95973 Telephone: (800) 554-0350

Redwood Coast District Office 50 Old Courthouse Square, Suite 200 Santa Rosa, CA 95404 Telephone: (866) 784-0703

San Jose District Office One Almaden Boulevard, Ninth Floor San Jose, CA 95113 Telephone: (800) 554-0348

Contra Costa District Office 2151 Berkeley Way, Annex 2 Berkeley, CA 94704 Telephone: (800) 554-0352

Riverside District Office 625 East Carnegie Drive, Suite 280 San Bernardino, CA 92408 Telephone: (888) 354-9203

Santa Rosa District Office 50 Old Courthouse Square, Suite 200 Santa Rosa, CA 95404 Telephone: (800) 554-0349

Daly City District Office 350 90th Street, 2nd Floor Daly City, CA 94015 Telephone: (800) 344-2896

Sacramento District Office 7801 Folsom Boulevard, Suite 200 Sacramento, CA 95826 Telephone: (800) 554-0354

Ventura District Office 1889 North Rice Avenue, Suite 200 Oxnard, CA 93030 Telephone: (800) 547-8267

Fresno District Office 7170 N. Financial Drive, Suite 110 Fresno, CA 93720 Telephone: (800) 554-0351

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San Bernardino District Office 464 West Fourth Street, Suite 529 San Bernardino, CA 92408 Telephone: (800) 344-2896

CA Long-term care Rate Guide-A Guide to Long-Term Care

Where to Obtain Information on Long-Term Care Services and Facilities Providers can be located in a variety of methods from community classified and newspaper ads, to yellow pages, to toll free California Agency on Aging, and their web site. A booklet on long-term care that the California Department of Aging publishes called "Taking Care of Tomorrow" provides more in-depth information on a broad spectrum of long-term care issues. Agents must give their clients a copy of it when they attempt to sell them a long-term care insurance policy. That booklet is also available from their local HICAP project. HICAP is the Health Insurance Counseling and Advocacy Program sponsored by the Department of Aging and funded in part by the Department of Insurance. It provides free counseling on long-term care insurance, as well as on Medicare and Medicare supplement policies. Call 1-800-434-0222 to find the local project in your community. The National Association of Insurance Commissioners also publishes a booklet called "A Shopper's Guide to Long-Term Care Insurance." It is available by calling the California Department of Insurance at 1-800-927-HELP (1-800-927-4357). There are detailed worksheets in the NAIC publication that may help a client choose the coverage they need. CA Long-term care Rate Guide-A Guide to Long-Term Care How Services are Provided and Funded In the arena of facility-based care nursing facilities (NFs) which are skilled-nursing facilities, nursing homes or convalescent hospitals, these facilities provide comprehensive nursing care for chronically ill or short-term residents of all ages, along with rehabilitation and specialized medical programs. Their payments come primarily from Medi-Cal with additional funding through Medicare and private payments. Subacute-care skilled facilities are specialized units typically part of a nursing facility, they focus on intensive rehabilitation, complex wound care and post-surgical recovery for residents of all ages who no longer need the level of care found in a hospital. Intermediate-care (ICFs) facilities provide room and board along with regular medical, nursing, social and rehabilitative services for people not capable of full independent living. Payments come primarily through Medi-Cal with some funding through Medicare and private payments. Intermediate-care facilities for the developmentally disabled provide services for people of all ages with mental retardation and/or development disabilities. Payments come mostly from Medi-Cal. Home health care agencies are typically licensed and their services have prohibited limitations using a range of skilled workers like registered nurses, physical therapists. Home care services use skilled and unskilled workers for home care aids, housekeeping, bathing, dressing, etc.

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Older LTC policies may limit coverage to skilled workers or exclude home health care services altogether. However, policies cannot require the use of a state licensed provider unless the state also requires licensing for their services. Their payments are generally funded by Medi-Cal with some funding coming through Medicare and private payment. Special treatment institutes for mental health program’s facilities provide extended treatment periods for people of all ages with chronic mental-health problems; most of the clients are younger than 65. Payments come through a combination of state and county funding. Adult day health care provides some medical care, plus physical, occupational and speech therapy receive their money primarily from Medi-Cal. Residential care facilities for the elderly (RCFEs), “Assisted Living”, provide personal care and safe housing for people who may need supervision for medication and assistance with daily living but who do not require 24-hour nursing care. Payments come primarily through private payments. Home and Community-Based Care Community-care facilities provide 24-hour non-medical residential care to children and adults with developmental disabilities. Payments come from funding through home- and community based Medi-Cal waiver programs. Congregate housing with a common living areas and non-medical support services that meet the basic needs of older people receive their payments through rants provided through Federal Government (Housing & Urban Development). Hospice provides care and support for terminally ill people and their families. It can be provided in a facility setting or at home. Funding comes through Medicare, Medi-Cal, private insurance and private payments. Respite care provides short-term inpatient or home care delivered to elderly people as a substitute for their regular caregiver. Their funding is derived through home- and community-based waivers and the Department of Aging. Home health care provides medically-oriented care for acute and chronic illness in the patient’s home under six mandated elements. Their revenue comes through Medicare, with limited coverage through Medi-Cal, private insurance and private payments. Personal care & homemaker services are provided for people who need assistance with daily living but do not require nursing. Funding is derived through In-Home Supportive Services for those eligible. Funding comes from Medi-Cal, for those eligible, and private payments. Change or Improvements to Services and Facilities Efforts to improve long-term care in California have focused primarily upon expanding long-term care services that prevent or delay institutional care, maximize a person’s independence, and offer consumer choice. Changes in long-term care services that have occurred have resulted not only from state policy initiatives, but also from federal incentives. In particular, the federal government provides matching funds for qualifying state programs that offer home- and community-based care as an alternative to institutional care. In addition, a recent U.S. Supreme Court decision, L.C. & E.W. vs. Olmstead, is likely to shape continued state efforts to improve long-term care. The June 1999 court ruling means that states must provide alternatives to

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institutions for persons with disabilities who could transition to a community setting, notwithstanding available resources and consumer preference. Agents must be aware of and have an understanding of the continuing evolution of long-term care services and providers in the context of relating those changes to both old and new policy language. Residential Care Facilities for the Elderly (RCFE) are places of care that insurers are increasingly willing to cover in the policy, or are at least willingly to consider for the payment of benefits when it is not specifically covered. Adult Day Care facilities are another place when LTC policies are continually changing so the agent has to be aware at all times of current updates. Earlier policies restricted benefit payment to only those facilities that provided Adult Day Health care, a much more restrictive definition. Another example could be policies that covered home care, but required that services were needed because the person would require institutional care without them. Changes in Providers Agents must be aware that newer policies cannot require the use of a state-licensed provider unless the state also requires a license for that provider. Insurance companies are permitted to make exceptions when the care specified in the policy can be delivered appropriately, and often for less money, in a place that may not be specifically described in that contract. It is important for an agent to familiarize himself or herself with the older policies and understand why the services may be more restrictive than those described in the newer policies. It is important to be able to explain this when an older policy is replaced, and be able to accurately identify the reason for replacement and whether it constitutes a material improvement in the agent certification statement on the application. Changes and improvements have been continuous over time between the old and newer versions of assistance and care for elders as well as in long-term care insurance policies that provide benefits for the care and assistance and the costs associated with them. As new services, the facilities, and people who provide them change to meet the ever-changing demands and requirements of the aging population, policies have had to change to speak specifically to these new services and care options. CIC §10232.9 & 10232.92 There have been continuous changes and improvements between the old and newer insurance policies. Now consumers have more protections than before. One example of this protection is that replacement policies are strictly monitored by requiring insurance companies to report the number of replacement policies written compared to newly written policies. The conditions under which it may be renewed, the first term of coverage, and if premiums can be changed must also be included. All these conditions must be clearly stated. The insured must also sign a consent form if the policy has a right to increase premiums. Consumers must have renewability clauses stated on page one of the policy. For preexisting conditions limitations must be labeled in a separate paragraph. This is also true for eligibility requirements that must state the number of days of confinement and description of limitations in the paragraph titled “Limitations or Conditions on Eligibility for Benefits.” In the late 80’s and early 90’s policies paid for nursing home care only and had a requirement that a hospital stay of 3 days or longer had to precede the nursing home stay in order for benefits to be payable. Today, this requirement is no longer included in policies, and thankfully so. Especially in the context of being able to relate those changes to both old and new policy

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language for the benefit of your clients agents need to be continually aware of and understand the constant evolution of long-term care services and providers. California has added, edited, and changed its regulations as they relate to changes that have been forthcoming in the long-term care arena over the years. A good example of a more contemporary place of care, RCFE (Residential Care Facility for the Elderly), is that insurers, who formerly may not have recognized costs associated with these, are increasingly willing to cover in the policy, or willing to consider for the payment of benefits when it is not specifically covered in the older policy. New policies in California must provide benefits for these. Another is Adult Day Care. Earlier policies restricted benefit payments to only those facilities that provided Adult Day Health care, a much more restrictive definition than contemporary Adult Day Care as we know it in its many forms. Replacement policies are more strictly monitored by requiring insurance companies provide clients with written comparisons as well as for companies to report the number of replacement policies written compared to newly written policies. Now consumers have more protections than before. Consumers now must have renewability clauses stated on page one of the policy due to California regulations. The first term of coverage, the conditions under which it may be renewed, and if premiums can be changed must also be included. All these conditions must be clearly stated. The insured must also sign a consent form if the policy has a right to increase premiums. Limitations for preexisting conditions must be labeled in a separate paragraph. This is also true for eligibility requirements that must state the number of days of confinement and description of limitations in the paragraph titled “Limitations or Conditions on Eligibility for Benefits.” Changes in Covered Services Related to Definitions in Policies All insurance policies covering confinement in a nursing facility must also cover Residential Care Facilities for the Elderly (RCFE). Benefit payments are now written into policies that include both Adult Day Care and Social Day Care insurance policies now allow home care without having a professional declare that a client would need institutional care if they did not receive home care. The Insurance Code in California requires coverage for assisted living care in a licensed residential care facility or a residential facility for the elderly. The benefit amount payable for care shall be no less than 70% of benefits for institutional confinement. All expenses incurred while in a residential care facility for long-term care services; such as diagnostic, preventative, therapeutic, treating, curing, mitigating, rehabilitative services, and including maintenance or personal care, etc., which are needed to assist the insured that cause him or her to be a chronically ill individual as authorized by Public Law 104-19 will be covered but not to exceed the maximum daily residential care facility benefit of the policy or certificate. SB 1052 changes required that insurers establish specified suitability standards for their agents to follow. Inflation protection benefits must be offered to the insured. (CIC Section 10232.92 amended by SB 870, 1999)

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Unit 2 Potential Resources for Paying for

Long-Term Care Expenses

Financing/Paying for Long-Term Care Should one need assistance because of a degenerative mental disease, such as Alzheimer's, who will pay for care? If one requires long-term care because of a chronic physical condition such as arthritis or Parkinson's disease, who will pay for it? The answer is probably they will, unless they act to protect themselves. Nursing home median costs in California for private room averaged $268 a day in 2013 (or $98,000 per year) Semi-private $230 per day $84,000 per year. Long-term care can be very expensive. Of those who enter nursing homes, 55% will have a total lifetime use of at least one year, 24% will stay between one and five years, and 21% will have a total lifetime use of five years or more, (National Center for Policy Analysis, A Long-Term Solution to Medicaid Problems). More than half the people who go into a nursing home will spend between $84,000 and $98,000 (in year 2013 dollars) and one person out of every five will spend even more, perhaps much more, than that. They shouldn't forget that before most people enter a nursing home, they would have already struggled for years with the cost of long-term care in their own homes. California nursing home rates increased at an average rate of over 5% per year during the past twenty years¹ and are likely in the future to continue to increase by at least 5% per year. The cost of care in the future will be much higher than it is today. A 5% annual increase means a year of care that costs $85,000 today will cost twice that amount in 14 years, or $170,000 a year!

Genworth 2013, California - State Median: Annual Care Costs in 2013 .

Funding Mechanisms for Long-Term Care Savings/Private Investment/Personal Resources When care is provided by family members and friends at home, other costs such as those for skilled care, equipment, transportation, and other costs not paid by Medicare are paid from the patient's personal income or savings. Most people pay long-term care expenses from their own income and resources. People who use up their assets paying for long-term care are "spending down" and may become eligible for Medi-Cal as a result. Annuities Variable annuities sometimes offer other optional features, which also have extra charges. One common feature, the guaranteed minimum income benefit, guarantees a particular minimum level of annuity payments, even if you do not have enough money in your account (perhaps because of investment losses) to support that level of payments. Other features may include long-term care insurance, which pays for home health care or nursing home care if an individual becomes seriously ill.

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Annuities include two types of contracts, immediate and deferred. Immediate annuities These provide for typically monthly periodic payments one chooses to be paid monthly that is correlated to a specified event after a lump sum deposit to the insurance company. They can receive periodic monthly payment toward the cost of their care if a person is placed in a nursing home. Deferred annuities An income stream is paid out to annuity owners when a specific event such as retirement arrives and they want to have payments begin. They accumulate tax free. Deferred annuities are much like a savings account and can be used similar to personal assets. There are acquisition costs associated with buying an annuity and may not be the best way to pre-fund for long-term care. An accountant and/or financial planner should be consulted before buying an annuity for long-term care (Source: Taking Care of Tomorrow, California Department of Aging, pp. 19). Home Equity The asset value within the market value of a home that would be realized by an owner upon sale of that home after the mortgage and all expenses are paid can be viewed as an asset that might be available to a person in need of funds for long term care. While a person might not actually sell the home to access the net money or equity, many banks will lend a person a portion of the amount of the equity in their home if the equity amount is pledged to the bank if the home were to be ultimately sold. Payments must be made back to the bank each month and would include amortization of the interest being charged, as well. Residential Reverse Mortgages Insured by HUD - Home Equity Conversion The Home Equity Conversion Mortgage (HECM) or also called Reverse Annuity Mortgage (RAM) is the oldest and most popular reverse mortgage product. Available since 1989 to homeowners 62 or older, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. Eligible home types include single-family homes, manufactured homes built after June 1976, condominiums, and town homes. The size of a HECM varies with: (1) the borrower’s age; (2) the value of the home; and (3) current interest rates. The location of your home also affects the loan size. The maximum size of a HECM depends on the FHA one’s limit, which varies from area to area and is usually adjusted annually. The 2013 loan limit for a particular area may be found at HUD’s Web site. FHA provides free software to lenders to help compute the applicable loan amount for each borrower. Borrowers can choose to receive the proceeds from a HECM as (1) a lump sum payment, (2) fixed monthly payments, (3) a line of credit, or (4) a combination of these. The fee charged to a borrower for a HECM is limited. The origination fee cannot exceed $2,000 or 2 percent of the maximum claim amount (the FHA loan limit), whichever is greater. The entire amount of the origination fee may be financed as part of the mortgage, and certain other closing costs. FHA Mortgagee Letter 00-10 spells out the size of the origination fee that may be charged to borrowers and what the fee cap covers. HECM borrowers must also pay an FHA insurance premium, equal to 2% of the loan amount up-front, plus an annual premium thereafter equal to 0.5% of the loan amount. Typically the only cost that a borrower must pay for upfront

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out of pocket is for an appraisal fee. The remaining closing costs and fees generally can be financed as part of the reverse mortgage. The interest rate charged on a HECM adjusts either monthly or annually, depending on which option the borrower chooses. However, these adjustments don't alter the monthly payments that borrowers can receive (if they have chosen the monthly payment option). Instead, the adjustment affects the total interest that is charged on the loan, which is added to the loan balance while the loan is outstanding and is paid when the loan becomes due. A borrower is not required to make any mortgage payments to the lender during the life of the HECM. The HECM becomes repayable, in full, when the sole remaining borrower dies or no longer occupies the home as his or her principal residence (e.g., through a sale of the home or a permanent move out of the home). The repayment obligation is equal to the sum of the total funds received by the borrower, interest, and any closing costs and other charges financed as part of the loan. The borrower or borrower's heirs/estate may pay off the loan and keep the home. If not, the lender is repaid when the home is sold. If the sales proceeds exceed the amount owed, excess proceeds go to the borrower or borrower's heirs/estate. If the proceeds are less than the amount owed, FHA absorbs the shortfall and makes an insurance claim payment to the lender. There are also a variety of types of home equity loans. Some require full-time residency, repayment schedules, and conditions for loan continuance, renting, etc. These are ways to raise the cash needed for care and are options for consideration based on the needs and situations of individuals. A qualified agent with great knowledge in this area, an accountant, banker, attorney, etc. should be consulted when looking at reverse mortgages and other forms of home equity loans as all or part of one’s needs. Life Settlements A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Viatical Life and Medical Settlements Viatical settlement is the purchase of a life insurance policy from a terminally ill person (viator) for a reduction of the face value of the policy. The purchase price is based on the life expectancy of the viator - the shorter the life expectancy, the greater the offer for the policy. California law requires that anyone entering into or soliciting a viatical settlement be licensed by the Insurance Commissioner. This licensure requirement applies to: (1) purchasers of the policy, (2) those who are assigned an ownership interest in the policy, including a collateral ownership interest; (3) brokers who assist the terminally ill in securing the best offer for their policy, (4) brokers who secure investors or purchasers for the policy; and (5) and those who purchase the policy after it has been purchased from the policyholder. Generally speaking, the difference between a viatical settlement and a life or senior settlement is that a viatical settlement involves the sale of a policy from a person with a life-threatening or catastrophic illness or condition. Although the words “life-threatening” and “catastrophic” have not yet been defined by regulations, it seems clear that a person who has been diagnosed with a terminal illness by a medical doctor would have a life-threatening illness or condition, and thus would be considered a viator if they were to sell their life insurance policy. Currently, other settlements are not regulated by the Insurance Department.

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If one has a terminal life-threatening illness, some companies will offer to “buy” their life policyholder’s existing life insurance policy at a discount. They must be licensed with the California DOI. If one is seriously considering a viatical agreement, an agent should advise them to contact their insurance company to see if the medical information is kept confidential and if there may be tax/benefit consequences from entering into such a settlement (Source: Taking Care of Tomorrow, California Department of Aging, pp. 18). Insurance Products that Contain Long-term Care Benefit Options Stand-alone Long-term Care Insurance Products LTC insurance may be cost-effective for you if you have sufficient available income to pay the premiums for the rest of your life. LTC Insurance is designed to pay a portion of long-term care costs. It is available from private insurance companies selling in California. Policies and Annuities with Long-term Care Benefits Life Insurance and Annuities with Long Term Care Benefits Long-term care benefits are occasionally sold as an additional rider to a life insurance policy or an annuity. Provisions available or included that speak in part to the need for dollars for long-term care cost should they be needed in the future after the policy is purchased primarily for dollars at death or retirement have been developed and are included in some life insurance policies and annuities. This rider provides “advances” and “living benefits” on the policy’s death benefit or annuity that can be used to pay for specified long-term care costs. The amount of the subsequent policy’s death benefit or annuity value generally is reduced by the amount of any payments that are paid out in advance of death or annuitization. There are many varied ways that benefits are determined and paid out. Some variations include specific waiting periods, limited benefit pay-outs, varying pay-out periods, and specific amounts available for long-term care. As there is no particular standard followed industry-wide on this issue, agents should be aware of the many different approaches. Accelerated Death Benefits, Riders and Annuities Accelerated Benefits from Life Insurance Policies For a two to ten percent increase in premium, the insurance will pay a portion of the death benefit to the policyholder periodically until the benefit is depleted or a specific maximum is reached. Many companies offer “accelerated” benefits in their policies. These may be an attached rider or a part of the policy itself. The balance of the benefits will go to the named beneficiaries if the policyowner dies before the maximum benefit is paid out. Sometimes a limit is placed on how much can be collected Accelerated benefits or riders, may not take effect immediately with the onset of illness. Some insurers require hospitalization or a nursing home stay as a condition prior to the collecting of any accelerated benefits. Because there might be tax consequences and possible benefit consequences or eligibility issues for receiving Medicare, Medi-Cal, Social Security, Supplemental Security Income, etc., consumers, must be advised about this. It must be included in disclosure statements, as well. The disclosure statement must contain a statement that receipt of accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor. This option allows

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one to ask their insurance company to pay a reduced amount of value on their insurance policy before their death, if they are diagnosed with a terminal illness or have a major organ transplant. The proceeds may be used for any purpose, not just long-term care if certain criteria must be met. If their current life insurance does not have this rider, they may wish to contact their insurance company to see if their policy can be modified (Source: Taking Care of Tomorrow, California Department of Aging). LTC riders do to have common components. They may include such things as elimination periods, benefit periods of three years or more, benefits triggered by impaired activities necessary to caring for themselves, and benefits for all levels of care, including custodial. They can vary greatly. Some riders may cover home health care to some degree. Long-Term Care Immediate Annuity A long-term care immediate annuity is a single premium annuity that can provide a larger monthly payment than a regular annuity due to underwriting of the annuitant’s life expectancy. A single premium will guarantee a monthly income stream for life and can pay for nursing home, assisted living facility, home health care or other needs. A study was conducted recently to investigate the potential benefits of combining an immediate income annuity with long-term care disability insurance. Particular emphasis was placed on the role of underwriting in determining the price and size of the potential market for annuities and private long-term-care insurance sold separately, compared with the price and potential size of the market for a combined income and disability annuity. Simulated premiums for a combined insurance policy are 3 to 5% lower than total simulated premiums for stand-alone annuity and disability insurance policies purchased separately. The potential market for the combined policy would increase to 98 percent of 65-year-olds compared to only 77% under current long-term care insurance underwriting practices. If the individuals purchasing a combined insurance policy are like all those eligible at age 65, they could expect to receive 18.0 years of annuity payments and 1.4 years of disability payments. The study showed that combining an immediate income annuity with long-term care disability insurance at retirement (e.g., age 65) could reduce adverse selection and, therefore, the cost of both types of coverage. It also could increase the size of the market for private long-term care insurance. When the implications were examined of the positive correlation of mortality and disability for the benefits of combining an immediate income annuity with long-term care disability coverage at retirement ages. Specifically, it appears that combining the two products could reduce the cost of both coverages and make them available to more persons by reducing adverse selection in the income annuity and removing the need for medical underwriting for the disability coverage. Other Catastrophic Benefits Other types of health insurances that cover health care claims, especially larger claims, such as major medical, high deductible health care policies, hospital indemnity, and disability protection policies do not pay for costs or losses incurred due to the triggering of and the inability to perform the activities of daily living requiring custodial long term care. LTCI and Health Insurance The United States faces a considerable challenge in providing health care for its elderly and disabled residents in the coming years. With the looming retirement of the baby boom

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generation, the number of Medicare beneficiaries will increase substantially. The percentage of the population covered by Medicare could increase from about 14% today to 20.6% by 2025. Nearly one out of every two persons age 65 and older will probably spend some time in a nursing home, which costs on average $30,000 annually across the United States and in major metropolitan areas the average escalates to $60,000 and as much as $100,000 per year. With an average nursing home stay of 19 months, seniors living in major metropolitan areas will spend $100,000 on long-term care in addition to medical bills and prescriptions. Fearful of losing economic independence, older Americans are looking for security in long-term care insurance. Even though for seniors over 65 premiums can range from $2,000 to over $10,000 per year, long-term care insurance is “the fastest-growing type of health insurance sold in recent years.” Still, only five percent of those over 65 have purchased private long-term care insurance. Uninsured seniors constitute a lucrative market and as a result over 100 insurance companies now offer long-term care policies. Most Americans know about the kind of health insurance that pays doctor and hospital bills. But the kind that pays for long-term care in a nursing home or at home is not as familiar. More than half of nursing home bills are paid out-of-pocket by individuals and their families, and somewhat less than half are paid by state Medicaid programs. Insurance, and that includes Medicare, Medicare supplemental coverage and health insurance provided by employers, does not pay for most long-term care expenses. It’s common for a husband and wife age 65 to spend approximately $9,500 a year for health insurance coverage. A policy with a large daily benefit that lasts for several years, is more expensive. Inflation protection can add 25 to 40% to the benefits and non-forfeiture rights can add 10 to 100% to the bill. Medi-Cal (See also Attachment I pages 224-224 – Medi-Cal Requirements) Medicaid outside California, but Medi-Cal in California, pays for necessary health care that is not covered by Medicare, but only if one meets federal and state poverty guidelines. A person can get the most current information about Medi-Cal from their local county Department of Social Services, Legal Services Program, or an elder law attorney. Medi-Cal Eligibility Medi-Cal pays for long-term care for those with lower income and assets and the poor. If one meets federal and state poverty guidelines, it pays for necessary health care that is not covered by Medicare. Income and Asset Limits In 2013, a single person over 65 would qualify for Medi-Cal if he/she had $2,000 or less in non-housing assets. A married spouse, living in the community, however, can keep up to $115,920 (2013) in non-housing assets and $2,898 (2013) in joint monthly income, when his or her spouse is in a nursing home and applies for Medi-Cal. These guidelines and the amount of assets and income a person can change annually. Hardship Exception If a client dies leaving a "dependent," Medi-Cal will not file a claim against their estate. As shown above, a dependent is a surviving spouse, a child under the age of 21, or a child who is blind or permanently or totally disabled.

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A individual’s estate can be protected if MediCal’s actions will create an "undue hardship" on someone who survives him or her. Medi-Cal will look at the following circumstances to decide whether undue hardship exists for the survivor. Look-back Periods Recovery will not occur while there is a surviving spouse or dependent child. The state “recovers” the costs paid by Medi-Cal from a person's estate, including the house so, generally, in California, the value of a person's house is not counted as an asset when applying for Medi-Cal. California can "look back" to find transfers of assets for 60 months prior to the date the individual is institutionalized or, if later, the date he or she applies for Medi-Cal. For certain trusts, this look-back period extends to 72 months. Agents Aware that Purchase of a long-term care policy will not ensure that someone will avoid Medi-Cal when they need long term care Whether it is to their advantage or not, agents and financial professionals should be aware of and communicate to clients that the purchase of long-term care policy will not necessarily ensure that someone will avoid Medi-Cal when they need long-term care. It depends upon the each person’s particular circumstances. People who are unlikely to be able to afford premiums, unable to absorb even a moderate increase are not appropriate purchasers, and the safety net of Medi-Cal may be their only option. This section has addressed many of the alternate funding methods which can be used individually or in combination. If one does not buy a long-term care policy, they should not feel that they will have to spend down all their money and go on Medi-Cal or have to do this to qualify for Medi-Cal. If needed, people can provide for their care in many ways before they might need to rely on Medi-Cal. Agents should not to be confined to the concept that if a consumer does not buy LTCi, they will ultimately spend all their money and go on Medi-Cal. People who do not have enough current income, do not have the prospects of having significant enough future income to absorb even a moderate premium increase, do not have very much assets outside their home, and do not have long-term care insurance may well be the right candidates for and should plan to rely on Medi-Cal. It may be unwise for many of these consumers to buy long-term care insurance and they should probably not purchase it. However, it is all based on their unique situation. Medi-Cal has been addressed only briefly here. For an extended look, see the California require attachment located in the attachment section of your course as “Attachment D”. Medicare and Medi-Cal (DHS Form 7077)

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State of California

Health and Human Services Agency Department of Health Care Services

NOTICE REGARDING STANDARDS FOR MEDI-CAL ELIGIBILITY If you or your spouse is in or is entering a nursing facility, read this important message! You or your spouse do not have to use all your resources, such as savings, before Medi-Cal might help pay for all or some of the costs of a nursing facility. You should be aware of the following to take advantage of these provisions of the law: Unmarried Resident An unmarried resident is financially eligible for Medi-Cal benefits if he or she has less than $2,000 in available resources. A home is an exempt resource and is not considered against the resource limit, as long as the resident states on the Medi-Cal application that he or she intends to return home. Clothes, household furnishings, irrevocable burial plans, burial plots, and an automobile are examples of other exempt resources. If an unmarried resident is financially eligible for Medi-Cal reimbursement, he or she is allowed to keep from his or her monthly income a personal allowance of $35 plus the amount of health insurance premiums paid monthly. The remainder of the monthly income is paid to the nursing facility as a monthly deductible called the “Medi-Cal share-of-cost.” Married Resident If one spouse lives in a nursing facility, and the other spouse does not live in a nursing facility, the Medi-Cal program will pay some or all of the nursing facility costs as long as the couple together does not have more than $115,920 in available assets. The couple’s home will not be counted against this $115,920 as long as onespouse or a dependent relative, or both, lives in the home, or the spouse in the nursing facility states on the Medi-Cal application thathe or she intends to return to the couple’s home to live. If a spouse is eligible for Medi-Cal payment of nursing facility costs, the spouse living at home is allowed to keep a monthly income of at least his or her individual monthly income or $2,739, whichever is greater. Of the couple’s remaining monthly income, the spouse in the nursing facility is allowed to keep a personal allowance of $35 plus the amount of health insurance premiums paid monthly. The remaining money, if any, generally must be paid to the nursing facility as the Medi-Cal share-of-cost. The Medi-Cal program will pay remaining nursing facility costs. Under certain circumstances, an at-home spouse can obtain an order from an administrative law judge that will allow the at-home spouse to retain additional resources or income. Such an order can allow the couple to retain more than $115,920 in available resources if the income that could be generated by the retainedresources would not cause the total monthly income available to the at-home spouse to exceed $2,898.Such an order also can allow the at-home spouse to retain more than $2,898 in monthly income, if the extra income is necessary “due to exceptional circumstances resulting in significant financial duress.” An at-home spouse also may obtain a court order to increase the amount of income and resources that he or she is allowed to retain, or to transfer property from the spouse in the nursing facility to the at-home spouse. You should contact a knowledgeable attorney for further information regarding court orders. The paragraphs above do not apply if both spouses live in a nursing facility and neither previously has been granted Medi-Cal eligibility. In this situation, the spouses may be able to hasten Medi-Cal eligibility by entering into an agreement that divides their community property.

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The advice of a knowledgeable attorney should be obtained prior to the signing of this type of agreement. Note: For married couples, the resource limit ($115,920 in 2013) and income limit ($2,898 in 2013) generally increase a slight amount on January 1 of every year. Transfer of Home for Both a Married and an Unmarried Resident A transfer of a property interest in a resident’s home will not cause ineligibility for Medi-Cal reimbursement if either of the following conditions is met: (a) At the time of transfer, the recipient of the property interest states in writing that the resident would have been allowed to return to the home at the time of the transfer, if the resident’s medical condition allowed him or her to leave the nursing facility. This provision shall only apply if the home has been considered an exempt resource because of the resident’s intent to return home. (b) The home is transferred to one of the following individuals:

(1) The resident’s spouse. (2) The resident’s minor or disabled child. (3) A sibling of the resident who has an equity interest in the home, and who resided in the resident’s home for at least one year immediately before the resident began living in institutions. (4) A son or daughter of the resident who resided in the resident’s home at least two years before the resident began living in institutions, and who provided care to the resident that permitted the resident to remain at home longer.

This is only a brief description of the Medi-Cal eligibility rules; for more detailed information, you should call your county welfare department. You will probably want to consult with the local branch of the state long-term care ombudsman, an attorney, or a legal services program for seniors in your area. I have read the above notice and have received a copy. ________________________________ __________________ Signature of person being admitted Date ________________________________ __________________ Signature of spouse Date ________________________________ __________________ Agents Aware Purchase of Long-Term Care Policy will Not Ensure Avoidance of Medi-Cal The purchase of a long-term care policy will not necessarily ensure that someone will avoid Medi-Cal when they need long-term care. Agents should be aware of this and should make their clients aware of this fact. Whether that is to their advantage or not depends upon the particular circumstances. People who are unlikely to be able to afford premiums, are unable to absorb even a moderate premium increase, and do not have many assets outside the home are not appropriate purchasers of LTC insurance. The safety net of Medi-Cal may be their only option. How Medicare Interrelates with Paying for Long-Term Care Expenses Medicare Medicare is a federal health insurance program for people age 65 and older, people of any age with permanent kidney failure, and certain disabled people under age 65. Center for Medicare & Medicaid, CMMS, administers Medicare, the nation’s largest health insurance program, which covers 60-65 million Americans. Generally, one is eligible for Medicare if he or his spouse worked for at least 10 years in Medicare-covered employment and he is 65 years old and a citizen or permanent resident of the United States. He might also qualify for coverage if he is a

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younger person with a disability or with chronic kidney disease. The federal government from payroll tax contributions and general tax revenues funds this health insurance program. There are four Parts to Medicare – Part A, Part B, Part C and Part D Prescriptions. Part A (Medicare Hospital Insurance) and Part B (Medicare Medical Insurance) combine to form what is commonly known as Medicare. These are the traditional fee-for-service Medicare plan in which a patient has free choice as to medical care. When the patient meets all the Medicare requirements for daily skilled care, Medicare may pay for skilled care in a nursing home for a very short period of time – but no longer than 100 days –when the patient meets all the Medicare requirements for daily skilled care. While people do get personal care services at the same time, Medicare will not pay unless there is also a need for daily skilled services that only a nurse or therapist can provide. Medicare may pay for some personal care services at home but again, only if you also need skilled care on a daily basis that only a licensed person can provide.

See the Medicare benefits book available from Social Security office or call the Social Security Administration at 800-772-1213.

Only when the patient meets all the Medicare requirements for daily skilled care Medicare may it pay for skilled care in a nursing home for a very short period--but no longer than 100 days. One will have had to spend at least three days in the hospital for Medicare to pay for any days in a nursing facility for the condition requiring admittance into the nursing facility. LTC Provisions of Medicare Certain conditions must be met before Medicare will pay anything for a nursing home. Only skilled care will be covered when those conditions are met. Neither intermediate nor custodial care is ever covered by Medicare. The eligibility requirements include:

A doctor has prescribed the skilled nursing home care. Skilled care is required every day in the nursing home. Only skilled care is

covered, so if some days only intermediate or custodial care is required, Medicare would disallow the claim.

The individual must have been hospitalized for a minimum of three consecutive days prior to the nursing home admittance.

If these four conditions have been met adequately, Medicare Part A will pay for a semiprivate room (not private), rehabilitation therapy, the regular nursing staff in the nursing home (not private nursing), and medications administered in the nursing home. Part B of Medicare would cover the visits of a doctor, although the number of those visits are limited under Medicare's guidelines. Those who are enrolled in an HMO (Health Maintenance Organization) may have additional benefits. The contract must be checked to find out.

Admittance to the nursing home must occur within 30 days after discharge from the hospital for the same condition.

Medicare pays ONLY the full costs for the first 20 days when Medicare pays for nursing facility care. One’s co-payment is $148 per day (2013) for the next 80 days, (based on the co-pay amount for Calendar Year 2011, which increases annually). Medicare supplement plans will pay this copayment, but will not pay for additional days in the nursing facility beyond what Medicare will pay. If skilled care is required Most Medicare HMOs will cover nursing facility care or care at home for 100 days.

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Levels of Care Requirements and Implications to LTC Only those facilities that meet Medicare's requirements will qualify. While receiving skilled care in a nursing facility, Medicare will not pay unless there is also a need for daily skilled services that only a nurse or therapist can provide. Medicare may pay for some personal care services at home only if you also need skilled care on a daily basis that only a licensed person can provide. Medicare will not cover assisted living, retirement complexes, continuing care communities, adult day care, Meals on Wheels, or other services. Long-term nursing home policies may cover many of the things, besides nursing home care, that Medicare denies. For example, assisted living is now commonly covered by nursing home policies, as long as certain requirements are met. Medicare Supplements Brief Overview and LTC Implications Per the publication Medicare 2013, a “Medicare Supplement or Medigap policy is health insurance sold by private insurance companies to fill the “gaps” in Original Medicare Plan coverage. Medigap policies help pay some of the health care costs that the Original Medicare Plan doesn’t cover. If you are in the Original Medicare Plan and have a Medigap policy, then Medicare and your Medigap policy will pay both their shares of covered health care costs.” Traditional Medicare Supplements (A-K) Medigap policies must all have specific benefits so you can compare them easily. A “standardized” Medigap policy can only be sold by Insurance companies. You may be able to choose up to 12 different standardized Medigap policies (Medigap Plans A through N). Medigap policies must follow Federal and State laws. These laws protect you. A Medigap policy must be clearly identified on the cover as “Medicare Supplement Insurance.” Each plan, A through N, has a different set of basic and extra benefits. It’s important to compare Medigap policies because costs can vary. The benefits in any Medigap Plan A through N are the same for any insurance company. Each insurance company decides which Medigap policies it wants to sell.

You must have Medicare Part A and Part B when you buy a Medigap policy. You have to pay the monthly Medicare Part B premium. You will have to pay a premium to the Medigap insurance company. You and your spouse must each buy separate Medigap policies. Your Medigap policy won’t cover any health care costs for your spouse. Few Medigap policies cover anything other than skilled care. They do not cover costs typically associated with long-term care. They provide benefits for medical care, They allow more assets to be retained with the individual

Medicare Advantage Like traditional Medicare, Medicare Advantage plans cover doctors and hospital costs much like individual’s health insurance while they were working for an employer before retiring and going on Medicare. Long term care benefits are similarly covered for skilled nursing care for rehabilitation following a hospital stay for a limited number of days per incident.

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Taking No Action For many Americans, maybe there will not be any need for long term care, if they are lucky. There is always the choice to do nothing. Many of us will have to choose this option. In the end, there may be reasons that this is the best option. There are state organizations and professionals that develop the plan of care for those who do not have the financial ability to pay for themselves. Many people do not have many assets other than their income before retirement and maybe only Social Security payments after retirement. Medi-CAL is one program that is available for poor people in California to help them with their care needs when no money is available to take care of costs on their own. The place and level of care might not be exactly what they would like to have, but they will be cared for nonetheless. Since assets, if any, that are available at the time of the need, it will have to be spent down to bare minimums any way. If the cost burden of LTC insurance premiums would be more than they could financially handle, doing nothing may actually be the most appropriate choice. Many believe that everyone should purchase long-term care insurance to protect them. What these people overlook is the financial feasibility and practicality of it. If a person does not have many assets and the premium costs would be a overly burdensome, it may be a more practical decision to choose to do nothing, see how it goes, and have it dealt with at the time care is needed. Because it is the only course of action available to them due to their medical eligibility from pre-existing conditions preventing them from being approved for long-term care insurance sometimes an individual has to take “No Action”. Why?

Long-term care insurance is not guaranteed to be issued. Each person has to apply and be underwritten based on their prior and current medical

condition and history. They may have the money to pay the premiums now and into the future. They may have significant assets that they would prefer not be used for care costs. They have no choice as long-term care insurance may not be available for them.

Referral to HICAP The Health Insurance Counseling and Advocacy Program The Health Insurance Counseling and Advocacy Program (HICAP) assists individuals and families with Medicare problems and other health insurance concerns. Over 600 trained and registered volunteer counselors provide objective information on Medicare, Medicare supplement insurance, managed care, long-term care planning and health insurance. Community education, individual counseling and some legal services are available in all 58 counties.” “HICAP counselors are available for appointments in a wide range of settings such as Area Agencies on Aging, senior centers, senior nutrition sites, libraries, hospitals and community centers. Counselors may also visit homebound individuals unable to come to a site.” “HICAP will help an individual file Medicare or other health insurance claims, understand his or her coverage and consumer rights, assist with managed care issues and long-term care planning, and evaluate his or her insurance or health care needs.

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HICAP serves current Medicare beneficiaries and those planning for future health and long term care needs. HICAP counseling is confidential and free of charge. If a California resident would like to set up an appointment in their local community or have questions, call their local HICAP at 1-800-434-0222.” Services and Programs This current list of each program is not older than six months (This Refers to California Department of Aging (CDA) Web site, where current list is posted.) Adult Day Health Care (ADHC) - A day care program which provides health, therapeutic, and social services to serve the specialized needs of frail elderly as well as adults with functional impairments at risk of institutionalization. Alzheimer's Day Care Resource Centers (ADCRC) - Day care for persons with Alzheimer's disease (and other related dementias) who are often unable to be served by other programs. The centers provide respite as well as training and support for families and professional caregivers. Area Agencies on Aging - The Area Agencies on Aging coordinate a wide array of services to seniors and adults with disabilities at the community level and serve as a focal point for local aging concerns. Brown Bag Program - Volunteers collect and distribute surplus food to low-income seniors. California Long-Term Care Ombudsman Program - Professional staff and trained volunteers investigate and resolve complaints made by or on behalf of residents of long term care facilities. Foster Grandparent Program - Low-income senior volunteers work with children who have exceptional needs. Health Insurance Counseling and Advocacy Program (HICAP) - Provides both community education sessions open to the public and individualized one-to-one counseling on Medicare, managed care, and other private health insurance issues. Information & Assistance - Trained staff provide information as well as assistance and follow-up to link seniors and adults with functional impairments and their families with programs and services in their community. Legal Assistance - Community programs provide legal information, advice, and counseling, as well as administrative and judicial representation for seniors. Linkages - Case management services to elderly as well as adults with functional impairments, 18 years or older, at risk of institutionalization. Clients do not need to be eligible for Medi-Cal. Multipurpose Senior Services Program (MSSP) - Provides social and health case management to assist persons aged 65 and over, eligible for Medi-Cal and certifiable for skilled nursing care, to remain safely at home.

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Nutrition Services - Congregate Meals: local programs provide seniors with nutritious meals in a group setting; Home Delivered Meals: local programs prepare and deliver nutritious meals to homebound seniors. Respite Program - Provides temporary or periodic services for frail elderly or adults with functional impairments to relieve persons who are providing care, or recruiting and screening of providers and matching respite providers to clients. Senior Community Service Employment Program (SCSEP) - Provides part-time subsidized employment for low-income persons over age 55. Senior Companion Program - Low-income senior volunteers provide peer support to frail older persons in their local communities. StayWell Program - The StayWell Program is an outreach program dedicated to seniors, their families, caregivers and community organizations. The campaign covers a wide realm of topics promoting physical fitness, nutrition, available services, and helpful information. California Area Agencies on Aging (AAA) Area Agencies on Aging - Listed by County Agents are required to know the name, address and telephone number of the local program in the area in which they are selling. The California Department of Aging contracts with and provides leadership and direction to Area Agencies on Aging (AAA) that coordinate a wide array of services to seniors and adults with disabilities at the community level and serve as the focal point for local aging concerns. Notices provide the name, address and telephone numbers of the local HICAP program and the statewide HICAP number of 1-800-434-0222. The state HICAP number is (916) 323-7315. Since all numbers can change, this state number should be called to verify the current listings. You can locate an AAA in your area by calling 1-800-510-2020 or find your county phone number below:

Alameda (510) 567-8040 Alpine (209) 532-6272 Amador (209) 532-6272 Butte (530) 898-5961 Calaveras (209) 532-6272 Colusa (530) 898-5961 Contra Costa (925) 335-8700 Del Norte (707) 442-3763 El Dorado (530) 621-6150 Fresno (559) 488-3821 Glenn (530) 898-5961 Humboldt (707) 442-3763 Imperial (760) 339-6283 Inyo (760) 873-6364 Kern (661) 868-1000

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Kings (559) 737-4682 Lake (707) 462-1954 Lassen (530) 842-1687 Los Angeles (City) (213) 252-4000 Los Angeles (County) (213) 738-4004 Madera (559) 488-3821 Marin (415) 499-7396 Mariposa (209) 532-6272 Mendocino (707) 462-1954 Merced (209) 385-7550 Modoc (530) 842-1687 Mono (760) 873-6364 Monterey (831) 755-8490 Napa (707) 644-6612 Nevada (916) 486-1876 Orange (714) 567-7555 Placer (916) 486-1876 Plumas (530) 898-5961 Riverside (909) 697-4697 Sacramento (916) 486-1876 San Benito (831) 688-0400 San Bernardino (909) 891-3900 San Diego (858) 495-5885 San Francisco (415) 864-6051 San Joaquin (209) 468-2202 San Luis Obispo (805) 925-9554 San Mateo (650) 573-2700 Santa Barbara (805) 925-9554 Santa Clara (408) 296-8290 Santa Cruz (831) 688-0400 Shasta (530) 842-1687 Sierra (916) 486-1876 Siskiyou (530) 842-1687 Solano (707) 644-6612 Sonoma (707) 565-5950 Stanislaus (209) 558-8698 Sutter (916) 486-1876 Tehama (530) 898-5961 Trinity (530) 842-1687 Tulare (559) 737-4682 Ventura (805) 477-7300 Yolo (916) 486-1876 Yuba (916) 486-1876

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Unit 3 Long-Term Care Insurance (LTCi)

Introduction and Topic Objectives Types of Products Many features and characteristics need to be addressed in designing a Long-term Care insurance program. An important challenge lies in choosing the right policy and features. Long-term care coverage is expensive and there are many options from which to choose. People who purchase a long-term care policy should consider the many features. Few people understand LTC insurance. More than half of the U.S. population will require long-term care at some point. Everyone age forty-nine or older is a candidate for a long-term care insurance policy. In most cases, the earlier one buys a policy, the better. It is by planning now that one can secure their future at a lower cost. LTC plans must be developed under the professional scrutiny of an experienced, independent, consulting broker. LTC insurance is complex, products vary widely, policy options multiply and laws change relatively often. So it takes a dedicated professional specialist to stay abreast of developments in order to assist clients to select the best plan from among the over 125 companies in the LTCI marketplace. But unlike other types of insurance, in which policies are standardized or fairly straightforward, long-term care policies are complex and vary widely. Virtually every company’s policy differs on such matters as who qualifies for coverage, when the policyholder can begin receiving benefits, the amount of coverage, the term of the policy, and premium costs. Before beginning to compare policies on a feature-by-feature basis, it is important to understand some of the basics. California Definition of LTC Insurance California Insurance Code 10231.2 states that Long-term care insurance includes any insurance policy, certificate, or rider advertised, marketed, offered, solicited, or designed to provide coverage for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes all products containing any of the following benefit types: coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing facility, or personal care home; home care coverage including home health care, personal care, homemaker services, hospice, or respite care; or community-based coverage including adult day care, hospice, or respite care. Long-term care insurance includes disability based long-term care policies but does not include insurance designed primarily to provide Medicare supplement or major medical expense coverage. Long-term care policies, certificates, and riders will be regulated under this chapter. The commissioner will review and approve individual and group policies, certificates, riders, and outlines of coverage. Long-term care benefits designed to provide coverage of 12 months or more that are contained in or amended to Medicare supplement or other disability policies and certificates will be regulated under this chapter, as well.

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Group Coverage “Group LTC insurance” Group long-term care insurance means a long-term care insurance policy which is delivered or issued for delivery in California. Groups, in many cases, may include coverage for spouses, parents, and retirees. If the groups average age is younger than a given segment of the general population being covered individually, there can be a cost savings due to this, as well. There are waiting periods and preexisting conditions requirements and the benefits are similar to individual policies. Like individual policies, they must also contain a guaranteed renewable clause. Group LTC insurance is a contract between an insurer and a group, such as an employer on behalf of its employees, or a trade or professional association on behalf of its members. CIC §10231.6 Under a group plan, if one is covered, they receive a "certificate" rather than a "policy" of insurance. Many of the policy terms have already been negotiated by the group, and the group (called the "master policyholder") has the option to terminate the policy at any time. Often, but not always, group insurance is less expensive than individual insurance due to the economy of scale derived from issuing larger numbers of people “under one roof”. One has the right if group their coverage is terminated, to continue the coverage or buy a conversion policy, depending on the provisions of the policy and other factors. If one purchases group coverage, they should ask about what options will be available to them if the group cancels the policy or if they lose their membership or eligibility. They should be sure to ask if the premiums will change, and ask how they will be notified. CA Long-term care Rate Guide-A Guide to Long-Term Care Group policies are issued to the following: Employer Group A trust or to the trustees, or One or more employers or labor organizations of a fund established by one or more employers or labor organizations, or a combination of the above, for employees or former employees, or a combination of them, or for members or former members or a combination of the labor organization. Trade Group Any trade, professional, or occupational association for its members or former or retired members, or combination thereof, if that association meets both of the following requirements. One, that it is composed of individuals all of whom are or were actively engaged in the same profession, trade, or occupation and, two, that it has been maintained in good faith for purposes other than obtaining insurance. Association Group An Association Group is an association or a trust or the trustees of a fund established, created, or maintained for the benefit of members of one or more associations.

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Discretionary Group This is a group other than those described above are subject to all of the following requirements by the commissioner:

The benefits are reasonable in relation to the premiums charged. The group's main revenue source is not related to the marketing of insurance. The issuance of the group policy or certificate is not contrary to the best interest

of the public. The issuance of the group policy will result in economies of acquisition or

administration. The group's outreach method to obtain new members is not related to the

solicitation of insurance. The use of the true or fictitious name of the group, group master policyholder,

group policy, certificate, or any trust or other entity created or used for the marketing of the group policy or certificates is not deceptive or misleading with regard to the status, character, or proprietary or representative capacity of the insurer, group, trust, or other entity.

The group provides benefits or services, other than insurance, of significant value to its members.

Group Policies Issued in Other States Any life care contract provider which has not received the certificate of authority from the State Department of Social Services shall be subject to this chapter. A life care contract provider which has received a certificate of authority in accordance with Chapter 10 (commencing with Section 1770) of Division 2 of the Health and Safety Code. CIC §10231.6 Before marketing, advertising, or offering that policy or a certificate within this state, the association or associations, or the insurer of the association or associations, must file evidence with the commissioner that the association or associations have at the outset a minimum of 100 persons and have been organized and maintained in good faith for a primary purpose other than that of obtaining insurance. The Commissioner must investigate the group’s relationship to insurance that has been in active existence for at least one year, have a constitution and bylaws which provide all of the following, and provide evidence that the following have been consistently implemented:

Except for credit unions, the association or associations collect dues or solicit contributions from members

The members have voting privileges and representation on the governing board and committees. Thirty days after that filing the association or associations shall be deemed to satisfy these organizational requirements, unless the commissioner makes a finding that the association or associations do not satisfy those organizational requirements.

The association or associations hold regular meetings, not less than annually, to further purposes of the members.

The group's outreach method to obtain new members is not related to the solicitation of insurance.

The group's main revenue source is not related to the marketing of insurance.

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Types of Products Stand-Alone Long-term Care Products Three Types of Care

• Care in a Facility that is not an acute-care hospital. Some of the terms used to describe these "facilities" that can provide long-term care services include nursing homes, Residential Care Facilities for the Elderly (RCFE) often called Assisted Living Facilities, convalescent facilities, extended care facilities, custodial care facilities, skilled nursing facilities or personal care homes.

• Home Care including Home Health Care, Personal Care, Homemaker Services,

Hospice Services or Respite Care. (Some Hospice and Respite care can also be received in a facility like a nursing home.)

• Community-Based Care such as Adult Day Care or Hospice Facility Care.

Three Types Long-Term Care Insurance Plans Only 3 categories of long-term care insurance policies can be sold In California. Policies are labeled as:

• Nursing Facility and Residential Care Facility Only. These policies cover skilled, intermediate, or custodial care in a nursing home or similar facility. These policies also pay for assisted living care in a Residential Care Facility for the Elderly (RCFE) but Home Care is not covered.

• Home Care Only. These policies are required to pay for: Home Health Care,

Adult Day Care, Personal Care, Homemaker Services, Hospice Services and Respite Care but care in a facility is not covered.

• Comprehensive Long-Term Care. These policies pay for nursing facility care,

assisted living care in a RCFE, and home and community care. These policies must include at least 8 benefits: a nursing home benefit, a RCFE benefit for assisted living, and the 6 home care benefits: Home Health Care, Adult Day Care, Personal Care, Homemaker Services, Hospice Service and Respite Care. CA Long-term care Rate Guide-A Guide to Long-Term Care

Products with Long-Term Care Riders Life with LTCi Life Insurance with Long Term Care Benefits Certain life insurance policies have been created with provisions included or available that speak in part to the need for dollars for long-term care cost should they be needed in the future after the policy is purchased primarily for dollars at death. Some have specific waiting periods, limited benefit pay-outs, varying pay-out periods, and specific amounts available for long-term

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care. Long-term care benefits are occasionally sold as an additional rider to a life insurance policy. If so, this rider provides “advances” and “living benefits” on the policy’s death benefit that can be used to pay for specified long-term care costs. The amount of the policy’s death benefit generally is reduced by the amount of any payments that are paid out in advance of death. In these cases, there are many varied ways that benefits are determined and paid out. Agents should be aware of the many different approaches as there is no particular standard followed industry-wide on this issue. (Source: Taking Care of Tomorrow, California Department of Aging) Annuities with LTCI Variable annuities sometimes offer other optional features, which also have extra charges. One common feature, the guaranteed minimum income benefit, guarantees a particular minimum level of annuity payments, even if you do not have enough money in your account (perhaps because of investment losses) to support that level of payments. Other features may include long-term care insurance, which pays for home health care or nursing home care if an individual becomes seriously ill. Annuities include two types of contracts, immediate and deferred. Immediate Annuities These provide for typically monthly periodic payments one chooses to be paid monthly that is correlated to a specified event after a lump sum deposit to the insurance company. If a person is placed in a nursing home, they can receive periodic monthly payments toward the cost of their care. Deferred Annuities An income stream is paid out to them when a specific event such as retirement arrives and they want to have payments begin. Deferred annuities accumulate tax free. They are much like a savings account and can be used similar to personal assets. There are acquisition costs associated with buying an annuity and may not be the best way to pre-fund for long-term care. An accountant and/or financial planner should be consulted before buying an annuity for long-term care (Source: Taking Care of Tomorrow, California Department of Aging). Long-Term Care Immediate Annuity A long-term care immediate annuity is a single premium annuity that can provide a larger monthly payment than a regular annuity due to underwriting of the annuitant’s life expectancy. A single premium will guarantee a monthly income stream for life and can pay for nursing home, assisted living facility, home health care or other needs. A study was conducted recently to investigate the potential benefits of combining an immediate income annuity with long-term care disability insurance. Particular emphasis was placed on the role of underwriting in determining the price and size of the potential market for annuities and private long-term-care insurance sold separately, compared with the price and potential size of the market for a combined income and disability annuity. Simulated premiums for a combined insurance policy are 3 to 5% lower than total simulated premiums for stand-alone annuity and disability insurance policies purchased separately. The potential market for the combined policy would increase to 98 percent of 65-year-olds compared to only 77% under current long-term care insurance underwriting practices. If the individuals purchasing a combined insurance policy are like all those eligible at age 65, they could expect to receive 18.0 years of annuity payments and 1.4 years of disability payments. The study

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showed that combining an immediate income annuity with long-term care disability insurance at retirement (e.g., age 65) could reduce adverse selection and, therefore, the cost of both types of coverage. It also could increase the size of the market for private long-term care insurance. When the implications were examined of the positive correlation of mortality and disability for the benefits of combining an immediate income annuity with long-term care disability coverage at retirement ages. Specifically, it appears that combining the two products could reduce the cost of both coverages and make them available to more persons by reducing adverse selection in the income annuity and removing the need for medical underwriting for the disability coverage. Disability Insurance Disability insurance typically only pays a monthly income amount for a specific number of years such as 2 years, 5 years, to age 65. A few pay lifetime benefits. If these benefits coincide with long term care needs, they represent a source of income to offset expenses to some degree Critical Illness Insurance Critical illness insurance is an insurance product, where the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy such as cancer, heart attack, tumor, diabetes, organ failure, etc. The policy may also be structured to pay out regular income and the payout may also be on the policyholder undergoing a surgical procedure, for example, having a heart bypass operation. The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 14 days is the most typical survival period used. In the Australian market, survival periods are set between 8 – 14 days. Accelerated Death Benefits for Chronic Illness There are insurance companies which offer “accelerated” benefits in their policies. For a two to ten percent increase in premium, the insurance will pay a portion of the death benefit to the policyholder periodically until the benefit is depleted or a specific maximum is reached. These may be a part of the policy itself, or an attached rider. If the policyowner dies before the maximum benefit is paid out, the balance of the benefits will go to the named beneficiaries. Some insurers require hospitalization or a nursing home stay as a condition prior to the collecting of any benefits. Accelerated benefits or riders, may not take effect immediately with the onset of illness. Sometimes a limit is placed on how much can be collected. There might be tax consequences and possible benefit consequences or eligibility issues for receiving Medicare, Medi-Cal, Social Security, Supplemental Security Income, etc. Consumers, must be advised about this. It must be included in disclosure statements, as well. The disclosure statement must contain a statement that receipt of accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor. If they are diagnosed with a terminal illness or have a major organ transplant this option allows one to ask their insurance company to pay a reduced amount of value on their insurance policy before their death. Certain criteria must be met, but the proceeds may be used for any purpose,

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not just long-term care. If their current life insurance does not have this rider, they may wish to contact their insurance company to see if their policy can be modified (Source: Taking Care of Tomorrow, California Department of Aging). Riders for LTC can vary greatly. They do to have common components. They may include such things as elimination periods, benefit periods of three years or more, benefits triggered by impaired activities necessary to caring for themselves, and benefits for all levels of care, including custodial. Some riders may cover home health care to some degree. Other Products as They Become Available in the Marketplace Agents owe their clients and future prospect their best efforts in being competent in all current products and issues surrounding long term care insurance. Agents also owe their clients now and future prospects and clients their best efforts in keeping up with all new developments and new products as they become available in the marketplace. Qualified Long-Term Care Benefits? Effective in 1997, Congress passed legislation that established the tax treatment of premiums paid for and the benefits paid by long-term care insurance policies that met certain federal standards. This legislation is called the Health Insurance Portability and Accountability Act or HIPAA. "Federally Tax Qualified" Long-term care policies use the federal standards to pay benefits. Some or all of the premiums for these federally tax qualified policies may be deductible as a medical expense on one’s federal and California income tax returns (depending on one’s age and the amount of annual premium). It may be easier to qualify for benefits from non-tax qualified policies that use the standards established by California. Policies sold as federally tax qualified long-term care insurance use a standard of eligibility for benefits that may be stricter than the standards established in California for non-qualified policies. Their long-term care insurance agent can advise them if one has questions about the tax status of a policy they own or one they are considering buying. If they have specific questions pertaining to how the purchase of tax qualified long-term care insurance will impact the deductions they take or the taxes they pay, they should talk to their tax advisor to see how it will affect their individual taxes. CA Long-term care Rate Guide-A Guide to Long-Term Care Hybrid Long-Term Care Policies In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries. Life/Long-Term Care One life policy links long term care to a life insurance policy. With this plan, the insured deposits a set premium into a policy. Depending on the age, gender and health of the client- an immediate pool of money is created for long term care. At the same time, an immediate death benefit is created in life insurance.

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Annuity/Long-Term Care One annuity policy links long term care to an annuity contract. With this plan, the annuity owner deposits a set amount into the annuity. Depending on the age, gender and health of the client, an immediate pool of money is created for long term care. Beginning in 2010, the IRS let those who hold one of these deferred annuities use the money to pay for long-term care free of federal taxes. Annuities allow money to grow tax-free, but the tax man has to be paid when the money is removed. These long-term-care annuities free holders from this obligation. Other Hybrid Products as They Become Available in the Marketplace Agents owe their clients and future prospect their best efforts in being competent in all current products and issues surrounding long term care insurance. Agents also owe their clients now and future prospects and clients their best efforts in keeping up with all new developments and new hybrid products as they become available in the marketplace. Group Coverage (Section 10231.6 of the CIC) In California, "group long-term care insurance" means a long-term care insurance policy which is delivered or issued for delivery and issued to any of the following:

• One or more employers or labor organizations, or a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organization.

• Any professional, trade, or occupational association for its members or former or

retired members, or combination thereof, if that association meets both of the following:

o Is composed of individuals all of whom are or were actively engaged

in the same profession, trade, or occupation. o Has been maintained in good faith for purposes other than obtaining

insurance. Employer Sponsored Plan True Group Employer sponsored plans with 100 or more employees are regarded as “true group”. Employers can pay all or part of the cost for each employee. Streamlined or guaranteed underwriting and approval is generally the standard for this size employee group. Multi-life Individual In multi-life individual LTC plans, each employee decides voluntarily as to whether they want to buy and be covered by an employee sponsored voluntary LTC plan. An employer may

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contribute to the cost, but generally the employee pays the full premium themselves. Reduced underwriting and reduced premiums are generally characteristic of these types of plans. Trade/Association/Discretionary Sponsored Plan An association or a trust or the trustees of a fund established, created, or maintained for the benefit of members of one or more associations. Prior to advertising, marketing, or offering that policy or a certificate within California, the association or associations, or the insurer of the association or associations, must file evidence with the commissioner that the association or associations have at the outset a minimum of 100 persons and have been organized and maintained in good faith for a primary purpose other than that of obtaining insurance, have been in active existence for at least one year, have a constitution and bylaws which provide all of the following, and provide evidence that the following have been consistently implemented:

• The association or associations hold regular meetings, not less than annually, to further

purposes of the members. • Except for credit unions, the association or associations collect dues or solicit

contributions from members. • The members have voting privileges and representation on the governing board and

committees. Association Sponsored Plan True Group Association sponsored plans with 100 or more employees are regarded as “true group”. Association plans. The association can include all or part of the cost for each member as part of their membership or as a separate type of membership. Streamlined or guaranteed underwriting and approval is generally the standard for this size association group. Multi-life Individual In multi-life individual association LTC plans, each member decides voluntarily as to whether they want to buy and be covered by an association sponsored voluntary LTC plan. An association may contribute to the cost, but generally the member pays the full premium themselves. Reduced underwriting and reduced premiums are generally characteristic of these types of plans.

Group Policies Issued Outside California No group long-term care insurance coverage may be offered or sold to a resident of this state under a group policy issued in another state to a group described in subdivision (d) of Section 10231.6, unless the commissioner has determined that the requirements imposed by subdivision (d) of Section 10231.6 have been met. Section 10232 of the CIC Common Policy Benefits Coverage for Care in a Nursing Facility Before benefits will be paid, long-term care policies require that your physical or mental abilities be limited to one of three standards. These "conditions" are events that must occur (or

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documents you must submit) after you meet the "benefit triggers" and before benefits will be paid. These standards are often called Benefit Triggers. Many policies also require that additional conditions be met before you will receive payment. Coverage in a Residential Care Facility for the Elderly (assisted living) Minimum Benefit How Much – The Daily Benefit The benefit amounts cannot be less than 70% of the benefit amount otherwise payable for a nursing home. California Residential Care Facilities coverage and home care benefits must be similarly provided in long term care insurance policies. Section 10232.92(b) of the CIC Not to Exceed Daily Maximum All long-term care expenses incurred by insured must be covered up to (but not to exceed) daily maximum. Where – The Place Formally called a Residential Care Facility for the Elderly in California, when one receives care in an assisted living residential care facility, it must be covered in California's long-term care policies. Benefits in policies for assisted living generally covers costs associated with room and board in facilities with 24-hour staff assistance and care available by full time staff. The facility also provides three meals a day. These staff members assist residents in performing their activities of daily living. The California Insurance Code in the past required that a person be offered a policy for care required in an assisted living center. Now, it is required that the policy offer benefits for Residential Care Facility for the Elderly specifically. Out-of-State They must be in sync for “out-of-state” facilities with all appropriate licensing standards. They must provide three meals a day to include any special dietary requirements of the resident as well as have available to residents the services and medical care by physicians and nurses. They must be able to provide and administer the specific medication needs of their individual residents. They must also offer continuous care in all relevant care and services to meet the needs of residents ranging from activities of daily to impairment in cognitive ability. The facilities must have 24-hour care provided by qualified staff. Coverage for Home and Community Care, Section 10232.9 of the CIC Minimum Standards for Home Care &Six Mandated Elements of Home Care CIC §10232.9 Services Provided Every long-term care policy or certificate that purports to provide benefits of home care or community-based services, must provide at least the following: (1) Home health care. (2) Adult day care & Adult day health.

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(3) Personal care. (4) Homemaker services. (5) Hospice services. (6) Respite care. Minimum Benefits CIC §10232.9 Home Care Paid at 50% of Daily Nursing Home Benefit Home care paid at 50% of daily nursing home benefit with $50/day minimum. Home care benefit must be at least 50% of durational maximum of nursing home benefit.

“Every comprehensive long-term care policy or certificate that provides for both

institutional care and home care and that sets a daily, weekly, or monthly benefit payment maximum, shall pay a maximum benefit payment for home care that is at least 50 percent of the maximum benefit payment for institutional care, and in no event shall home care benefits be paid at a rate less than fifty dollars ($50) per day. Insurance products approved for residents in continuing care retirement communities are exempt from this provision. Every such comprehensive long-term care policy or certificate that sets a durational maximum for institutional care, limiting the length of time that benefits may be received during the life of the policy or certificate, shall allow a similar durational maximum for home care that is at least one-half of the length of time allowed for institutional care.” CIC §10232.9

Use of Unlicensed Providers to Provide Personal Care “If a policy allows for or does not allow for unlicensed providers to provide personal care it must describe in the policy the limitations and exclusions regarding such as Preexisting Conditions. Non-eligible Facilities/Provider, Non-eligible levels of care (e.g., unlicensed providers, care or treatments provided by a family member, etc. This exclusions/exceptions/limitations section should provide a brief specific description of any policy provisions which limit, exclude, restrict, reduce, delay, or in any other manner operate to qualify payment of the benefits described in the policy. A statement must be clearly and prominently displayed – “THIS POLICY MAY NOT COVER ALL THE EXPENSES ASSOCIATED WITH YOUR LONG-TERM CARE NEEDS.” Adult Day Care, Adult Day Health Adult day care is direct care and supervision of individuals in a community-based setting. Services include transportation to and from the adult care center, assistance with activities of daily living, meals and snacks, health and medication monitoring, and an activity program. These programs can be useful for working couples needing others to care for an elderly parent who requires some form of supervision. Adult day care can also respond to a need for planned therapy or learning activities and better nutrition. Adult care emphasizes both achievement and a continued effort to retain and enhance independence. For the elderly, adult day care enables them to live at home and to retain community contacts. Adult day health care is adult day care that provides some medical care, plus physical, occupational and speech therapy. They are licensed and Medi-Cal certified by DHS. These programs also receive oversight from the Department.

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Benefit Eligibility (Triggers) and Definitions, Sections 10232.8(a), 10232.8(b), 10232.8(f) and 10232.8(g) of the CIC Tax Qualified Historical Development of the Impact of California Legislation Let’s discuss the historical development of the impact of California legislation on long term Care and how the legislation interacted with Federal Long Term Care Insurance CIC §10232.1 & 10232.2 California Legislation on Long-Term Care Relative to qualified long-term care insurance policies, if clients have general questions about the tax status of a policy they own or one they are considering buying, they can seek advice from their agent. If they have specific questions pertaining to how the purchase of tax qualified long-term care insurance will impact the deductions they take or the taxes they pay, they should talk to their tax advisor. With peoples’ changes in their potential long-term care needs, long-term care insurance coverages to meet their needs is changing as well. The more familiar an agent is with these changes, the more information they van share with their clients about federal tax qualified policies and state non-tax qualified policies. LTC insurance Found in Federal HR 3103, Health Insurance Portability and Accountability Act of 1996 Following here, you will see described the statutory language and explained what it means and how it applies to California LTC insurance and its consumers. It’s about LTC insurance that is found in Federal HR 3103, Health Insurance Portability and Accountability Act of 1996, Subtitle C, Part 1, Section 321, and in Division 2., Part 2., Chapter 2.6 of the CIC §10231.2. Benefit Eligibility Triggers and Definitions Differences Between Federal & State Long Term Care Policies Federal HR 3103, called the Health Insurance Portability and Accountability Act or HIPAA, effective in 1997, established the tax treatment of premiums paid for and the benefits paid by long-term care insurance policies that met certain federal standards. HIPAA mandated regulations that were meant to clarify the characteristics of long-term care insurance, but in some ways, complicated it more. When HIPAA was enacted, California legislators had to address the different issues that would impact California citizens. They must be labeled as "Federally Tax Qualified" if a long-term care policy uses federal standards to pay benefits and must state this on the first page of the policy. Some or all of the premiums for these federally tax qualified policies may be deductible as a medical expense on Federal and State income tax returns, depending age and the premium amounts. In addition, benefit payments are excluded from income. In general a tax qualified policy is more restrictive where two out of six Activities of Daily Living must be met for eligibility versus non tax qualified policies where only two out of seven ADLs establish eligibility. A tax-qualified policy has premiums paid that qualify for as a medical expense. These policies are more suitable for those who itemize their medical expenses on their federal tax return and have total medical expenses greater than 10 percent (2013) of their adjusted gross income

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may deduct all or some portion of the premiums these policies. The benefits received from a tax-qualified long-term care policy are not taxable income on both Federal and State tax returns. If tax deductible, the costs of medical care of all kinds can help to make the after tax cost for those expenses less than if they were not deductible. Agents need to acquaint their clients with both types in going about doing the best job for their clients. There are concessions to be considered when one goes about deciding which type is most suitable for their particular situation. Employers who provide tax-qualified long-term care insurance for their employees may deduct the premiums they pay as they do for other accident and health insurance policies. Also, employer contributions are not considered income to the employees. Long-term care insurance policies that are federally tax qualified have a different standard of eligibility for benefits that is generally more stringent than the standards used by California for non-qualified policies. It may be easier to qualify for benefits with non-tax qualified policies that use the standards with ADLs established by California instead of the 6 used federally. However, the premiums for these non-qualified policies cannot be deducted. California had to address issues when HIPAA was enacted that affected California residents in this area. Policies were separated into two categories; qualified long-term care insurance for tax purposes and nonqualified long-term care insurance not eligible for favorable tax treatment Differences in the benefit triggers for the activities of daily living and qualified and non-qualified plans also had differences in eligibility time periods. This occurred because federal rules stated that a health professional had to declare a client unable to perform two or more ADL’s for a period of 90 days before care was considered long-term. When a resident required a policy that was qualified, the federal guidelines were to be strictly adhered to when a resident required a policy that was qualified. There was, however, an exception that the HIPAA regulations. This was that State-approved policies issued prior to 1/1/97 were “grandfathered” in, as long as they were not altered from the guidelines that HIPAA had spelled out in the federal regulations. Federally Non-Tax Qualified The threshold establishing eligibility for home care benefits in every long-term care policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits, is at least as permissive as a provision that the insured will qualify if either one of two criteria are met:

Impairment in two out of seven activities of daily living. Impairment of cognitive ability.

Policies and certificates may provide for lesser but not greater eligibility criteria. The commissioner, at his or her discretion, may approve other criteria or combinations of criteria to be substituted, if the insurer demonstrates that the interest of the insured is better served. CIC §10232.8 (a)(b) In every policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits "Activities of daily living" will include eating, bathing, dressing, ambulating, transferring, toileting, and continence. Here are the formal definitions:

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• Eating, which shall mean reaching for, picking up, and grasping a utensil and cup; getting food on a utensil, and bringing food, utensil, and cup to mouth; manipulating food on plate; and cleaning face and hands as necessary following meals.

• Bathing, which shall mean cleaning the body using a tub, shower, or sponge bath, including getting a basin of water, managing faucets, getting in and out of tub or shower, and reaching head and body parts for soaping, rinsing, and drying.

• Dressing, which shall mean putting on, taking off, fastening, and unfastening garments and undergarments and special devices such as back or leg braces, corsets, elastic stockings or garments, and artificial limbs or splints.

• Toileting, which shall mean getting on and off a toilet or commode and emptying a commode, managing clothing and wiping and cleaning the body after toileting, and using and emptying a bedpan and urinal.

• Transferring, which shall mean moving from one sitting or lying position to another sitting or lying position; for example, from bed to or from a wheelchair or sofa, coming to a standing position, or repositioning to promote circulation and prevent skin breakdown.

• Continence, which shall mean the ability to control bowel and bladder as well as use colostomy or catheter receptacles, and apply diapers and disposable barrier pads.

• Ambulating, which shall mean walking or moving around inside or outside the home regardless of the use of a cane, crutches, or braces.

The first 6 out of 7 ADLs above are similar for qualified and non-qualified. The additional one for the 7 category considered for non-qualified above is ambulating which is defined last in the list. It is not included in the qualified federal list in the next section. "Impairment" of Cognitive Ability This means that the insured needs human assistance, or needs continual substantial supervision; and "impairment of cognitive ability" means deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer's disease or related illnesses, that requires continual supervision to protect oneself or others. CIC §10232.8 (a)(b) Other Criteria at Commissioner’s Discretion The commissioner shall promulgate emergency regulations to add those other criteria as a third threshold to establish eligibility for benefits if federal law or regulations allow other types of disability to be used. Within 60 days of the effective date of the regulations insurers will submit policies for approval. The department, with respect to policies previously approved, is authorized to review only the changes made to the policy. All new policies approved and certificates issued after the effective date of the regulation shall include the third criterion. No policy shall be sold that does not include the third criterion after one year beyond the effective date of the regulations. An insured meeting this third criterion shall be eligible for benefits regardless of whether the individual meets the impairment requirements in paragraph (1) or (2) regarding activities of daily living and cognitive ability. CIC §10232.8 (a)(b) Federally Tax Qualified Long-term care policies approved or certificates issued after the effective date of the act that is intended to be a federally qualified long-term care insurance, the threshold establishing

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eligibility for home care benefits shall provide that a chronically ill insured will qualify if either one of two criteria are met or if a third criterion, as provided by this subdivision, is met:

Impairment in two out of six activities of daily living. Impairment of cognitive ability.

In establishing eligibility for benefits other criteria will be used if federal law or regulations allow other types of disability to be used applicable to eligibility for benefits under a long-term care insurance policy. In every policy or certificate that is intended to be a federally qualified long-term care insurance Activities of daily living include bathing, dressing, eating, transferring, toileting, and continence; See their definitions:

Dressing, which shall mean putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs.

Eating, which shall mean feeding oneself by getting food in the body from a

receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously. Continence, which shall mean the ability to maintain control of bowel and

bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).

Transferring, which shall mean the ability to move into or out of bed, a chair or

wheelchair.

Bathing, which shall mean washing oneself by sponge bath or in either a tub or shower, including the act of getting into or out of a tub or shower.

Toileting, which shall mean getting to and from the toilet, getting on or off the

toilet, and performing associated personal hygiene. In activities of daily living, Impairment means the insured needs "substantial assistance" either in the form of "hands-on assistance" or "standby assistance," due to a loss of functional capacity to perform the activity; Impairment of cognitive ability means the insured needs substantial supervision due to severe cognitive impairment. Medical Necessity, if applicable, a third trigger beyond those listed previously usually means one’s doctor has certified that their medical condition will deteriorate if they do not receive the care recommended. However, under California law, an insurer is not allowed to require that your benefits also be "medically necessary" before the company will pay. Federal law prohibits the use of a medical necessity trigger in tax-qualified long-term care insurance policies. The 3 Benefit Triggers permitted in long-term care insurance policies in California are: Impairment in Two of Six Activities of Daily Living (ADLs).

"Activities of Daily Living" (ADLs) are used to measure your physical abilities to determine if you qualify for benefits. The law requires tax-qualified policies to pay

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benefits if you are impaired in 2 out of the following 6 ADLs: bathing, dressing, transferring, eating, toileting and continence. For non-tax qualified policies, the requirement is for 2 out of the following 7 ADLs: ambulating, bathing, dressing, transferring, eating, toileting and continence. Note that the additional ADL for non-tax qualified policies is ambulating, which means walking or moving around inside or outside the home regardless of the use of a cane, crutches, or braces. Only two ADLs can be required before benefits will be paid for nursing home care, RCFE care, or home care in policies sold after October 1, 2001. "Impairment" means that you need human assistance or continual supervision to perform an Activity of Daily Living. Policies that trigger benefits when you only have to meet one of the ADLs may begin paying benefits earlier in your disability than if you have to meet two. However, your premiums will be higher and the policy will not be tax qualified.

Impairment in Cognitive Ability (or Cognitive Impairment). "Impairment in Cognitive Ability" that would require the need for continual supervision to protect oneself or others due to the deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer's disease or related illnesses.

Medical Necessity "Medical Necessity" usually means your doctor has certified that your medical condition will deteriorate if you do not receive the care recommended. However, under California law, an insurer is not allowed to require that your benefits also be "medically necessary" before the company will pay. Federal law prohibits the use of a medical necessity trigger in tax-qualified long-term care insurance policies. A Guide To Long-Term Care Insurance-CA

"Impairment" This means that the insured needs human assistance, or needs continual substantial supervision; and "impairment of cognitive ability" means deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer's disease or related illnesses, that requires continual supervision to protect oneself or others. CIC §10232.8 (a)(b) Other The commissioner shall promulgate emergency regulations to add those other criteria as a third threshold to establish eligibility for benefits if federal law or regulations allow other types of disability to be used. Within 60 days of the effective date of the regulations insurers will submit policies for approval. The department, with respect to policies previously approved, is authorized to review only the changes made to the policy. All new policies approved and certificates issued after the effective date of the regulation shall include the third criterion. No policy shall be sold that does not include the third criterion after one year beyond the effective date of the regulations. An insured meeting this third criterion shall be eligible for benefits regardless of whether the individual meets the impairment requirements in paragraph (1) or (2) regarding activities of daily living and cognitive ability. CIC §10232.8 (a)(b)

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Definitions of Covered Services For purposes of this section, policy definitions of these benefits may be no more restrictive than the following: Home Health Care "Home health care" is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker. Adult Day Care "Adult day care" is medical or nonmedical care on a less than 24-hour basis, provided in a licensed facility outside the residence, for persons in need of personal services, supervision, protection, or assistance in sustaining daily needs, including eating, bathing, dressing, ambulating, transferring, toileting, and taking medications. Personal Care "Personal care" is assistance with the activities of daily living, including the instrumental activities of daily living, provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. "Instrumental activities of daily living" include using the telephone, managing medications, moving about outside, shopping for essentials, preparing meals, laundry, and light housekeeping. Homemaker Services "Homemaker services" is assistance with activities necessary to or consistent with the insured's ability to remain in his or her residence, that is provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. Hospice Services "Hospice services" are outpatient services not paid by Medicare, that are designed to provide palliative care, alleviate the physical, emotional, social, and spiritual discomforts of an individual who is experiencing the last phases of life due to the existence of a terminal disease, and to provide supportive care to the primary care giver and the family. Care may be provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. Respite Care "Respite care" is short-term care provided in an institution, in the home, or in a community-based program, that is designed to relieve a primary care giver in the home. This is a separate benefit with its own conditions for eligibility and maximum benefit levels.

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Prohibited Practices & Limitations Prior Hospital/Institutional Stay Requirement Home care benefits cannot be limited or excluded by any of the following:

• Requiring a need for care in a nursing home if home care services are not provided.

• Requiring that skilled nursing or therapeutic services be used before or with unskilled services.

• Requiring the existence of an acute condition. • Limiting benefits to services provided by Medicare-certified providers or

agencies. • Limiting benefits to those provided by licensed or skilled personnel when other

providers could provide the service, except where prior certification or licensure is required by state law.

• Defining an eligible provider in a manner that is more restrictive than that used to license that provider by the state where the service is provided.

Requiring "medical necessity" or similar standard as a criteria for benefits. A “plan of care" means a written description of the insured's needs and a specification of the type, frequency, and providers of all formal and informal long-term care services required by the insured, and the cost, if any. Definition of a Licensed Health Care Practitioner (LHP) A licensed health care practitioner means a physician, registered nurse, licensed social worker, or other individual whom the United States Secretary of the Treasury may prescribe by regulation and who is independent of the insurer. Inflation Protection In an indemnity policy, the inflation protection benefit increases the daily benefit amount over time to help keep pace with inflation and increased expenses. Every insurer is required to offer customers Inflation Protection to help the benefits of their policy keep up with the annual increase in the cost of care due to inflation. While everyone would like to buy Inflation Protection coverage, not everyone can afford to do so. People shouldn’t pass up long-term care insurance just because they cannot afford Inflation Protection. (Inflation protection discussed fully later) Without this protection, the charges one pays above the daily benefit amount are likely to increase considerably over time. All policies covering long-term care services must offer an inflation protection benefit. A daily benefit amount which is adequate today to meet nursing home or home care costs might not be adequate ten years from now. Of course, an individual is not required to purchase inflation protection. However, considering that the costs of long-term care services continue to increase, one would be wise to consider carefully the protection offered by this benefit. Many consumer advocates say that inflation protection is a necessity. However, understand that it is more important for younger people who might not need long-term care for many years and less important for older people who might need long-term care sooner.

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Pooled Benefits Integrated Pool of Money Some newer LTCI policies offer “pooled benefits” rather than per diem benefits, which means that the policy provides a total dollar amount which may be used for different types of long-term care services until the “pool” is used up, generally regardless of the timeframe. “Pooled” benefit policies usually include a daily, weekly, or monthly limit on covered expenses. The integrated pool of money designs are based on benefit type and not length of stay. Benefit “Payouts” for LTC Contracts Agents need to know about these variation as they have significant impact on how long a policy will pay out benefits.How policies pay out their maximum benefit amounts has also evolved over the years since the original ones. Two Benefit Period Designs Q12 There are two basic benefit period designs:

A first type of payout is designed to pay benefits for a certain time period usually described in months such as 12, 24, 36, 60, lifetime, etc. or years, ie 1, 2, 3, 5 years and lifetime. A person’s benefit stops at the end of the period of time designated in the policy purchased. The longer the benefit payout coverage period is, the higher the cost. This type pays a daily amount per day, ie $150. The amount can different for nursing home care, home health care, adult day care, etc. depending on the policy purchased and it’s benefit specifications. When the months of time have been exhausted, the policy benefits cease. This policy payout arrangement pays the costs each day up to the maximum of $150, in our example. Even if the actual costs are less than $150 per day, the policy still pays only for the days for which benefits were due for that care. A second payout type is where there is the specific aggregate “pool” amount of money reserved for the insured, regardless of any time period in months or years. “Integrated pool of money” has a total benefit which is not for months or years, but, instead an aggregate amount of money amount, ie $54,750 which is the same as $150 a day for 365 days. Benefits are paid up to the $150 per day until the money is used up. The benefit amount is not specified based on the level of care received, but only on the total aggregate amount of money reserved for the insured. If the insured requires only $125 a day, the $25 a day surplus makes money available beyond the 1 year period and can be used until the $54,750 is used up, regardless of the amount of time. Waiver of Premium CIC §10235.10 Facility and Home Care Usually after a waiting period, many policies will allow you to stop paying premiums while the policy is paying benefits. Most waivers of premium apply only when you are using the nursing facility benefit or other institutional benefit, but some policies will also waive premiums while you are using the home care benefits.

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No Termination of Coverage During A Claim Statutes in California cite this issue as the following: “Termination of long-term care insurance shall be without prejudice to any benefits payable for institutionalization if that institutionalization began while the long-term care insurance was in force and continues without interruption after termination. This extension of benefits beyond the period the long-term care insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits and may be subject to any policy waiting period, and all other applicable provisions of the policy.” CIC 10235.10 During an active claim, California does not allow a policy to be terminated. If long-term care coverage would have been terminated for some reason, and the insured is in an active claim (such as being in a nursing home or receiving formal care at home), the policy benefits must continue for as long as the benefit period lasts or up to the maximum benefit limit in the policy. Elimination Periods During the deductible or waiting period, one will have to pay out-of-pocket for the full cost of the care received. A "Waiting Period", "Deductible Period" or most commonly the “Elimination Period” is the number of days one must wait after they qualify for care, and are eligible to receive benefits before the company will begin paying for their care. If the policy requires a 30-day waiting period, for example, an individual would pay $6,000 out-of-pocket (at $200 per day) for nursing home care. They choose the length of the Elimination Period when they buy the policy. The most common options are 0 days, 30 days, 60 days, 90 days or 100 days. Some guidelines are:

• The elimination period should be in cumulative days; • The elimination period should be satisfied once in a lifetime; • The elimination period for nursing home should be able to be used for nursing

home and home health care. There are some policies which only make insureds meet the Elimination Period once during the life of the policy. Others apply it again after one has gone for a certain period of time without needing care. The premiums are usually more for short elimination periods and less for longer ones. In most situations the elimination period will be satisfied by a day of either in-home care or institutional care. It’s important that you as their agent are aware of this and explain these differences to them. The deductible period or elimination is the length of time that the insurer pays no benefits. If one selects a 0-day Elimination Period, the policy will begin paying on the first day they qualify for care. If they choose one of the other periods, they will be responsible for paying the full cost of their care for these days. CA Long-term care Rate Guide-A Guide to Long-Term Care If an Elimination Period of 60 days is chosen, an individual will be responsible for the cost of the first 60 days of care. If in a nursing home that charges $100 per day, an individual will pay approximately $6,000, before the policy starts paying. If one leaves the nursing home before the 60 days expires and the policy only pays for institutional care, it would pay nothing for that period of care. If an individual qualifies for benefits in a home care setting most long-term care insurance policies apply a day towards the Elimination Period for any day one actually receives care (or a home care visit). Therefore, if the plan of care only calls for 3 visits per week one will

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only have satisfied 3 days towards their Elimination Period. Some companies offer a more liberal interpretation of this definition. For example, the policy might say that if a person has one home care visit per calendar week, that satisfies 7 days towards one’s Elimination Period. In this example, one would satisfy the Elimination Period more quickly. Several companies now utilize a “calendar day” definition for the elimination period. Once the insured has been certified as being chronically ill each calendar day counts towards the elimination period, regardless of whether formal long-term care services are received. This allows the insured person to get informal care from family or friends during the elimination period. After the elimination period has been satisfied formal paid care can begin. The premium cost is usually higher if an individual chooses the shorter Elimination Periods and is lower if a longer period is chosen. In addition a premium might be higher when the company uses a more liberal “counting” of home care Elimination Period days. Certain "conditions" after the "benefit triggers" have been met and before benefits will be paid by all policies will be required to be met. Most long-term care insurance policies, if they qualify for benefits in a home care setting, apply a day towards their Elimination Period for any day they actually receive care (or a home care visit). You will only satisfy 3 days towards your Elimination Period If their plan of care only calls for 3 visits per week. Some companies offer a more liberal interpretation of this definition. For example, the policy might say that if they have one home care visit per calendar week that they’ve satisfied 7 days towards their Elimination Period. In this example, they would satisfy your Elimination Period more quickly. CA Long-term care Rate Guide-A Guide to Long-Term Care A "calendar day" definition for the elimination period is now utilized by several companies. Once the insured has been certified as being chronically ill each calendar day counts towards the elimination period, regardless of whether formal long-term care services are received. This allows the insured person to get informal care from family or friends during the elimination period. After the elimination period has been satisfied, formal paid care can begin. Agents explaining what out of pocket costs are and how the costs are counted with inflation protection is important to be able to communicate. The premium cost is lower if one chooses a longer period and is usually higher if one chooses the shorter Elimination Periods. Also, a premium might be higher when the company uses a more liberal "counting" of home care Elimination Period days. Your clients should make sure that the Elimination Period days that are accumulated either in a home care or institutional care setting are combined to satisfy their overall elimination period. It is important for you to explain this to them. A period of care usually begins on the first day one is eligible for benefits, and ends after a treatment-free interval during which they do not need any benefits. They may have to meet another Elimination Period if they need care later. CA Long-term care Rate Guide-A Guide to Long-Term Care Benefit Periods (Design/Payout) CIC §10232.93 & 10233.4 The Benefit Period is the length of time insurance will last if an individual receives care every day at a cost equal to or more than a daily maximum benefit amount. If care costs less,

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insurance will last longer than the benefit period. The benefit period is used together with daily maximum benefit amount calculated lifetime maximum benefit. For older buyers of LTCI, the primary determinant of how long benefits should last is the size of their pocketbook. Most buy the benefit for what they can afford in premiums. Those with high incomes pay what they think is a reasonable premium. Still, this could be an outlay of $8,000 per year, just because they think the insurance is a better alternative than paying dollar for dollar out of pocket for care. Fortunately, the insurance cost for people under age 60 is more reasonable. For the case where it’s more affordable, let’s take an analytic approach to choosing benefit period. Data from studies indicate that if a person spends at least 90 days in a nursing home he or she tends to stay on average 2.5 years. Insurance agents and carriers quote this number constantly and as a result the average industry-wide, recommended benefit period is 3 years. However, another study says that a person who has been in a nursing home for one year will, on average, be there 6.2 years. But, then, maybe an agent should recommend a lifetime benefit. The cost is only about 15% more than a 6 year benefit. When buying a long-term care insurance policy, most consumers concentrate on the basic features of the policy such as the dollar amount of the daily benefits, the length of coverage and what circumstances trigger the policy’s benefits. Policy Lifetime Maximum Must be Stated in Single Dollar Amount 10232.93. “All long-term care policies or certificates must define the maximum lifetime benefit as a single dollar amount that may be used interchangeably for any home and community-based services defined in Section 10232.9, assisted living benefit defined in Section 10232.92, or institutional care covered by the policy or certificate.” “There may be no limit on any specific covered benefit except for a daily, weekly, or monthly limit set for home and community-based care and for assisted living care, and for the limits for institutional care.” 10233.4. “No long-term care insurance benefits may be reduced because of out-of-pocket expenditures by the insured or on behalf of the insured by a family member of the insured or by any other individual. If the policyholder or someone else pays for costs out of pocket, this amount may not be subtracted from any benefit monies due under the policy.” A timeframe during which benefits are payable is the benefit period. A benefit period can be for a specified number of months or years. It can also be for an unlimited time benefit period which is referred to as lifetime benefits. This applies to indemnity contracts and integrated contracts. The more benefits that could potentially be paid out, the more expensive the premiums for the policy will be. An unlimited benefit period is measured in dollar amounts rather than in time. Benefits are paid as long as the pool-of-money holds out. The money can go to day care, home care, or nursing facilities. The policyholder’s benefits last as long there is money remaining in the pool of money. When the pool-of-money has been exhausted, the policy terminates. With regard to timeframe benefit policies, the amount paid out per day is usually a specified amount, such as $150 per day for a nursing home. If the nursing home costs $120 per day, that is the amount that is actually paid in most cases.

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Even if it is more than the daily cost of the nursing home facility, “Per diem” policies will pay more than the actual cost per day. The policy will pay the actual cost for the service in “unlimited benefits” policies, without any daily limits. Unlimited policies are limited only to the extent that there is money available within the “pool of money” in their policy. Home care benefits in specified amount policies must be at least half as much of that designed to be paid to nursing facilities. If a policyholder has a $150 per day nursing facility benefit under a time policy, she must have at least $75 per day for home care. If one has a "pool-of-money" policy, this would not apply because, again, the policy will pay the actual cost regardless of the service being received as long as the service being provided is covered by the policy. Maximum Benefit Period Their Maximum Lifetime Benefit is the approximate number of years one wants the policy to pay benefits will determine. The longer the period of coverage, the higher the premium. The Lifetime Maximum Benefit is computed by multiplying the Daily Maximum benefit selected by the approximate number of days they want benefits to be paid. Not everyone can afford to do so, but everyone would like to buy lifetime coverage or unlimited benefits. One should not pass up long-term care insurance just because they can’t afford lifetime coverage. A policy that pays for a few years can provide valuable coverage, and for some people that will be all they will need. Selecting the Maximum Lifetime Benefit Some people can afford lifetime coverage, others have so little money they would quickly qualify for Medi-Cal. No one can predict how many days or years of long-term care a person will need, or the reason they will require care. Choosing the right amount of benefit depends on the premium one can afford, and the assets they would otherwise have to spend. CA Long-term care Rate Guide-A Guide to Long-Term Care All policies have a maximum benefit period. For time limits policies, no less than three years of coverage is widely recommended. Benefit periods determine the length of time that the insured is protected while being cared for in an institution such as a nursing home. A three year plan is considered a safe choice as the average length of stay is 2.5 years. Time policies that offer lifetime benefits still limit how much is paid out per day, but they will pay that amount for as long as the policyholder is confined. Many policies do offer lifetime benefits that are not "pools-of-money". The fact that there are medical conditions which disable a person, but do not kill them, lifetime benefits can be important to some clients. Of course, the longer the benefit period, the more expensive the policy will be. Generally, policies contain two benefit periods: one is "per confinement" and the other is a "policy lifetime benefit". If a person has a situation where benefits from the policy are paid out for some number of months, some policies will add these months back into the maximum benefit if the person has a period of time where they are not using benefits. Policies or certificates of a comprehensive long-term care basis that specify a maximum time for institutional care and that limit the length of time that benefits may be received during the life of

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the contract, must also allow a similar maximum time for home care that is no less than half the length of time allowed for institutional care. Dollar Amounts CIC §10232.93 “Every long-term care policy or certificate must define the maximum lifetime benefit as a single dollar amount that may be used interchangeably for any home and community-based services, assisted living benefit, or institutional care covered by the policy or certificate. There cannot be a limit on any specific covered benefit except for a daily, weekly, or monthly limit set for home and community-based care and for assisted living care, and for the limits for institutional care.” The Daily Maximum In addition, when a person purchases a LTCI policy, one will have to choose the amount of coverage wanted. Most policies provide a maximum dollar amount for each day of nursing home care. One choose the amount they want the company to pay for each day of their care when one buys a policy. The amount chosen can be no less than $100 per day on an indemnity plan. When they need care, companies pay the daily benefit they selected or the actual cost, whichever is less. Companies allow them to select as little as $50 daily or as much as $500 daily. CA Long-term care Rate Guide-A Guide to Long-Term Care A good number of policies state they will pay the actual charge incurred, not to exceed the daily amount in the policy. In this case, if a person is admitted to a nursing home that charges $175 per day and their policy has a $200 per day benefit, their policy will only pay the $175 charged and not the full amount of the $200 daily benefit in the policy. There are other policies have a $200 daily benefit amount that states that it will pay the amount selected ($200) as the daily benefit amount regardless of the actual charges. If the policyholder in this case is charged $100 per day in the nursing home, their insurer sends them the full $200 per day. Selecting the Daily Maximum Insured people need to decide how much of the daily cost of care they can pay themselves because they will be responsible for all expenses not paid by their insurance policy. They should estimate the daily cost of long-term care in their community and subtract the amount they can afford to pay for each day of their care. Every insurer is required to offer them Inflation Protection to help the benefits of their policy keep up with the annual increase in the cost of care due to inflation. While everyone would like to buy Inflation Protection coverage, not everyone can afford to do so. People shouldn’t pass up long-term care insurance just because they cannot afford Inflation Protection. (More on Inflation protection discussed later) CA Long-term care Rate Guide-A Guide to Long-Term Care Every long term care policy or certificate covering confinements in California in a nursing facility must also include a provision that covers care in a residential care facility, called an RCF. The threshold establishing eligibility for care in an RCF cannot be more restrictive than that for home care benefits. The definitions for impairment in ADLs or for cognitive ability must also be the same as those used for home care benefits. This has been effective since July 1, 2000. SB 870

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Restoration of Benefit Essentially, this provision allows for time previously used up to be restored. They may have a provision for policyholders who do not have Lifetime Benefits as their maximum benefit period, included or available as an option with an additional premium known as a restoration of benefit provision. A length of time is generally required to go by where a policyholder is not under claim following the period of time that the policyholder was under claim and used up some of their benefit period. After a certain period of time where the policyholder was claim-free, the company will restore time used up in benefit status. Here’s an example - if a person requires nursing home care for 3 months and then goes home and is no longer on claim. Their policy provision may indicate that if they have a 6 month claim free period of time that the 3 months used up will be restored as though the person did not use up the 3 months at all. Any person who is restored to a position will be considered as having been on leave of absence during the period of training or service in the armed forces of the United States and at the expiration of the period shall be entitled to be restored to his employment without loss of seniority, shall be entitled to participate in insurance or other benefits offered by the employer in accordance with established rules and practices relating to employees on leave of absence, and will not be discharged from the position without cause within 1 year after restoration. Survivor Benefits: This type of survivor based benefit is commonly referred to as a “joint policy” or a “joint benefit.” A “survivor” type of pooled benefit covers more than one person, such as a husband and wife or two or more related adults. Joint survivor policies typically provide a benefit amount that applies to each and all of the individuals covered by the policy. There must be a similar maximum duration for home care that is at least 50% of the length of time for institutional care for the ‘comprehensive’ long term care policy that has a specified time or maximum duration for institutional care, with a limited length of time for benefits received, (Source: Senate Bill 1052, California Insurance Laws, 1999, 10232.9, pp. 640.) Contractual Methods of Payment Indemnity Contracts/Integrated Contracts CIC §10232.95 Comparing long-term care policies or contracts is difficult because many policies provide different combinations of benefits and coverage. Most companies offer to pay a fixed price every day one receives care. Others offer to pay a percentage of the cost of services or a specific amount of money to cover the actual charges for care. These policies are only good if they provide for benefits to increase as nursing home costs rise. There are no standard benefits when it comes to long-term care insurance. So, be sure to always read the fine print on any policy. Generally, nursing home coverage pays for skilled custodial care. Some policies offer to pay for any care required, provided all eligible requirements are met. Some companies pay for care in one’s home but only if care is provided by RNs, licensed practical nurses, or licensed rehabilitation therapists. However, most will not pay for home health aides.

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Indemnity Contracts Indemnity is compensation to the claimant for disability or illness suffered – security against loss. Indemnity contracts pay the entire pre-determined benefit on a daily or monthly basis. Indemnity Health Plans are known as fee for service health insurance programs. Indemnity programs were very popular before the establishment of HMO, IPA, and PPO plans. With indemnity plans, the health insurance consumer pays a set percentage of the total costs of the health care treatment, and the health insurance company pays the remaining percentage. The costs of medical treatment are defined by the health insurance provider and vary by doctor. Indemnity health plans allow health insurance consumers an opportunity to become actively involved in selecting the actual medical care professional or physicians. Three Methods Working with people and their long-term care needs, as a competent agent, we must be able to make the distinction between the three methods of pay reimbursement:

• reimbursement • cash • per diem

Reimbursement Long-Term Care Indemnity Contracts can have several different levels of separate coverage such as home care, nursing care and residential care. Every long-term care policy or certificate that provides reimbursement for care in a nursing facility must cover and reimburse for per diem expenses, as well as the costs of ancillary supplies and services, up to but not to exceed the maximum lifetime daily facility benefit of the policy or certificate. The policy or certificate must have “Nursing Facility and Residential Care Facility Only” prominently displayed on page one of the policy form and in the outline of coverage If nursing care and residential care are integrated into one contract (formerly called comprehensive policies),. Policies or certificates for home care only are not integrated contracts and must have the words “Home Care Only” prominently displayed on page one of the policy and outline of coverage. Indemnity Integrated contracts are more common today. This primary type was generally called Indemnity contracts in older long-term care policies. Cash The policy pays up to the amount purchased for a specific time period as valid claims are submitted. Indemnity plans can have an unlimited pay out time period Indemnity contracts were based on a time measurement. The timeframe payout is measured in days, such as 365 days of benefits or one year. The applicant chooses the amount per day they want to purchase. This would be regarded as a lifetime benefit. Remember that the longer the policy’s payout period, the more costly the policy will be. This payout is performed regardless of how long the period of time relates to. Integrated contracts are not based on a time period for their payments, but rather work with a "pool of money." The policyholder buys a dollar amount of total coverage rather than coverage for a specified amount of time. The pool of money lasts for an amount of time that depends on the

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total medical costs for needs of the policyholder and the choices made by the policyholder. Payments for claims are paid out until the aggregate pool of money is exhausted. Per Diem Per diem products are those which pay benefits regardless of whether or not services have been performed. Indemnity plans have a "per day" amount which is selected and purchased by the policyholder when they buy their policy. Under these plans the applicant selected $100 per day up to the maximums offered by the insurer. The amount per day that is paid out will vary depending on the type of care received, with the nursing home receiving the most per day. Generally, benefits are less for Home care, adult day care, etc.. Under California law, this has to be at least half the amount of the policy benefit that is scheduled to be paid for nursing home care. There will not be any choices for daily benefit maximums for care received with Integrated plans as they are based on a pool of money. In these, any claims for benefits are paid out of the pool of money. Indemnity policies that use the basic indemnity (per diem) payment method pay the full daily amount specified in the policy for each day that claims are incurred directly to the policyholder. If the policy has a $150 per day benefit, the $150 is paid directly to the policyholder. The method referred to as “expense-incurred” looks not at the per diem amount per day of the policy, but rather it looks at the actual charges incurred each day and pays that amount up to the full maximum amount purchased in the policy. In this case, if the actual charge is $94, this is the amount paid, not to exceed the maximum per day. In the “expense-incurred’ method, payments may be made either to the policyholder (cash method) or to the provider of the service (reimbursement method). Per Diem Limit Per diem limits do not apply to "reimbursement" products. The reimbursement/cash/per diem limit for tax-free benefits was $310 in 2012. Although the amount in 2012 was set at $310 per day and $320 per day in 2013, this benefit amount is indexed for inflation and applies to tax-free benefits unless amount in excess can be justified by actual expenses incurred for chronic illness. Additional Items as They Develop In addition to the verbatim definitions, the commissioner may approve additional descriptive language to be added to the definitions, if the additional language is warranted based on federal or state laws, federal or state regulations, or other relevant federal decision, and strictly limited to that language which is necessary to ensure that the definitions required are not misleading to the insured. Every Individual Policy Must Be Guaranteed or Noncancelable. CIC §10236 Guarantees in every individual long-term care policy include guaranteed renewable or non-cancelable terms.. Contents of an insurer’s renewability provision must be printed on page one of the policy.

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Upgrading CIC §10235.51 Every Policy or Certificate Must Allow Increase in Coverage When a person buys their original policy, there are a number of situations in the future that may/will require that amount and benefit levels be increased to meet future needs. Inflation, increased costs of care, increased income that allows an insured to afford a higher level of coverage, changing family structures, philosophy changes, etc. Permitted Exclusions and Limitations CIC §10235.8 “Policies in California for long-term care insurance cannot limit or exclude coverage by type of illness, treatment, medical condition, or accident.” (CIC §10235.8 as amended by SB 870, Oct.1999) Permitted Pre-existing Conditions “Policies can limit and exclude the following:

Preexisting conditions or diseases. Alcoholism and drug addiction. Illness, treatment, or a medical condition arising out of any of the following:

o War or act of war, whether declared or undeclared. o Participation in a felony, riot, or insurrection. o Service in the armed forces or units auxiliary thereto. o Suicide, whether sane or insane, attempted suicide, or intentionally self-

inflicted injury. o Aviation in the capacity of a non-fare-paying passenger.“

“Treatment provided in a government facility, unless otherwise required by law, services for which benefits are available under Medicare or other governmental programs (except Medi-Cal or Medicaid), any state or federal workers' compensation, employer's liability or occupational disease law, or any motor vehicle no fault law, services provided by a member of the covered person's immediate family, and services for which no charge is normally made in the absence of insurance. This section does not prohibit exclusions and limitations by type of provider or territorial limitations.” CIC §10235.8 as amended by SB 870, Oct.1999) Permitted Exclusions and Limitations CIC §10235.8 “Policies in California for long-term care insurance cannot limit or exclude coverage by type of illness, treatment, medical condition, or accident.” (CIC §10235.8 as amended by SB 870, Oct.1999) Permitted Pre-existing Conditions “Policies can limit and exclude the following:

Preexisting conditions or diseases. Alcoholism and drug addiction. Illness, treatment, or a medical condition arising out of any of the following:

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o War or act of war, whether declared or undeclared. o Participation in a felony, riot, or insurrection. o Service in the armed forces or units auxiliary thereto. o Suicide, whether sane or insane, attempted suicide, or intentionally self-

inflicted injury. o Aviation in the capacity of a non-fare-paying passenger.“

“Treatment provided in a government facility, unless otherwise required by law, services for which benefits are available under Medicare or other governmental programs (except Medi-Cal or Medicaid), any state or federal workers' compensation, employer's liability or occupational disease law, or any motor vehicle no fault law, services provided by a member of the covered person's immediate family, and services for which no charge is normally made in the absence of insurance. This section does not prohibit exclusions and limitations by type of provider or territorial limitations.” CIC §10235.8 as amended by SB 870, Oct.1999) Claims Denial CIC §10235.9 It is up to the agent to make their clients aware of this, how it works, how it affects them, and what recourses they have available to them in this area because of this potential eventuality of a claim denial. The policy contractual language determines the approval or denial. It’s very important that the policyholders fully understand the specifics of their policies. To reduce the amount of unfair claims denials, regulations for oversight of this claims denial subject are in place. Insurance companies may have to deny claims from time to time. Because some denials are not fair to the policyholder, California has regulations in place to protect its residents from unfair denials. It provides also that the policyholder can question the claim denial. June 30th Report: Number of Claims Denied and Reasons “Every insurer has to report annually by June 30 the total number of claims denied by each class of business in the state. “ 40-Day Written Notice to Insured of Reasons for Denial “The insurer must provide every policyholder or certificate holder, whose claim is denied, a written notice within 40 days of the date of denial.” Home Modification and Other Ancillary Benefits Long-term care insurance may not include an additional benefit for a service with a known market value other than the statutorily required home- and community-based service benefits in Section 10232.9, the assisted living benefit in Section 10232.92, or a nursing facility benefit, unless the additional benefit provides for the payment of at least five times the daily benefit and the dollar value of the additional benefit is disclosed in the schedule page of the policy. CIC10233.2.

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Chapter 4 Federal Legislation & Long-Term Care Insurance

Introduction

The Health Insurance Portability & Accountability Act of 1996 (HIPAA) Public Law created a framework by which costs incurred for chronic illness would be treated as medical expenses under IRC Sec. 213(d) and by which long-term care insurance policies that meet certain requirements would be considered "tax-qualified" allowing for tax free benefits and tax deductible premiums under certain circumstances Congress passed legislation effective in 1997 that established the tax treatment of premiums paid for and the benefits paid by long-term care insurance policies that met certain federal standards. This legislation is called the Health Insurance Portability and Accountability Act or HIPAA. This act became a law on January 1, 1997. The act states the requirements that a long-term care policy must follow in order that the premiums paid may be deducted as medical expenses and benefits not paid be considered as taxable income. It is significant to note that the tax treatment of accelerated death benefits has changed as a result of HIPPA. Signed by President Clinton in 1996, this new law provides for tax-free treatment of accelerated death benefits for terminal and chronically ill people paid directly by insurance companies. This should serve as another reason for the seriously ill to make use of accelerated provisions in their life policies for current “living benefits”, including long-term care where permitted. Overview of HIPAA The advent of HIPAA (Health Insurance Portability and Accountability Act), also known as Kennedy-Kassebaum, has created a new evaluation procedure for agents to make: tax-qualified or non-tax qualified contracts. With the advent of more recent SB 870 legislation, the lines between the two policies is harder to distinguish. The first order of comparison is the tax issue itself. Agents need to help a client determine whether the tax breaks associated with a tax-qualified policy are meaningful to the client. Clients who itemize on their tax return have a potential need for tax deductions; those that don’t itemize have little need for them. Remember also that the tax status of a client may change dramatically as he or she moves from full employment to retirement). Insurers are not required to determine whether any benefits are taxable or non-taxable. Form 1099-LTC will inform them of the amounts of benefits paid under their policies, whether paid directly to the policyholder or to a care provider. Policyholders who have specific questions pertaining to the new federal legislation or the new reporting requirements of HIPAA should be advised to contact their personal tax advisor or the IRS. HIPAA clarified that for federal income tax purposes, LTC insurance is to be treated essentially the same as major medical insurance but it allows the policyholder to deduct of LTC premiums. More specifically HIPAA provided that:

• benefits from private LTC coverage, generally, are not taxable; • employers can deduct the costs of establishing an LTC insurance plan for

employees and contributions toward premiums; • employer contributions to LTC premiums are excluded from the taxable income of

employees; and,

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• LTC insurance premiums (and out-of-pocket costs for LTC services) can be applied toward meeting the 10% threshold in the federal tax code for medical expense deductions. (Limits, based on the policyholder’s age, are still placed on the total premium amount that can be applied toward the 10% threshold.)

While the HIPAA legislation was massive in the far reaching regulations applied to the health arena in our country, we specifically take a look here at the Federal health insurance legislation passed in 1996 that allows, under specified conditions, long-term care insurance policies to be qualified for certain tax benefits. We review the key issues surrounding long-term definitions, insurance, and process reform that were transformed, clarified, and expanded. Under specific conditions, Federal Health Legislation passed in 1996 that allows long-term care insurance policies to be qualified for certain tax benefits. This legislation is formally called the Health Insurance Portability and Accountability Act or HIPAA. This Congress passed legislation became effective in 1997 and established the tax treatment of premiums paid for and the benefits paid by long-term care insurance policies that met certain federal standards. The effects of HIPAA are so complex that federal and state governments continue to grapple with its legislative intent. Public policy is often served by providing economic relief to taxpayers or motivation for particular behavior. The1996 Health Insurance Portability & Accountability Act, more specifically referred to as HIPAA – Public Law 104-191, 110Stat. 1936, 2054 & 2063, is one of the most far-reaching laws passed by Congress in the latter part of the 20th century. HIPAA’s impact on the treatment of long-term care expenses and long-term care insurance is the focus here. The key issues regarding Congress’ attempt to fulfill a number of different public policy objectives in taking on long-term care:

providing the general public an incentive to purchase long-term care insurance. categorizing long-term care insurance as accident & health insurance thereby

providing clarity as to the tax treatment of premiums and benefits; and classifying long-term care costs as a medical expense thus providing taxpayers

with some economic relief; "Federally Tax Qualified." is the label for long-term care policies that use the federal standards to pay benefits. Some or all of the premiums for these federally tax qualified policies may be deductible as a medical expense on one’s federal and California income tax returns (depending on one’s age and the amount of annual premium). A change in the tax law for long-term care insurance contracts that meet certain federal standards was contained in the HIPAA of 1996. It treats certain "qualified" long-term care contracts the same as health insurance for tax purposes. The premiums are deductible in part or whole from the insured's personal income. Up to $300 per day (2011), or $109,500 per year, of payments from long-term care policies would not be included in personal income. This also applies to life insurance riders designed to provide long-term care benefits. The un-reimbursed cost of qualified long-term care services are deductible as a medical expense.

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Tax Treatment of Long-Term Care Expenses TQ Benefit Triggers CIC §10232.8 Qualified Long-Term Care Services The IRS defines “qualified long-term care services” as:

“Necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services and maintenance and personal care services required by a chronically ill individual pursuant to a plan of care prescribed by a licensed health care practitioner.”

Congress established a trigger basis for initiating benefits by tying services to a state of disability defined as a chronically ill individual to control when the cost of long-term care services could receive favorable tax treatment. Definition of Chronically Ill Individual “A chronically ill individual must be certified by a licensed health care practitioner within the previous 12 months as one of the following:

The insured is unable, certified for at least 90 days, to perform at least two

activities of daily living (ADL’s) without substantial assistance from another individual, due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing and continence.

The insured requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.”

This standardized definition of a chronically ill person is the only definition allowed to receive the favorable tax treatment for the cost of long-term care services and cannot be altered in any way by state law.

Impairment in two out of six ADLs - HIPAA complaint – consistent with the definition of a chronically ill individual for the purposes of deducting LTC expenses as a medical expense

“In every long-term care policy approved or certificate issued after the effective date of the act adding this section, that is intended to be a federally qualified long-term care insurance, the threshold establishing eligibility for home care benefits shall provide that a chronically ill insured will qualify if either one of two criteria are met or if a third criterion, as provided by this subdivision, is met:

Impairment in two out of six activities of daily living. Severe Impairment of cognitive ability.

If federal law or regulations allow other types of disability to be used applicable to eligibility for benefits under a long-term care insurance policy, other criteria will be used in establishing eligibility for benefits.”

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TQ ADLs Are: “Activities of daily living in every policy or certificate that is intended to be a federally qualified long-term care insurance include eating, bathing, dressing, transferring, toileting, and continence; Here are their definitions: §10232.8 TQ Definitions of the Six ADLs

Eating, which shall mean feeding oneself by getting food in the body from a receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously.

Bathing, which shall mean washing oneself by sponge bath or in either a tub or

shower, including the act of getting into or out of a tub or shower. Continence, which shall mean the ability to maintain control of bowel and

bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).

Dressing, which shall mean putting on and taking off all items of clothing and

any necessary braces, fasteners, or artificial limbs. Toileting, which shall mean getting to and from the toilet, getting on or off the

toilet, and performing associated personal hygiene. Transferring, which shall mean the ability to move into or out of bed, a chair or

wheelchair. §10232.8 “Impairment in activities of daily living means the insured needs "substantial assistance" either in the form of "hands-on assistance" or "standby assistance," due to a loss of functional capacity to perform the activity.” §10232.8 Substantial Assistance ‘‘Substantial assistance’’ means hands-on assistance and standby assistance.” Hands-on Assistance/Standby Assistance ‘‘Hands-on assistance’’ means the physical assistance of another person without which the individual would be unable to perform the ADL.” ‘‘Standby assistance’’ means the presence of another person within arm’s reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual’s throat if the individual chokes while eating).” Impairment of Cognitive Ability This means the insured needs substantial supervision due to severe cognitive impairment.

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Medical Necessity Under California law, an insurer is not allowed to require that your benefits also be "medically necessary" before the company will pay. This third trigger usually means one’s doctor has certified that their medical condition will deteriorate if they do not receive the care recommended. Federal law prohibits the use of a medical necessity trigger in tax-qualified long-term care insurance policies. TQ “Licensed Health Care Practitioner” Independent of Insurer CIC §10232.8(c) Certified by Licensed Health Care Practitioner The LHP must be independent of the insurance company and “shall not be compensated in any manner that is linked to the outcome of the certification” CIC 10232.8(c). These can include doctors, nurses, social workers, chiropractors, Christian Science practitioners, mental health professionals, and other licensed therapists. California Insurance Code Section 10232.8(c) narrows the list by “specifying the role of the LHP in the certification, assessment, and plan of care of the insured for the purposes of the claims process. Federal and State law requires the certification of the insured’s assessment be renewed every 12 months.” Must be recertified every 12 months Written Plan of Care, 12 Month Renewal, and Not from Benefit Maximum “A licensed health care practitioner must develop a written plan of care after personally examining the insured. The written certification must be renewed every 12 months. The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of "chronically ill individual," or to prepare written plans of care cannot count against the lifetime maximum of the policy or certificate.” Shall Apply Only to TQ Policies “The above requirements apply only to a policy or certificate intended to be a federally qualified long-term care insurance contract.” Severe Cognitive Impairment Severe Cognitive Impairment & Substantial Supervision to protect the health and safety of the chronically ill individual This is defined “as a loss or deterioration in intellectual capacity that is similar to Alzheimer’s disease and like forms of irreversible dementia and is measured by clinical evidence and standardized tests that reliably measure impairment in short-term and long-term memory, orientation to people, places or time and deductive or abstract reasoning.” The 90-day certification by a LHP is not a requirement for qualification under the cognitive impairment trigger. Similar to the ADL qualification however, the insured must be re-certified every 12 months to ensure that they still qualify for benefits.

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Substantial Supervision ‘‘Substantial supervision’’ means continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).” HIPAA left the door open for a third definition that has yet to be determined If Federal Government Expands It’s Triggers The California Insurance Department, if the federal government expands its triggers in the future, will issue emergency regulations to bring their regulations into compliance and to clarify the California issues to the extent they are impacted by the Federal changes or expansion, department must issue emergency regulations. The commissioner will promulgate emergency regulations to add those other criteria as a third threshold to establish eligibility for benefits if federal law or regulations allow other types of disability to be used,. Insurers must submit policies for approval within 60 days of the effective date of the regulations. The department is authorized to review only the changes made to the policy with respect to policies previously approved. No policy can be sold that does not include the third criterion after one year beyond the effective date of the regulations. An insured meeting this third criterion shall be eligible for benefits regardless of whether the individual meets the impairment requirements regarding activities of daily living and cognitive ability. All new policies approved and certificates issued after the effective date of the regulation must include the third criterion. Qualified Long-Term Care Expenses to Include HIPAA requires that long-term care insurance policies comply with its guidelines to be considered “qualified” long-term care insurance. Policies that do not meet these requirements are considered to be non-qualified long-term care insurance policies. Premiums paid for a nonqualified policy are not presumed to be deductible as accident and health insurance. However, HIPAA was silent as to the tax treatment of benefits received from non-qualified policies issued after January 1, 1997. To date, the Department of the Treasury has not issued an opinion on this conflict and Congress has not taken the matter up again leading to continued speculation about the tax implications of these benefits. Congress created a generalized structure to which qualified products must adhere. For purposes of HIPAA, a qualified long-term care insurance product must pay benefits using no less than 5 or no more than 6 of the following activities of daily living: eating; toileting; transferring; bathing; dressing; and/or continence. HIPAA stipulates that generally, long-term care insurance policies that use the HIPAA definition of a chronically ill individual will be “qualified long-term care insurance” and that long-term care expenses incurred by a taxpayer who qualifies as a chronically ill individual will be deductible as a medical expense. Tax qualified long-term care insurance is treated the same as an accident and health insurance policy. Some of the rules include: 1) long-term care insurance benefits pass tax-free; 2) premiums are generally deductible-premiums paid by an employer for an employee are 100

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percent deductible and do not count as income to the employee; 3) per diem and cash method policy benefits received are subject to an annually adjusted amount -- $320/day in 2013 (indexed upwards annually by approximately 5 percent); 4) certain limitations apply to individuals, sole proprietors, owners of S-corporations, and LLP’s; 5) qualified long-term care insurance cannot be included in a Section 125 Cafeteria Plan or flexible spending arrangement; 6) qualified long-term care insurance policies may not use “medical necessity” as a benefit trigger and must coordinate benefit payment with Medicare.

Tax Treatment of Long-Term Care Insurance IRS Notice 97-31 “The notice includes interim guidance concerning the definition of a ‘‘chronically ill individual,’’ including safe harbor definitions of the terms ‘‘substantial assistance,’’ ‘‘hands-on assistance,’’ ‘‘standby assistance,’’ ‘‘severe cognitive impairment,’’ and ‘‘substantial supervision.’’ “If the insuring clause of a LTC contract matches the requirements established by 97-31 and its definitions, the policy is consider Tax Qualified. Under the long-term care provisions added to the Internal Revenue Code in 1996, certain payments and reimbursement benefits received on account of a chronically ill individual from a qualified long-term care insurance contract are excluded from income and are thereby tax-free. In addition, certain expenditures incurred for qualified long-term care services required by a chronically ill individual are deductible as medical care expenses.” Tax qualified long-term care insurance is treated the same as an accident and health insurance policy. Some of the rules include: 1) long-term care insurance benefits pass tax-free; 2) premiums are generally deductible-premiums paid by an employer for an employee are 100 percent deductible and do not count as income to the employee; 3) per diem and cash method policy benefits received are subject to an annually adjusted amount -- $320/day in 2013 (indexed upwards annually by approximately 5 percent); 4) certain limitations apply to individuals, sole proprietors, owners of S-corporations, and LLP’s; 5) qualified long-term care insurance cannot be included in a Section 125 Cafeteria Plan or flexible spending arrangement; 6) qualified long-term care insurance policies may not use “medical necessity” as a benefit trigger and must coordinate benefit payment with Medicare. Substantial Assistance ‘‘Substantial assistance’’ means hands-on assistance and standby assistance.” Hands-on Assistance/Standby Assistance ‘‘Hands-on assistance’’ means the physical assistance of another person without which the individual would be unable to perform the ADL.” ‘‘Standby assistance’’ means the presence of another person within arm’s reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual’s throat if the individual chokes while eating).”

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TQ Definitions of the Six ADLs

Eating, which shall mean feeding oneself by getting food in the body from a receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously.

Bathing, which shall mean washing oneself by sponge bath or in either a tub or

shower, including the act of getting into or out of a tub or shower. Continence, which shall mean the ability to maintain control of bowel and

bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).

Dressing, which shall mean putting on and taking off all items of clothing and

any necessary braces, fasteners, or artificial limbs. Toileting, which shall mean getting to and from the toilet, getting on or off the

toilet, and performing associated personal hygiene. Transferring, which shall mean the ability to move into or out of bed, a chair or

wheelchair. Transferring may include ambulating activities

Long-Term Care Insurance Premium Deductibility The Health Insurance Portability and Accountability Act of 1996 (HIPAA) and subsequent Department of the Treasury rulings have created four primary deductibility scenarios for tax qualified long-term care insurance. They are: health savings accounts; individual deductibility; deductibility for the self-employed, owners of S-corporations, limited liability partnerships (LLP) and limited liability corporations (LLC); and, deductibility for employee/owners of C-corporations. The tax incentives that allow for premium deductibility may help the self-employed and employees of companies that provide employer-paid long-term care insurance. To a lesser extent, some individual taxpayers, who are not self-employed may benefit from the premium deductibility allowed by HIPAA. Individual Deductibility This deductibility scenario for tax-qualified long-term care insurance is one of the most misunderstood applications. It is true that only taxpayers who itemize their deductions can benefit from the deductibility of qualified long-term care insurance premiums. It is also a fact that, based on the taxpayer’s age, only a portion of the long-term care insurance premium may be deducted. With this in mind, taxpayers and their advisors may be wise to step back and take a broader view of the opportunities. Taxpayers who itemize their deductions may benefit from the deductibility of qualified long-term care insurance premiums. Based on the taxpayer’s age, only a portion of the long-term care insurance premium is deductible. Taxpayers over age 60 with above average income and assets may be interested in long-term care insurance. These individuals may itemize their deductions because they own property and the standard deduction is not in their best interest. Expenses for medical care and insurance premiums are deductible to the extent that they exceed 10% of adjusted gross income. Prior to HIPAA to 2012, most taxpayers in this circumstance would not exceed 7.5% of their adjusted gross income in unreimbursed medical

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expenses. However, with the inclusion of qualified long-term care insurance as an accident and health insurance policy, some taxpayers may benefit. HIPAA states that premiums for tax qualified long-term care insurance are deductible as an accident and health insurance policy. However, unlike other accident and health insurance premiums, the amount of qualified long-term care insurance premiums is limited by a stipulated age to the amount that can be deducted. In 2013, the age “banded” amounts that may be applied towards the taxpayer's un-reimbursed medical expenses are below. Individual taxpayers under age 61 who itemize their deductions may not get much of a tax relief by including the allowable long-term care insurance premium amount in their unreimbursed medical expenses. However, someone age 61+ may benefit. Individual taxpayers, who itemize their deductions, may include the cost of tax qualified long-term care insurance as an accident and health insurance premium. The deductible premium amount allowed is limited by the age-banded amount in that tax year. Premium Tax Deductibility How Much Can Be Deducted?

Banded Age Limits Individuals/Couples

How Much Premium Can Be Deducted? (2013)

AGE: MAXIMUM Premium DEDUCTION: 40 or less: $ 360 / 720 Individual/Couple 41 - 50: $ 680 / 1,360 51 - 60: $ 1,360 / 2,720 61 - 70: $ 3,640 / 7,280 71 or more: $ 4,550 / 9,100

On a joint return, each person can deduct the individual amount shown in the table. These amounts represent individual figures. The following table includes past eligible amounts for deductions. The IRS released the premium limitations for Tax Qualified Long-Term Care Insurance for tax year 2013 (calendar year 2013). The following chart includes the 2013 figures, along with the figures from a variety of five previous years. Eligible Long-Term Care Premium - Limit by Age Group

Age group 2004 2009 2010 2011 2012 2013 Age 40 or less $260 $320 $330 $ 340 $350 $360 Ages 41 to 50 $490 $600 $620 $ 640 $660 $680 Ages 51 to 60 $980 $1,190 $1,230 $ 1,270 $1310 $1360 Ages 61 to 70 $2600 $3,180 $3,290 $ 3,390 $3500 $3640 Ages 71 and older $2250 $3,980 $4,110 $ 4,240 $4370 $4550 (Per Diem Limitation) $230 $280 $290 $300 $310 $320

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What the specific dollar savings would be for them will depend on what tax bracket an individual ultimately is in during a taxable year. For example, a 20% tax bracket on a $2,000 premium for a 70 year old would be $400. For a 35 year old with a $2,000 premium, the 20% could only be applied toward $340 of the premium for a $68 tax savings. The tax savings potential might not be significant enough for the 35 year old to choose the more stringent rules of eligibility in a tax qualified policy. It depends on the individual and their overall suitability issues taken together. These savings are "potential." There are limitations on the amount of the deduction that will prevent some policyholders from claiming the deduction or even a part of it. A long-term care policy with substantial coverage can be bought within these limits shown in the table above. Most taxpayers take advantage of the standard deduction allowed by the IRS. Those who itemize their deductions on their tax return only will be able to deduct all or a portion of the cost of their premium. Less than 30 percent of all taxpayers itemize their deductions on their tax return. Even less of senior citizens itemize their deductions on their income tax forms. This is probably due to the fact that few seniors enough significant interest and expenses. Generally, it is not to their advantage to itemize. The cost of the qualified long-term care insurance premium, plus other qualifying medical expenses, in order to be deductible, must exceed 10% of the taxpayer's adjusted gross income. To begin with, many taxpayers do not have enough non-reimbursed medical expenses to reach the 10% mark. Unless the 10%threshold is exceeded, no deduction can be claimed. Only the portion of medical expenses that exceed 10 percent is deductible. All policies certified by the California Partnership for Long-Term Care are tax qualified. Non-qualified long-term care insurance premiums are not deductible. There are no tax benefits from these premiums. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the tax treatment of these benefit payments received are not considered to be taxable income when a policyholder files a claim for long-term care benefits from their qualified policy. They are not subject to income tax except for certain per diem type reimbursements, then only if the per diem rate exceeds certain amounts ($320 per day in 2013). Health Savings Accounts (Medical IRA Account) Health Savings Accounts (HSA) and their predecessor MSA’s, were established under HIPAA and more recent reforms. Those consumers under age 65, who are willing to take on the responsibility of a larger medical insurance deductible in favor of lower premiums, are provided a tax incentive to do so. Simply stated, the consumer purchases a qualified high deductible medical insurance plan. They are then allowed to make a pre-tax contribution to their HSA account not to exceed (in 2013) $3,250 (individual) or $6,250 (family). "Catch-Up" contribution provisions allow HSA holders to add an additional $1,000 to their account if they are age 55 or older. The money placed in the HSA account grows tax deferred, similar to an IRA or other qualified retirement plan. The funds accumulated can be used to pay for unreimbursed medical expense allowed by IRC Sec. 213(d), deductibles and co-insurance. The money in the HSA can also be used to pay the premiums on a tax qualified long-term care insurance policy up to the age banded limits listed below. HSA’s are achieving acceptance in individual and group health insurance markets. Their applicability depends on the regional make-up of the medical care delivery system, the availability of medical insurance plans in an area, and the pricing disparity between conventional

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“low-deductible” plans and the “high-deductible” plans that qualify for the HSA program. HSA’s represent an opportunity for some consumers to tailor their medical insurance and long-term care insurance priorities in a cost and tax-efficient manner. Deductibility for the Self-Employed Premiums for qualified long-term care insurance paid by an employer on behalf of an employee are deductible to the employer as an accident and health insurance premium. That being said, if the employee is an owner of the business entity some limitations apply. For the purposes of this discussion, self-employed individuals include sole proprietors, partners and owners of S-corporations, limited liability partnerships (“LLP”) and limited liability corporations (“LLC”). An owner is defined as any individual who owns 2% or more of the business entity. While these types of business entities can have a separate tax identification number for the reporting of income, the tax return that is filed is informational in nature only. The profit or loss from the business entity is passed through to the owners pursuant to their share of ownership. Typically, in sole proprietorships and partnerships, spouses are not considered owners. If they are on the payroll, they would be considered employees. Spouses of owners of S-corporations, LLP’s and LLC’s are considered owners regardless of their direct or indirect participation in the business’ activities. With respect to accident and health insurance coverage purchased by one of these entities for a non-owner-employee, premiums are fully deductible. There is no imputed income to the employee of premiums and the benefits pass tax free at the time of the claim. Beginning in 2003 premiums for accident and health insurance are 100% deductible for owners of these entities. It is not necessary for these taxpayers to exceed 10% of adjusted gross income to benefit from the tax code for these expenses. Tax qualified long-term care insurance (considered accident and health insurance for these purposes), falls into this general rule and the 10% AGI threshold does not come into play. The amount allowable for deduction is limited by the previously discussed age-related schedule. Consider a self-employed husband and wife, both age 55 who are considering purchasing a tax qualified long-term care insurance policy with a joint annual premium of $4,000 per year. They would be allowed to deduct $2,380 ($1,190 x 2). If they are in the combined Federal and State tax bracket of 35% their tax savings would be $833 or approximately 21% of premium. Additionally, they may save on their self-employment taxes because the premium amount paid by the business entity would be received not as income, but as an employee benefit. This may save this self-employed couple an additional 15% of the premium paid. Individually or combined, these tax savings provides incentives to owners of these entities to purchase qualified long-term care insurance through their businesses. Agents should always refer clients to insured’s tax advisor for the final analysis of tax impact of long-term care insurance and expenses. Additionally, there are several examples provided in this Attachment that should be included in the course. Deductibility in Closely-Held C-Corporation The fine-line difference between owners of business entities discussed in the previous section and employee owners of closely-held C-corporations is that for the purposes of paying taxes they are considered employees, not owners. Therefore, premiums paid by the C-corporation for

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tax qualified long-term care insurance (a.k.a. accident and health insurance) for stockholder employees is deductible to the corporation. There is no imputed income to the employee stockholder for premiums paid and the benefits will pass tax-free at time of claim. Some believe that this tax treatment of accident and health insurance premiums and benefits means that every employee in the company must receive “like” benefits. Others go to the other extreme and tell consumers that they can discriminate as to who receives such benefits. Both are incorrect. The Internal Revenue Code section 105 clearly indicates that accident and health insurance specifically provided to stockholder employees on a selective basis, without creating a distinguishable class of employees who are eligible for the benefit, is not allowed. The class must be based on employment status. It cannot be based on stock ownership. A class of employees such as “officer employees” can be created for the corporation who are eligible for a specific accident and health insurance benefit. However, they must be employees, not just officers or stockholders. Court decisions on this matter go back to 1968. If the closely-held corporation cannot validate a clear class of employees who are eligible for the benefit then the premiums could be treated as dividends to the stockholder-employee and the premiums are not deductible to the corporation. It is therefore incumbent upon agents and tax advisors to be judicious in recommending and establishing classes eligible for coverage. It is also important for the corporation to establish the plan in their Minutes and to clearly identify the classes of employees that are eligible for benefits. Again, once a bona fide class of employees is established, tax qualified long-term care insurance premiums are deductible to the corporation. There is no income imputed to the employee and the benefits pass tax free at time of claim; however it is important to consult with a tax advisor. Premium Deductibility Through Sec. 125 Plan and Flexible Spending Arrangement Qualified long-term care insurance cannot be included in a Section 125 Cafeteria Plan or flexible spending arrangement; ERISA (Employee Retirement Income Security Act of 1974) Exemption ERISA (Employee Retirement Income Security Act of 1974). Exemption? The Secretary of Labor will enforce these rules for self-insured [ERISA] plans

www.os.dhhs.gov/news/press/1996pres/960821.html Background: The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty. There have been a number of amendments to ERISA, expanding the protections available to health benefit plan participants and beneficiaries. One important amendment, the Consolidated Omnibus Budget Reconciliation Act (COBRA), provides some workers and their families with the right to continue their health coverage for a limited time after certain events, such as the loss of a job. Another amendment to ERISA is the Health Insurance Portability and Accountability

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Act (HIPAA) which provides important new protections for working Americans and their families who have preexisting medical conditions or might otherwise suffer discrimination in health coverage based on factors that relate to an individual's health. Other important amendments include the Newborns' and Mothers’ Health Protection Act, the Mental Health Parity Act, and the Women’s Health and Cancer Rights Act. In general, ERISA does not cover group health plans established or maintained by governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans. ERISA Reporting Requirements If a group health plan has a material or significant reduction in benefits, a description of the change must be given to plan members and their dependents no later than sixty days after the change is effective. As an alternative, group health plans may give plan members and dependents a summary plan description at regular intervals of not more than ninety days. Regulations will further define this requirement. The legislation was approved almost unanimously by the House and Senate. It was designed to improve the availability of health insurance to working families and their children. The Key Provisions

Enforcement. States have primary responsibility to enforce these protection. If states fail to act, the Secretary of Health and Human Services can impose civil monetary penalties on insurers. The Secretary of Labor will enforce these rules for self-insured (ERISA) plans. The tax code is modified to allow the Secretary of Treasury to impose tax penalties on employers or insurance plans that are out of compliance.

Pre-existing Conditions. Workers covered by group insurance policies cannot

be excluded from coverage for more than 12 months due to a pre-existing medical condition. Such limits can only be placed on conditions treated or diagnosed within the six months prior to their enrollment in an insurance plan. Insurers cannot impose new pre-existing condition exclusions for workers with previous coverage.

Long-Term Care Insurance. Minimum federal consumer protection and

marketing requirements are established for tax-qualified long-term care insurance policies, including a requirement that insurers start benefit payments when a policy-holder cannot perform at least two "activities of daily living" (i.e., bathing, eating, toileting, transferring, dressing, and incontinence). Subject to certain limitations, clarifies that long-term care insurance premium payments and unreimbursed long-term care services costs are tax deductible as a medical expense, and benefits received under a long-term care insurance contract are excludable from taxable income. Employer sponsored long- term care insurance is to receive the same tax treatment as health insurance.

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Guaranteed Access for Small Business. Small businesses (50 or fewer employees) are guaranteed access to health insurance. No insurer can exclude an employee or a family member from coverage based on health status.

Guaranteed Renewal of Insurance. Once an insurer sells a policy to any

individual or group, they are required to renew coverage regardless of the health status of any member of a group.

Guaranteed Access for Individuals. People who lose their group coverage (for

example, because of loss of employment or change of jobs to a firm without insurance) will be guaranteed access to coverage in the individual market, or states may develop alternative programs to assure that comparable coverage is available to these people. The coverage will be available without regard to health status, and renewal will be guaranteed.

Fraud and Abuse Control. A new health care fraud and abuse control program

is created, to be coordinated by the HHS Office of the Inspector General and the Department of Justice. Funds for this program are appropriated from the Medicare Hospital Insurance (HI) trust fund;

Self-employed Individuals. The current tax deduction for insurance costs of

self-employed individuals is 80 percent since 2002. Health Savings Accounts. Firms with 50 or fewer employees and self-employed

individuals enrolled in a qualified high deductible health plan can establish tax-favored health savings accounts, or HSAs. (2013) Annual deductibles are $1,250 for individuals and $2,500 for families. (2013) Maximum out- of-pocket expenses are $6,250 for individuals and $12,500 for families.

Medigap Insurance. Revises the notices requirement for health insurance

policies that pay benefits without regard to Medicare coverage or other insurance coverage. Long-term care policies are permitted to coordinate with Medicare and other coverage and must disclose any duplication of benefits.

Viatical Insurance Settlements. A person who is within 24 months of death can

have a portion of their death benefit of a life insurance policy prepaid by the issuing insurance company tax free. Such a person also is allowed to sell his or her life insurance to a viatical settlement company tax free. A chronically-ill individual can sell their life insurance and any long-term care insurance rider tax free; the proceeds of such a sale must be spent on long term care.

Administrative Simplification. All health care providers and health plans that

engage in electronic administrative and financial transactions must use a single set of national standards and identifiers. Electronic health information systems must meet security standards. This should result in more cost-effective electronic claims processing and coordination of benefits.

Health Information Privacy. If Congress does not enact privacy legislation

within three years, health care providers, health plans, and health care

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clearinghouses will be required to follow privacy regulations promulgated by HHS for individually identifiable electronic health information.

Effective Dates. The long term care insurance provisions were effective Jan. 1,

1997. The MSA provisions, Now HSAs, were effective Dec. 31, 1996. The insurance reform provisions were effective July 1, 1997. www.os.dhhs.gov/news/press/1996pres/960821.html

Grandfathered Status of Policies Issued Prior to January 1, 1997 Grandfathered policies under HIPAA are long term care policies issued prior to January 1, 1997. These are policies that would not comply with HIPAA. Either their benefit structures or payment mechanisms were inferior to its guidelines or, in the case of California, the benefit triggers were considered too generous. Legislators left it to the Department of the Treasury to establish guidelines for “grandfathered” policies. In its interim directive on tax qualified long-term care insurance (Notice 97-31, May 1997), the Department of the Treasury indicated that long-term care insurance policies issued prior to January 1, 1997, meeting “long-term care insurance requirements of the State in which the contract was … issued” would be grandfathered in for the purposes of tax qualification unless the policyholder made a “material change” to the policy. Rules for “Material Change” Although the interim directive did not define “material change”, the final regulations issued in December 1998 identified criteria for which a “material change” would result in a policy losing its tax qualified status. The following are treated as “material changes, like below, can result in the loss of tax qualified status:

A change in terms of a contract that alters the amount or timing of an item payable by either the policyholder, the insured or insurance company;

A substitution of the insured under an individual contract; A change (other than a non-material change) in the contractual terms or in

the plan under which the contract was issued relating to eligibility for membership in the group covered under a group contract.

The following, however, are actions that are not considered “material changes” and will not jeopardize the policy’s grandfathered status:

Regarding premiums: a change in the mode of premium payment; an increase or decrease in premiums for all contracts that have been issued on a guaranteed renewable basis; a reduction in premiums due to the purchase of a long-term care insurance policy by a member of the policyholder’s family; a reduction in premium due to a reduction in coverage made at the request of a policyholder; a reduction in premiums that occurs because the policyholder becomes entitled to a discount under the issuer’s pre-1997 premium rate structure (such as a group or association discount or change from smoker to non-smoker status); the addition, without an increase in premiums, of alternative forms of benefits that may be selected by the policyholder.

Regarding riders: the addition of a rider to increase benefits under a pre-1997 contract if the rider would constitute a qualified long-term care insurance contract if it were a separate contract; the deletion of a rider or provision of a

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contract (called an HHS – Health and Human Services – rider) that prohibited coordination of benefits with Medicare.

Other actions include: the effectuation of a continuation or conversion of coverage right under a group contract following an individual’s ineligibility for continued coverage under the group contract; the substitution of one insurer for another in an assumption reinsurance transaction; the expansion of coverage under a group contract caused by corporate merger or acquisition; the extension of coverage to collectively bargained employees; the addition of former employees.

Note: The critical message for consumers is that anytime a consumer considers replacing a policy issued prior to January 1, 1997, great caution must be exercised. A pre-HIPAA policy may contain provisions that might make it easier to qualify for benefits: for example, 2 out of 7 activities of daily living instead of the 2 out of 6 required by HIPAA; a medical necessity benefit trigger that is prohibited in HIPAA; no HIPAA 90-day certification requirement; the benefits of a pre-HIPAA policy do not require coordination with Medicare, which increases the amount available to pay for long-term care. Implications for Replacement When the policy was issued determines what the actual rules governing replacement and the consequences will depend on. In California - Pre-1997 Policy (issued before Dec 31, 1997) CIC §10232.2 Tax Treatment: Policies are “grandfathered” They receive the same tax benefits as the new policies that comply with the new law LTC policies or certificates in California issued before December 31, 1997 that were “federally non-tax qualified” and had some home care benefits received special consideration that would allow them to retain their tax-qualified status in the future. Eligibility for Benefits: What may make it easier to qualify for benefits in pre-1997 policies than required triggers in TQ policies are eligibility triggers. If the insured meets one or two following criteria, this is possible (a) inability to perform two activities of daily living, or (b) impairment of cognitive ability. The policy or certificate may provide for the lesser eligibility criteria. The commissioner can also approve other criteria if the insurer shows that the insured is better served (Source: AB 1483, Sec. 4, 10232.8). All insurers that offers policies or certificates that are intended to be federally qualified long-term care insurance contracts, including riders of life insurance contracts providing long-term care coverage, must fairly and concurrently offer and market long-term care insurance policies or certificates that are not intended to be federally qualified. Every long-term care insurance contract, including riders to life insurance contracts providing long-term care coverage, approved after January 1, must meet all of the following:

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Until January 1, 1999, or 90 days after approval of contracts submitted for approval, whichever comes first, insurers were allowed to continue to offer and market previously approved long-term care insurance contracts.

Group policies issued prior to January 1, 1997, must be allowed to remain in

force and not be required to meet the requirements of this chapter, as amended during the 1997 portion of the 1997-98 Regular Session, unless those policies cease to be treated as federally qualified long-term care insurance contracts. If such a policy or certificate issued on such a group policy ceases to be a federally qualified long-term care insurance contract under the grandfather rules. The insurer must offer the policy and certificate holders the option to convert, on a guaranteed-issue basis, to a policy or certificate that is federally tax qualified if the insurer sells tax-qualified policies.

Until October 1, 2001, insurers could continue to offer and market previously

approved long-term care insurance contracts.

Group policies issued prior to January 1, 1997, must be allowed to remain in force and not be required to meet the current requirements, unless those policies cease to be treated as federally qualified long-term care insurance contracts.

If a policy or certificate issued on a group policy of that type ceases to be a

federally qualified long-term care insurance contract under the grandfather rules, the insurer must offer the policy and certificate holders the option to convert, on a guaranteed-issue basis, to a policy or certificate that is federally tax qualified if the insurer sells tax-qualified policies.

Tax Consequences of Making “Material Modifications” to Existing Policies CIC §10232.96 Department of Treasury, material modification rules, interim guidance): Favorable Tax Treatment Can be Retained If the insurance contract specifically allows for the change in benefits requested by a policyholder, ie. add a non-forfeiture rider, favorable tax treatment can be retained in pre 1/1/97 policies. Favorable Tax Treatment Can Be Lost If the change materially modifies the existing contract, favorable tax treatment can be lost. For policies issued prior to December 31, 1996, when a policy or certificate holder of an insurance contract, requests a material modification to the contract as defined by federal law or regulations, the insurer, prior to approving such a request, shall provide written notice to the policy or certificate holder that the contract change requested may constitute a material modification that jeopardizes the federal tax status of the contract and appropriate tax advice should therefore be sought. Legal Consequences of Making Material Modifications CIC §10232.96

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Almost any change, as it stands currently, will be considered to be a material modification, which would jeopardize the grandfathered tax qualified status of their policy, California’s SB 1052 added legislation to protect consumers. It requires the insurance company to notify the policy or certificate holder of any policy issued prior to December 31st, 1996 that by requesting a change they could cause the loss of their tax preferred status. This has to be done when the policyholder or certificate holder makes a request for modification. The company notice must be sent prior to any change actually being made. This precludes insurers from making changes without notifying policy holder that such changes may jeopardize federal tax treatment. Policy Issued After New California Legislation Becomes Effective (October 5, 1997) CIC §10235.52(C) Conversion When Insurer Offers New Benefits or Eligibility Rules Circumstances under which a policyholder would acquire the right to convert to a new policy. Every policy must contain a provision that provides for an insurer’s policyholders to have the option and privilege to convert to a new policy under specific circumstances as provided by what this regulation requires. The insurer must grant current holders of its policies some specific rights if the insurer develops new benefits or eligibility to benefits that were not previously offered. Also, every policy must contain a provision that, in the event the insurer develops new benefits or benefit eligibility or new policies with new benefits or benefit eligibility not included in the previously issued policy, the insurer will grant current holders of its policies who are not in benefit or within the elimination period the following rights:

By adding a rider to the existing policy and paying a separate premium for the new benefits or benefit eligibility based on the insured's attained age. The premium for the existing policy will remain unchanged based on the insured's age at issuance.

The policyholder will be notified of the availability of the new benefits or benefit

eligibility or new policy within 12 months. The insurer's notice must be filed with the department at the same time as the new policy or rider.

The insurer must offer the policyholder new benefits or benefit eligibility in one of

the following ways: The insured may be required to undergo new underwriting, but the underwriting

can be no more restrictive than if the policyholder or certificate holder were applying for a new policy or certificate.

The insurer of a group policy must offer the group policyholder the opportunity to

have the new benefits and provisions extended to existing certificate holders, but the insurer is relieved of the obligations imposed if the holder of the group policy declines the issuer's offer.

By replacing the existing policy or certificate

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By replacing the existing policy or certificate with a new policy or certificate in which case consideration for past insured status must be recognized by setting the premium for the replacement policy or certificate at the issue age of the policy or certificate being replaced.

This section became operative on June 30, 2003. CIC §10235.52(C)

Reporting of Tax Qualified Long-Term Care Benefits HIPAA also establishes a reporting mechanism for benefits received under all long-term care insurance policies. Similar to disability insurance, if a policyholder receives benefits from a long- term care insurance policy, they will receive an IRS 1099 LTC Form issued by the carrier. Benefits reported on the 1099 must also be reported on IRS Form 8853. The 1099 form must identify the method of benefit payment (reimbursement or per diem) but does not need to determine the tax qualified status of the actual long-term care insurance policy from which the benefits were paid. Form 8853, which contains the medical savings and the IRS 1099 information, adds additional questions to the taxation of non-qualified benefits because it provides a vehicle for these benefits to be taxed. Despite continuing confusion, neither the Department of the Treasury nor Congress have clarified this matter. The insurance carrier is required to report to the IRS on Form 1099-LTC on how much the amount paid for long-term care benefits for the year that the payment was made. Both the tax code and the federal government through HIPAA are silent on how benefit payments made under a non-federally qualified policy should be reported. It is not possible to give an absolutely correct answer at this time on benefit taxation. Agents should refer their clients to their accountants or other qualified advisors in how they should view tax benefits for their particular situation. Only Congress, the Internal Revenue Service, or a tax court can give the ultimate answer. It may be easier to qualify for benefits from non-tax qualified policies that use the standards established by California. Policies sold as federally tax qualified long-term care insurance use a standard of eligibility for benefits that may be stricter than the standards established in California for non-qualified policies. Their long-term care insurance agent can advise them if one has questions about the tax status of a policy they own or one they are considering buying. They should talk to their tax advisor to see how it will affect their individual taxes if they have specific questions pertaining to how the purchase of tax qualified long-term care insurance will impact the deductions they take or the taxes they pay. CA Long-term care Rate Guide-A Guide to Long-Term Care HIPAA also allows Life Insurance Contracts to Pay an Accelerated Benefit in the Event the Insured Suffers a Chronic Illness as Defined Section 101(g)(1) of the Internal Revenue Code governs the accelerated payment of death proceeds on the life of a terminally or chronically ill insured. HIPAA added section 7702B to the IRC which specified the definition of ‘chronic illness’. Essentially, if the qualifying event for benefits matches the chronic illness definition established by HIPAA, the early payout of the death benefit for long-term care expenses will not be taxed as income. However, the payments cannot exceed the per diem limits ($320 in 2013) and must comply with other provisions of the NAIC Model for long-term care insurance.

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Silent on Chronic Illness Riders in Annuity Contracts Both the tax code and the federal government through HIPAA are silent on how benefit payments made under a chronic illness riders in annuity contracts. It is not possible to give an absolutely correct answer at this time on benefit taxation. Agents should refer their clients to their accountants or other qualified advisors in how they should view tax benefits for their particular situation. Only Congress, the Internal Revenue Service, or a tax court can give the ultimate answer.

NAIC Consumer Protection Required for TQ LTCi by HIPAA

Qualified long-term care insurance policies are required to meet specific consumer protection guidelines of the 1993 National Association of Insurance Commissioners Model Act and Regulations for Long-term Care Insurance. Many of the consumer protections in the NAIC Models had already been adopted in California with the passage of Senate Bill 1943, Chapter 1132, Statutes of 1992, that included protections related to the following: guaranteed renewal or non-cancellation of the policy; prohibitions on exclusions and limitations; extension of benefits and conversions; replacement; unintentional lapse; post-claim underwriting; requirement to offer inflation protection and rejection by consumer; restrictions on preexisting conditions and probationary periods; disclosure; and, non-forfeiture provisions.

Protection Act of 2006

The Pension Protection Act of 2006 (PPA), like HIPAA, is an enormous piece of legislation that addresses hundreds of disparate issues. Also like HIPAA, a very small portion (section 844) deals with long-term care insurance and riders that are part of life insurance or annuity contracts. The PPA not only provides tax clarification of long term care insurance (LTCI) combination policies, but also the ability to pay LTCI premiums in a tax-advantaged way using life insurance or annuity cash values. President George W. Bush, on Aug. 17, 2006, signed a bill that could permanently change the way long term care insurance is sold. Although the Pension Protection Act of 2006 (PPA) became law more than three years ago, most of its long term care insurance provisions took effect Jan. 1, 2010. Affirms HIPAA PPA affirms HIPAA as it pertains to life insurance contracts and accelerated benefit riders (ABRs). Over the years, accelerated benefit riders have appeared in various life insurance policies with a promise to pay part of the death benefit (generally 2% to 4% monthly) if a qualifying event other than death occurs; e.g. disability, critical illness, cancer, terminal or chronic illness. Due to the legislation included in the Pension Protection Act of 2006, owners of new, specially designed annuities can take cash withdrawals from annuity contract values for qualifying long-term care expenses, free of income taxes, regardless of the cost basis as long as the benefit

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doesn’t exceed the greater of the actual cost of long term care or that year’s daily benefit cap prescribed in HIPAA for taxation purposes. Benefit payments from LTC insurance riders and cash value withdrawals to pay for LTC insurance premiums also are not taxable. Takes Effect January 1, 2010 The PPA clarifies that, effective Jan. 1, 2010, the LTCI cost can be paid on a tax-free basis for linked benefit life (or annuity) contracts purchased Jan. 1, 1997 or later. Also, as with combination life/LTCI policies, the internal transfer to pay the LTCI cost in an annuity/LTCI is tax-free. Definition of Chronic Illness Must Match HIPAA Section 101(g)(1) of the Internal Revenue Code governs the accelerated payment of death proceeds on the life of a terminally or chronically ill insured. HIPAA added section 7702B to the IRC which specified the definition of ‘chronic illness’. Essentially, if the qualifying event for benefits matches the chronic illness definition established by HIPAA, the early payout of the death benefit for long-term care expenses will not be taxed as income. However, the payments cannot exceed the per diem limits ($300 in 2011) and must comply with other provisions of the NAIC Model for long-term care insurance. If an individual meets the definition of chronic illness according to HIPPA, the Act, affirms the rules allowing LTC insurance benefits, paid out of these plans (even if a portion of those serves to reduce account values in the underlying annuity), to be paid as tax-free LTC insurance benefits. Immediate annuities and single premium deferred annuities may contain these same qualified chronic illness benefits. Prior to HIPPA there was no mechanism that allowed for gains in annuity contracts to be paid out on a tax-free basis. Internal Growth on Annuity May be Used to Pay for LTC Benefit Per PPA, the premiums (or charges) for this coverage can be deducted from the internal growth of the annuity without a taxable event (income) to the annuitant. In addition, if the annuitant qualifies for care, the long-term care benefits payments from the annuity will be received income tax free. One of the central points is that the long-term care benefits must be consistent with the HIPAA--if it looks like qualified long-term care insurance, it is qualified long-term care insurance. A typical product design for a single premium deferred annuity (SPDA/LTCI) combo product will provide a long-term care benefit that is generally a multiple of the annuity account value. The payout will be delivered over a certain number of months, 24, 36 or 48. While examples will vary by insurance carrier, age and health conditions, let’s say that the insured wants $6,000 per month of benefit for 48 months ($6,000 X’s 48 = $288,000). To get that $288,000 benefit, the policy holder may have to place $100,000 into the SPDA combo product. A risk charge will be taken from the accumulation of the product to provide the additional $188,000 of coverage. The first money out of the SPDA to pay the long-term care benefit will be the insured’s initial premium to the plan. If the policyholder dies before their contribution is exhausted a beneficiary will receive the difference. Once benefits are paid beyond the initial premium the insurance company will continue to pay benefits until they are exhausted. The risk charge for the benefit beyond the premium will generally be between one-half to 1.25 basis points. In other words, if a typical SPDA was paying a return of 5.5%, the combo plan may only pay 4.5%. Again, since the long-term care benefit under the program qualifies under IRC section 7702B, the cost of the long-term care benefit will not be a taxable event to the insured. Long-term care benefit

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payments will reduce the basis of the annuity for income tax purposes. This may create a larger tax burden on heirs of the annuity owner after death. Charges that are assessed against the life or annuity contract's cash value that fund a long-term care rider are excluded from gross income. Under prior law, these were treated as taxable distributions. In short, the Act allows LTC insurance to be paid from the cash value of life insurance and annuities on a before tax basis. Payment made in this manner will, however, reduce the investment in the contract. In addition, any such payment will not be deductible under Code Section 213. These limitations do not change the fact that the new rules will allow a significant tax advantaged method of paying for LTC. Allows for 1035 Exchange While 1035 exchanges offer the opportunity for tax savings and ease of premium payment, agents should be aware that there may be adverse consequences. For example, surrender charges may apply to 1035 exchanges from a life or annuity contract. If one is doing an annual partial 1035 from a life insurance contract in order to fund an annual LTCI premium, clients will want to put enough cash into the policy to avoid a contract lapse, even though the distribution is tax-free. The law allows for 1035 exchanges into Annuity/LTC combination plans from an annuity without riders or LTC benefits. Section 1035 of the Code was amended to allow for tax-free exchanges of life insurance contracts, annuity contracts, endowment contracts and qualified LTC contracts for qualified LTC contracts. The Act clarifies that life insurance and annuity contracts containing long-term care features will be eligible for tax-free exchange treatment. Regarding internal cash value growth, the Act provides for new rules regarding the use of a combined contract's overall cash value to fund the long-term care portion of the contract. Additional Items as they Develop As they develop, agents must observe new legislation and the affect on long term care.

Patient Protection and Affordable Care Act (PPACA) One and a half million people are in nursing homes today. An estimated 65 percent of those who are 65 today will spend some time at home in need of long-term care services, at an average cost of $18,000 per year. Long-term supports and services are not affordable or accessible for millions of Americans. Five million people under age 65 living in the community have long-term care needs and over 70,000 workers with severe disabilities need daily assistance to maintain their jobs and their independence. Roughly 9 million elderly Americans will need help with activities of daily living (ADLs) during the current year, and by 2030 that number will increase to 14 million. Many people who need long term services and supports rely on unpaid family and friends to provide that care, but ultimately are forced to impoverish themselves to qualify for Medicaid, which remains the primary payer for these services. Note: As of 2013, the CLASS program under the PPACA has not been authorized or implemented as its cost was determined to be prohibitive and unsustainable. We describe the program here for future reference should it be implemented in the future. Affordable premiums will be paid through payroll deductions if an individual’s employer decides to participate in the program. Participation by workers is entirely voluntary. CLASS is a

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voluntary, self-funded, insurance program with enrollment for people who are currently employed. The CLASS Act will provide a lifetime cash benefit that offers people with disabilities some protection against the costs of paying for long term services and supports, and helps them remain in their homes and communities. Those whose employers do not offer the benefit or self-employed people will also be able to join the CLASS program through a government payment mechanism. Individuals qualify to receive benefits when they need help with certain activities of daily living, have paid premiums for five years, and have worked at least three of those five years. Beneficiaries receive a lifetime cash benefit based on the degree of impairment, which is expected to average roughly $75 a day or more than $27,000 per year. Benefits can be used to offset the costs of assistive living and nursing home care. Benefits can also be used to maintain independence at home or in the community, and should be sufficient to cover typical costs of home care services or adult day care. It's a publicly sponsored insurance plan, to make it as low-cost as possible. The act "creates a national insurance trust that people can voluntarily participate in. One pays a monthly premium. If they become disabled and need assistance with activities of daily living at any age, they can qualify for a daily cash benefit on the order of about $50 to $75 a day, depending on their level of disability. The legislation does not set specific benefits. The Secretary of Health and Human Services will develop the details. The law states that "No taxpayer funds shall be used for payment of benefits under a CLASS Independent Benefit Plan...the term ‘taxpayer funds’ means any Federal funds from a source other than premiums....and any associated interest earnings" The law requires that the program be self-supported by premiums.

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Chapter 5 California Statutory Policy Provisions, Requirements, and

Terminology

Introduction and Topic Objectives This section addresses California Statutory Policy Provisions, Requirements, and Terminology. What California Did to Implement HIPAA While there have been different requirements concerning this issuer requirement since the HIPAA introduction in 1996, currently issuers of long-term care insurance policies may offer either or both types of policies, upon state approval, in California. California TQ vs. California NTQ Not all carriers offer non-tax qualified policies except in California where they are required to offer both types. Non-tax qualified policies do not require a 90 day certification and can have more flexibility in the benefit triggers. These policies vary greatly between carriers. With some of the non-tax qualified policies, all that is needed to trigger benefits is one’s doctor’s certification that the care is medically necessary. While this is no longer a requirement, there was a point in time where issuers had to offer non-qualified policies if they issued tax-qualified policies. Possible Issues and Implications Policies that are tax qualified allow the taxpayer to deduct some or all of their premiums from their federal and state income taxes as a medical expense. The amount of premium that can be deducted is based on age combined with medical expenses that exceed 10% of adjusted gross income. Benefits paid under these policies won’t be taxed as income. The premiums for non-tax qualified policies cannot be deducted and there is no guarantee that the benefits will be tax-free. However, these policies exceed the federal requirements for when benefits can be paid, and people may qualify for benefits sooner than they would with a tax-qualified policy. Premiums are based on choices made when one buys a policy. The choices are:

which type of policy one wants to buy, the amount of the daily benefit that will be paid, the number of years one wants the policy to pay benefits, the number of days (if any) before the company begins paying benefits after one

is eligible for benefits, and inflation protection.

These five factors combined with one’s age when he or she buys the policy determine the premium one will pay. Premiums can range from a few hundred dollars a year if one buys at age 45, to several thousand dollars a year if one buys at age 75. In addition, each company calculates their costs differently and there can be substantial differences between premiums for

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similar benefits from each company. Premiums for the daily benefit are usually calculated for each $10 of the daily benefit one chooses. For instance, if a company charges $95 for each $10 of daily benefit at one’s current age, a daily benefit of $100 will cost $950 a year. Premiums for these policies can increase, and some have in past years. When one buys a long-term care policy the agent must give their client a Personal Worksheet that will tell them if that company has had a rate increase anywhere in the country since 1990. It will also tell how much the premiums increased, and in which states. The government has set forth guidelines that must be strictly followed before a policy can be tax qualified.

Modified for tax qualified policies Medical necessity can no longer be utilized as a benefit trigger. Uses NAIC model of Activities of Daily Living – eating, toileting, transferring,

bathing, dressing, continence Care received must be certified by a Licensed Health Care Practitioner (does not

apply to “grandfathered” LTC policies) as a result of (1) being unable to perform (without substantial assistance from another individual) at least 2 Activities of Daily Living “expected “ to last for a period of 90 days due to a loss of functional capacity, or (2) requiring substantial supervision to protect oneself from threats to health and safety due to severe Cognitive Impairment.

Non-Qualified Policies are not intended to meet the definition under section 7702B(b) of the IRC. Benefits received under a Non-Qualified plan may have some adverse tax consequences. While some marketing material indicates the entire policy payment will be taxable, recognize that the costs for nursing home care are a deduction against 10% of Adjusted Gross Income. California Definitions of the ADL & Differences The inability to perform a certain number of “activities of daily living,” or ADLs, is the most common way insurance companies decide when one is eligible for long-term care benefits. Typically, a policy pays benefits when an individual cannot do either two or three of them. The most commonly used ADLs are Bathing, Continence, Dressing, Eating, Toileting (moving on and off the toilet), and Transferring (getting in and out of bed). Research has shown that bathing usually is the first ADL a person cannot do, according to the National Association of Insurance Commissioners (NAIC). Qualifying for benefits under a policy that only uses five ADLs may be hard if bathing is not one of the five. California law requires one set of ADL definitions for policies using the California eligibility standards and another set for policies using the federally tax qualified eligibility standards.

Non-TQ Benefit Triggers CIC §10232.8 “Non-Tax Qualified” requires an individual to perform 2 of 7 ADLs (bathing, dressing, eating, ambulating, continence, transferring, toileting) or there must be a cognitive impairment or care certified by a physician as essential to one’s health, safety and welfare. Additionally, an individual may qualify for Personal/Homemaker Care if he or she cannot perform 2 out 7 Instrumental ADLs (meal preparation, telephoning, shopping/travel, handling money/bill paying, light housekeeping, mediation management, laundry). “Impairment in two out of seven Activities of Daily Living (ADL) or Cognitive impairment

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eating, bathing, dressing, ambulating, transferring, toileting and continence in California. In every long-term care policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits, the threshold establishing eligibility for home care benefits is at least as permissive as a provision that the insured will qualify if either one of two criteria are met:

• Impairment in two out of seven activities of daily living; or • Impairment of cognitive ability.

“The policy or certificate may provide for lesser but not greater eligibility criteria. The commissioner, at his or her discretion, may approve other criteria or combinations of criteria to be substituted, if the insurer demonstrates that the interest of the insured is better served.” CIC §10232.8 (a)(b) ADLs Are: “In every policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits "activities of daily living" will include eating, bathing, dressing, ambulating, transferring, toileting, and continence. Here are the formal definitions: §10232.8 Non-TQ Definitions of the Seven ADLs

Eating, which shall mean reaching for, picking up, and grasping a utensil and cup; getting food on a utensil, and bringing food, utensil, and cup to mouth; manipulating food on plate; and cleaning face and hands as necessary following meals.

Bathing, which shall mean cleaning the body using a tub, shower, or sponge bath, including getting a basin of water, managing faucets, getting in and out of tub or shower, and reaching head and body parts for soaping, rinsing, and drying.

Dressing, which shall mean putting on, taking off, fastening, and unfastening garments and undergarments and special devices such as back or leg braces, corsets, elastic stockings or garments, and artificial limbs or splints.

Toileting, which shall mean getting on and off a toilet or commode and emptying a commode, managing clothing and wiping and cleaning the body after toileting, and using and emptying a bedpan and urinal.

Transferring, which shall mean moving from one sitting or lying position to another sitting or lying position; for example, from bed to or from a wheelchair or sofa, coming to a standing position, or repositioning to promote circulation and prevent skin breakdown.

Continence, which shall mean the ability to control bowel and bladder as well as use colostomy or catheter receptacles, and apply diapers and disposable barrier pads.

Ambulating, which shall mean walking or moving around inside or outside the home regardless of the use of a cane, crutches, or braces. §10232.8

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The first 6 out of 7 ADLs above are similar for qualified and non-qualified. The additional one for the 7 category considered for non-qualified above is ambulating which is defined last in the list. It is not included in the qualified federal list in the next section.” ADL Impairment” Means "Impairment" means that the insured needs human assistance, or needs continual substantial supervision; §10232.8 Cognitive Impairment Defined "Impairment of cognitive ability" means deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer's disease or related illnesses, that requires continual supervision to protect oneself or others. CIC §10232.8 (a)(b) Tax Treatment of Long-Term Care Expenses TQ Benefit Triggers CIC §10232.8 The benefit triggers in tax-qualified policies are required to meet criteria mandated by the Health Insurance Portability and Accountability Act. As part of the benefit trigger, all tax-qualified policies require a certification from a medical practitioner that one’s care is expected to last at least 90 days. In addition to this one must also need help with either of the two of these benefit triggers. An individual needs help with at least two of at least 5 of the activities of daily living: bathing, dressing, continence, eating, toileting, and transferring. (California requires insurance companies to use all six ADLs) or supervision due to a severe cognitive impairment (to the point that the individual is a threat to him or herself or others). If the federal government expands triggers, the department must issue emergency regulations. “Tax Qualified” standard is to perform 2 of 6 ADLs (bathing, dressing, eating, continence, transferring, toileting) or there must be a severe cognitive impairment. If an individual can’t do one “ADL” there is a very good chance one cannot do another “ADL”. So the 2 out of 6 ADLs that most companies have as a trigger (along with supervisory attention) is not that hard...if one has a problem. With tax qualified plans it adds language that one’s health care provider says that they “expect” a person to need care for at least 90 days. This is to separate long-term care from a sprained ankle. Many feel that the 2 of 6 ADLs are fine as a trigger especially if the contract includes “stand-by” assistance. That means an individual can still perform “ADLs” but he or she needs somebody to “stand-by” just in case. TQ Definitions CIC §10232.8 (c) ADLs Excludes Ambulating The inability to ambulate becomes more and more important as a person ages. HIPAA does not include ambulating as an activity of daily living. Under HIPAA's qualified long term care plans, the ability to ambulate plays no part, which means benefits are not based on a person's inability to do so. ADL Impairment ADL impairment = ‘substantial assistance (either hands-on or standby) due to loss of functional capacity’.

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Substantial Assistance “For the purposes of the activities of daily living, IRS Notice 97-31 (1997) allows substantial assistance to be defined to mean both hands-on assistance and standby assistance.

Hands-On Assistance: means the physical assistance of another person without which the individual would be unable to perform the ADL.

Stand-By Assistance: means the presence of another person within arm’s reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL.” IRS Notice 97-31 (1997)

Cognitive Impairment Cognitive impairment = needs substantial supervision due to severe cognitive impairment’ Impairment of Cognitive Ability This means the insured needs substantial supervision due to severe cognitive impairment; Chronically Ill Individual Definition The IRS defines “qualified long-term care services” as:

“Necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services and maintenance and personal care services required by a chronically ill individual pursuant to a plan of care prescribed by a licensed health care practitioner.”

To control when the cost of long-term care services could receive favorable tax treatment, Congress established a trigger basis for initiating benefits by tying services to a state of disability defined as a chronically ill individual. “A chronically ill individual must be certified by a licensed health care practitioner within the previous 12 months as one of the following:

The insured is unable, for at least 90 days, to perform at least two activities of

daily living (ADL’s) without substantial assistance from another individual, due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing and continence.

The insured requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.”

This standardized definition of a chronically ill person cannot be altered in any way by state law, and it is the only definition allowed to receive the favorable tax treatment for the cost of long-term care services.

Impairment in two out of six ADLs - HIPAA complaint – consistent with the definition of a chronically ill individual for the purposes of deducting LTC expenses as a medical expense

“In every long-term care policy approved or certificate issued after the effective date of the act adding this section, that is intended to be a federally qualified long-term care insurance, the

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threshold establishing eligibility for home care benefits shall provide that a chronically ill insured will qualify if either one of two criteria are met or if a third criterion, as provided by this subdivision, is met:

Impairment in two out of six activities of daily living. Severe Impairment of cognitive ability.

“Other criteria will be used in establishing eligibility for benefits if federal law or regulations allow other types of disability to be used applicable to eligibility for benefits under a long-term care insurance policy.” TQ ADLs Are: “Activities of daily living in every policy or certificate that is intended to be a federally qualified long-term care insurance include eating, bathing, dressing, transferring, toileting, and continence; Here are their definitions: §10232.8 In policies based on ADLs, a physician, nurse, case manager, gerontologist, or other health care professional certifies that a policyholder needs “hands on” help, supervisory “stand by” help, or directional “reminding” help to perform everyday living activities. ADLs are as follows: TQ Definitions of the Six ADLs

Eating, which shall mean feeding oneself by getting food in the body from a receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously.

Bathing, which shall mean washing oneself by sponge bath or in either a tub or

shower, including the act of getting into or out of a tub or shower. Continence, which shall mean the ability to maintain control of bowel and

bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).

Dressing, which shall mean putting on and taking off all items of clothing and

any necessary braces, fasteners, or artificial limbs. Toileting, which shall mean getting to and from the toilet, getting on or off the

toilet, and performing associated personal hygiene. Transferring, which shall mean the ability to move into or out of bed, a chair or

wheelchair. §10232.8 “Impairment in activities of daily living means the insured needs "substantial assistance" either in the form of "hands-on assistance" or "standby assistance," due to a loss of functional capacity to perform the activity.” §10232.8 Cognitive Ability Impairment This means the insured needs substantial supervision due to severe cognitive impairment.

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The deterioration or loss of one’s intellectual capacity, confirmed by clinical evidence and standardized tests, in the areas of: (1) short term and long-term memory; (2) orientation to person, please and time; and (3) deductive or abstract reasoning. This is a trigger for long-term care benefits. Recognize, however, that tax qualified policies require “severe” cognitive loss. The issue is just exactly what is defined as “severe?” Cognitive Impairment (Severe) is a loss or deterioration in mental capacity that is comparable to Alzheimer’s Disease and similar forms of irreversible dementia, and is documented by clinical evidence and standardized tests of memory, orientation as to people, places, and time; and deductive or abstract reasoning. Tax-qualified policies must require that cognitive impairment be “severe” in accordance with this definition. Severe Cognitive Impairment is a deterioration in intellectual capacity that is both comparable to (and includes) Alzheimer’s disease and similar forms of irreversible dementia and measure by clinical evidence and standardized tests. The problem is that the definition is insufficient in clearly stating what is “severe” as defined in tax-qualified policies. Alzheimer’s diagnosis is the definition of severe generally used by some physicians and is so restrictive as to limit the trigger for an extended period of time. While tax qualified policies are less expensive by around 10%, they may be debatable if care is not offered when needed. Medical Necessity A third trigger beyond those listed previously usually means one’s doctor has certified that their medical condition will deteriorate if they do not receive the care recommended. Federal law prohibits the use of a medical necessity trigger in tax-qualified long-term care insurance policies However, Under California law, an insurer is not allowed to require that your benefits also be "medically necessary" before the company will pay. Severe Cognitive Impairment Severe Cognitive Impairment & Substantial Supervision to protect the health and safety of the chronically ill individual Severe cognitive impairment This is defined “as a loss or deterioration in intellectual capacity that is similar to Alzheimer’s disease and like forms of irreversible dementia and is measured by clinical evidence and standardized tests that reliably measure impairment in short-term and long-term memory, orientation to people, places or time and deductive or abstract reasoning.” The 90-day certification by a LHP is not a requirement for qualification under the cognitive impairment trigger. Similar to the ADL qualification however, the insured must be re-certified every 12 months to ensure that they still qualify for benefits. Taxpayers and tax preparers must document an ADL or cognitive impairment consistent with HIPAA rules in order to deduct long-term care expenses as a medical expense. Many tax preparers miss this point and it could be a critical matter during a tax audit. If Federal Government Expands It’s Triggers The California Insurance Department, if the federal government expands its triggers in the future, will issue emergency regulations to bring their regulations into compliance and to clarify

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the California issues to the extent they are impacted by the Federal changes or expansion, department must issue emergency regulations. In California, The commissioner will promulgate emergency regulations to add those other criteria as a third threshold to establish eligibility for benefits if federal law or regulations allow other types of disability to be used,. Insurers must submit policies for approval within 60 days of the effective date of the regulations. The department is authorized to review only the changes made to the policy with respect to policies previously approved. No policy can be sold that does not include the third criterion after one year beyond the effective date of the regulations. An insured meeting this third criterion shall be eligible for benefits regardless of whether the individual meets the impairment requirements regarding activities of daily living and cognitive ability. All new policies approved and certificates issued after the effective date of the regulation must include the third criterion. California Definition of LHP & Relationship to Insurance Carrier TQ “Licensed Health Care Practitioner” Independent of Insurer CIC §10232.8(c) “Licensed Health Care Practitioner = MD, RN or LSW "licensed health care practitioner" means a physician, registered nurse, licensed social worker, or other individual whom the United States Secretary of the Treasury may prescribe by regulation”; “Licensed Health Care Practitioner = MD, RN or LSW "licensed health care practitioner" means a physician, registered nurse, licensed social worker, or other individual whom the United States Secretary of the Treasury may prescribe by regulation”; LTC policies that are tax-qualified require that a policyholder be certified as “chronically ill” by a licensed health care practitioner. This means that the policyholder is not able to perform without substantial assistance for at least 2 ADLs for a period of at least 90 days. The requirement of 90-days does not imply a waiting period for payment of benefits or a time during which services are not considered qualified long-term care services. Policies that are tax-qualified may therefore pay benefits from the beginning of services, providing the services are expected to be needed for at least 90 days. A licensed health care practitioner, independent of the insurer, shall certify that the insured meets the definition of “chronically ill individual.” If a health care practitioner makes a determination, pursuant to this section, that an insured does not meet the definition of “chronically ill individual,” the insurer shall notify the insured that the insured shall be entitled to a second assessment by a licensed health care practitioner, upon request, who shall personally examine the insured. The requirement for a second assessment shall not apply if the initial assessment was performed by a practitioner who otherwise meets the requirements of this section and who personally examined the insured. The assessments conducted pursuant to this section shall be performed promptly with the certification completed as quickly as possible to ensure that an insured’s benefits are not delayed. The written certification shall be renewed every 12 months. The LHP must be independent of the insurance company and “shall not be compensated in any manner that is linked to the outcome of the certification” CIC 10232.8(c). These can include doctors, nurses, social workers, chiropractors, Christian Science practitioners, mental health

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professionals, and other licensed therapists. The Internal Revenue Service defines the licensed health care practitioner (LHP) in very general terms. Agents can find an expanded source of information on this in IRS Publication 502 which includes an extensive list of licensed health care practitioners. California Insurance Code Section 10232.8(c) narrows the list by “specifying the role of the LHP in the certification, assessment, and plan of care of the insured for the purposes of the claims process. Federal and State law requires the certification of the insured’s assessment be renewed every 12 months.” Assessment and Plan of Care Plan of Care = needs + type, frequency, providers, cost "Plan of care" means a written description of the insured's needs and a specification of the type, frequency, and providers of all formal and informal long-term care services required by the insured, and the cost, if any”. A plan prescribed by a licensed health care practitioner that identifies ways of meeting one’s need for long-term care services. Plan of care means a written description of the insured’s needs and a specification of the type, frequency, and providers of all formal and informal long-term care services required by the insured, and the cost, if any. Until the time that these definitions may be superseded by federal law or regulation, the terms “substantial assistance,” “hands-on assistance,” “standby assistance,” “severe cognitive impairment,” and “substantial supervision” shall be defined according to the safe-harbor definitions contained in Internal Revenue Service Notice 97-31, issued May 6, 1997. A licensed health care practitioner shall develop a written plan of care after personally examining the insured. The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of “chronically ill individual,” or to prepare written plans of care shall not count against the lifetime maximum of the policy or certificate. In order to be considered “independent of the insurer,” a licensed health care practitioner shall not be an employee of the insurer and shall not be compensated in any manner that is linked to the outcome of the certification. It is the intent of this subdivision that the practitioner’s assessments be unhindered by financial considerations. Written Plan of Care, 12 Month Renewal, and Not from Benefit Maximum “A licensed health care practitioner must develop a written plan of care after personally examining the insured. The written certification must be renewed every 12 months. The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of "chronically ill individual," or to prepare written plans of care cannot count against the lifetime maximum of the policy or certificate.” Exchange from NTQ to TQ Consumer Exchange Privileges “In the event the federal Congress passes a law, or treasury rules on the taxation of benefits from non-tax qualified long term care insurance:

“Policyholders in California will have exchange privileges that must be made on a guaranteed issue basis at the policyholder’s original issue age.”

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“The insurers would be allowed to adjust premiums if there is a disparity between the old and the new policy.”

“The exchange would be allowed to be facilitated by a new policy or a rider

attached to the original one.”

“The exchange would not be made if policyholder is on claim and receiving benefits. In this case, the original features and benefits of the original policy would continue to pay as promised until the person was no longer on claim. At that time, the policyholder would be granted an opportunity to exchange their policy, if desired. The State regulations address this issue in the following manner. In the event a non-Medicaid national or state long-term care program is created through public funding that substantially duplicates benefits covered by the policy or certificate, the policyholder or certificate holder will be entitled to select either a reduction in future premiums or an increase in future benefits. An actuarial method for determining the premium reductions and increases in future benefits will be mutually agreed upon by the department and insurers. The amount of the premium reductions and future benefit increases to be made by each insurer will be based on the extent of the duplication of covered benefits, the amount of past premium payments, and claims experience. Each insurer's premium reduction and benefit increase plans must be filed and approved by the department.” CIC 10235.91

Company Responsibilities and Prohibitions Disclosure, TQ or Not TQ, on Policy, OOC and Application CIC §10232.25 “Each policy sold in California must be clearly labeled on the policy, the OOC–Outline of Coverage, and on the application. In California, there are three types of long-term care policies that can be offered for sale. issuers of this coverage must make it clear to consumers and purchasers what type each one is and make it clear on all documents that are part of the sales process since they have specific areas of coverage as their focus.” Terms and Conditions CIC §10235 – CIC §10236.15 Application of Article to Policies After 1-1-90 CIC §10235 The California Insurance Code 10235 states that no long-term care insurance policy delivered or issued for delivery in this state shall use the terms set forth below, unless the terms are defined in the policy and the definitions satisfy the following requirements: Required Policy Definitions Policy Terms, Section 10235.2 of the CIC The California Insurance Code continues with definitions for the following terminology. “Medicare” shall be defined as the “Health Insurance for the Aged Act,” Title XVIII of the Social Security Amendments of 1965 as then constituted or later amended, or Title I, Part I of Public

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Law 89-97, as enacted by the 89th Congress of the United States of America and popularly known as the Health Insurance for the Aged Act, as then constituted and any later amendments or substitutes thereof, or words of similar import. “Skilled nursing care,” “intermediate care,” “home health care,” and other services shall be defined in relation to the level of skill required, the nature of the care and the setting in which care is required to be delivered. All providers of services, including, but not limited to, skilled nursing facilities, intermediate care facilities, and home health agencies shall be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified. No policy may be delivered or issued for delivery in this state as long-term care insurance if the policy limits or excludes coverage by type of illness, treatment, medical condition, or accident, except as to the following:

Preexisting conditions or diseases. Alcoholism and drug addiction. Illness, treatment, or a medical condition arising out of any of the following:

o War or act of war, whether declared or undeclared. o Participation in a felony, riot, or insurrection. o Service in the armed forces or units auxiliary thereto. o Suicide, whether sane or insane, attempted suicide, or intentionally self-inflicted

injury. o Aviation in the capacity of a non-fare-paying passenger.

Treatment provided in a government facility, unless otherwise required by law, services

for which benefits are available under Medicare or other governmental programs (except Medi-Cal or Medicaid), any state or federal workers’ compensation, employer's liability or occupational disease law, or any motor vehicle no fault law, services provided by a member of the covered person's immediate family, and services for which no charge is normally made in the absence of insurance. This does not prohibit exclusions and limitations by type of provider or territorial limitations.

Every insurer shall report annually by June 30 the total number of claims denied by each class of business in the state and the number of these claims denied for failure to meet the waiting period or because of a preexisting condition as of the end of the preceding calendar year. The insurer shall provide every policyholder or certificate holder whose claim is denied a written notice within 40 days of the date of denial of the reasons for the denial and all information directly related to the denial. Insurers shall annually report to the department the number of denied claims. The department shall make available to the public, upon request, the denial rate of claims by insurer. The California Insurance Code 10232.95 states that: Every long-term care policy or certificate that provides reimbursement for care in a nursing facility shall cover and reimburse for per diem expenses, as well as the costs of ancillary supplies and services, up to but not to exceed the maximum lifetime daily facility benefit of the policy or certificate. “This article applies to all long-term care insurance policies delivered or issued for delivery in this state on or after January 1, 1990.”

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Policy terms CIC §10235.2 “No long-term care insurance policy delivered or issued for delivery in California can use the things we talk about below unless the terms are defined in the policy and the definitions satisfy the following requirements: “ “Medicare” "Medicare" is defined as the "Health Insurance for the Aged Act," Title XVIII of the Social Security Amendments of 1965 or Title I, Part I of Public Law 89-97, as enacted by the 89th Congress of the United States of America and popularly known as the Health Insurance for the Aged Act.” “Skilled Nursing Care” “Intermediate Care” “Home Health Care” "Skilled nursing care", "intermediate care", "home health care," and other services are defined in relation to the level of skill required, the nature of the care, and the setting in which the care is required to be delivered.” CIC §10235 “All Definitions to be Based on Services, Facilities, Licensure” “All providers of services, including skilled nursing facilities, intermediate care facilities, and home health agencies must be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified.” Consumer Protection Shortened Benefit Period The California Insurance Code 10235.30 states that no insurer may deliver or issue for delivery a long-term care policy in this state unless the insurer offers at the time of application an option to purchase a shortened benefit period non-forfeiture benefit with the following features:

• Eligibility begins no later than after 10 years of premium payments. • The lifetime maximum benefit is no less than the dollar equivalent of three months

of care at the nursing facility per diem benefit contained in the policy or the amount of the premiums paid, whichever is greater.

• The same benefits covered in the policy and any riders at the time eligibility begins are payable for a qualifying claim.

• The lifetime maximum benefit may be reduced by the amount of any claims already paid.

• Cash back, return of premium extended term, and reduced paid-up forms of non-forfeiture benefits shall not be allowed.

• The lifetime maximum benefit amount increases proportionally with the number of years of premium payment.

Except for riders or endorsements by which the insurer effectuates a request made in writing by the insured under an individual long-term care insurance policy, all riders or endorsements added to an individual long-term care insurance policy after date of issue or at reinstatement or

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renewal which reduce or eliminate benefits or coverage in the policy shall require signed acceptance by the individual insured. After the date of policy issue, any rider or endorsement which increases benefits or coverage with a concomitant increase in premium during the policy term shall be agreed to in writing signed by the insured, unless the increased benefits or coverage are required by law. If a separate additional premium is charged for benefits provided in connection with riders or endorsements, that premium charge shall be set forth in the policy, rider, or endorsement. Insurer Must Offer Shortened Benefit Period Non-forfeiture CIC §10235.30 There are certain requirements that insurers have to include in their policies and that agents must make their clients aware of. The following summarizes the regulations on this as it relates to “non-forfeiture” benefits and provisions: “No insurer may deliver or issue for delivery a long-term care policy in this state unless the insurer offers at the time of application an option to purchase a shortened benefit period non-forfeiture benefit with the following features: Begins After 10 years “Eligibility begins no later than after 10 years of premium payments.” Minimum Policy Benefits = Three Months Non-forfeiture Benefit “The lifetime maximum benefit is no less than the dollar equivalent of three months of care at the nursing facility per diem benefit contained in the policy or the amount of the premiums paid, whichever is greater.“ Amount & Frequency Same as Original Policy Terms “The same benefits covered in the policy and any riders at the time eligibility begins are payable for a qualifying claim.” Policy Benefit May Be Reduced by Claims Paid The lifetime maximum benefit may be reduced by the amount of any claims already paid. Prohibited: Return of Premium, Reduced Paid-Up and Extended Term “Cash back, extended term, and reduced paid-up forms of non-forfeiture benefits shall not be allowed.” Lifetime Maximum Amount Increases Proportionally to Number of Years of Premium Payment. “The lifetime maximum benefit amount increases proportionally with the number of years of premium payment. (b) This section shall not apply to life insurance policies that accelerate benefits for long-term care.” CIC §10235.30 Life Riders Accelerating Benefits are Exempt “Life policies with accelerated benefits or long term care are exempt from this requirement.”

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Other Type Non-Forfeiture Benefits “If you find that you cannot afford to continue paying the same amount of premiums for the coverage you bought, you have the right to reduce your benefits in return for a lower premium. Companies must, at a minimum, let you reduce the daily benefit or change the number of years the company will pay benefits so the lower premium is an amount that is more affordable.” CA Long-term care Rate Guide-A Guide to Long-Term Care Protection against Unintentional Lapse, Section 10235.40 of the CIC Over the years, long-term care insurance policies have improved tremendously. For instance, much has been written about the demise of the 3-day prior hospitalization provision and post-claim underwriting, the addition of home care and assisted living facility coverage, third-party notification of potential lapse and reinstatement due to unintentional lapse, and other improvements which have swept the industry. Any written or oral notification to an insurer or its agent is also referred to as a “notice of claim” means that reasonably apprises the insurer that the claimant wishes to make a claim against a policy or bond issued by the insurer and that a condition giving rise to the insurer’s obligations under that policy or bond may have arisen. For purposes of these regulations the term “notice of claim” shall not include any written or oral communication provided by an insured or principal solely for informational or incident reporting purposes. Applicant May Designate Another to Receive Notice of Lapse Applicants for long-term care insurance must be given the right to designate at least one individual, in addition to himself, to receive notice of lapse or termination of the policy for nonpayment of premium. The purpose here is to keep a policy in force even though the applicant, due to a cognitive impairment, forgot to make the payment. If the applicant refuses to provide an alternate designee to receive lapse notices, a special waiver must be signed by the applicant and placed in the client’s policy file. Further, the insured has the right to change the written designation every two years. CIC 10235.40 “No individual long-term care policy or certificate will be issued in California until the applicant has been given the right to designate at least one individual, in addition to the applicant, to receive notice of lapse or termination of a policy or certificate for nonpayment of premium.” The insurer must receive from each applicant either one of the following: Information on Designee “A written designation listing the name, address, and telephone number of at least one individual, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium.” Verbatim Waiver Signed and Dated “A waiver signed and dated by the applicant electing not to designate additional persons to receive notice. The required waiver shall read as follows:”

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I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until 30 days after a premium is due and unpaid. I elect not to designate any person to receive the notice. ________________________________________Signature of Applicant Date"

Insurer Must Offer Right to Change Designee No Less Often Than Once Every Two Years The California Insurance Code 10235.40 states that the insurer shall notify the insured of the right to change the written designation, no less often than once every two years. When the policyholder or certificate holder pays the premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the requirements need not be met until 60 days after the policyholder or certificate holder is no longer on that deduction payment plan. The application or enrollment form for a certified long-term care insurance policy or certificate shall clearly indicate the deduction payment plan selected by the applicant. CIC 10235.40 Insurer must mail notice 30 days before termination No individual long-term care policy or certificate shall lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days prior to the effective date of the lapse or termination, gives notice to the insured and in the case of a third party notification, notice of a lapsing policy is given to the individual or individuals designated, at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice shall be given by first-class United States mail, postage prepaid, not less than 30 days after a premium is due and unpaid. CIC 10235.40 Must Include Five-month Reinstatement Each long-term care insurance policy or certificate shall include a provision which, in the event of lapse, provides for reinstatement of coverage, if the insurer is provided with proof of the insured's cognitive impairment or the loss of functional capacity. This option shall be available to the insured if requested within five months after termination and shall allow for the collection of a past due premium, where appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria on cognitive impairment or the loss of functional capacity contained in the policy certificate. CIC 10235.40 Proof of Cognitive Impairment The standard of proof of cognitive impairment or loss of functional capacity must not be more stringent than the benefit eligibility criteria on cognitive impairment or the loss of functional capacity contained in the policy certificate.” CIC §10235.40

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Post Claims Underwriting Prohibited Since post claims underwriting is prohibited in California, all applications for long-term care insurance, except those that are guarantee issue, shall contain clear, unambiguous, short, simple questions designed to ascertain the health condition of the applicant. The California Insurance Code 10232.3 states the following regarding post-claims underwriting. The applications must be delivered with each policy. Applications Must Ask 'Yes or No' Health Questions Each question shall contain only one health status inquiry and shall require only a “yes” or “no” answer, except that an application may include a request for the name of any prescribed medication and the name of the prescribing physician. An omission here may be used as the basis for a denial of a claim or the rescission of a policy. The following warning shall be printed conspicuously and in close conjunction with the applicant’s signature block: “Caution: If your answers on this application are misstated or untrue, the insurer may have the right to deny benefits or rescind your coverage.” CIC §10232.3 Warning on Application that Misstatements May Result in Rescission 10232.3 (a)(b)(c) If an insurer does not complete medical underwriting and resolve all reasonable questions arising from information submitted with the application before issuing the policy or certificate, the insurer may only rescind the policy or certificate (rescissions must be filed annually with the commissioner) or deny an otherwise valid claim if there is clear and convincing evidence of fraud or material misrepresentation of the risk by the applicant. The evidence must:

• Pertain to the condition for which the benefits are sought; • Involve a chronic condition or involve dates of treatment before the date of

application; • Be material to the acceptance for coverage; • A copy of the completed application must be given to the insured when the policy

or certificate is delivered. California Regulations strictly prohibits this practice by insurers. Post claims underwriting refers to the practice where an insurer gathers information about the health, mental, and capacity for an individual policyholder to function after a claim for benefit payments is filed. An insurer would do this, if they could, to attempt to find reasons to cancel a policy or be in a position to deny a claim based on this information derived after the fact. CIC §10232.3 Every Application Must Include a Checklist Every application for long-term care insurance must include a checklist that enumerates each of the specific documents which are required to be given to the applicant at the time of solicitation. The documents and notices to be listed in the checklist include, but are not limited to, the following:

The "Important Notice Regarding Policies Available" pursuant to Section 10232.25.

The Outline of Coverage pursuant to Section 10233.5.

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The HICAP Notice pursuant to paragraph of subdivision (a) of Section 10234.93.

The long-term care insurance CA Consumer Shoppers Guide pursuant to paragraph (9) of subdivision (a) of Section 10234.93.

The "Long-Term Care Insurance Personal Worksheet" pursuant to subdivision (c) of Section 10234.95.

Notice to Applicant Regarding Replacement “The "Notice to Applicant Regarding Replacement of Accident and Sickness or Long-Term Care Insurance" pursuant to Section 10235.16 if replacement is not made by direct response solicitation or Section 10235.18 if replacement is made by direct response solicitation. Unless the solicitation was made by a direct response method, the agent and applicant must both sign at the bottom of the checklist to indicate the required documents were delivered and received.” If Medical Underwriting Not Complete CIC §10232.3 (a)(b)(c) If medical underwriting not complete, an insurer may rescind only for fraud or material misrepresentation. “If an insurer does not complete medical underwriting and resolve all reasonable questions arising from information submitted on or with an application before issuing the policy or certificate, then the insurer may only rescind the policy or certificate or deny an otherwise valid claim, upon clear and convincing evidence of fraud or material misrepresentation of the risk by the applicant. The evidence shall:

No long-term care policy or certificate may be field issued. The contestability period as defined in Section 10350.2 for long-term care

insurance shall be two years. A copy of the completed application shall be delivered to the insured at

the time of delivery of the policy or certificate. Pertain to the condition for which benefits are sought. Involve a chronic condition or involve dates of treatment before the date of

application. Be material to the acceptance for coverage. Every insurer shall maintain a record, in accordance with Section 10508, of

all policy or certificate rescissions, both state and countrywide, except those voluntarily initiated by the insured, and shall annually furnish this information to the commissioner in a format prescribed by the commissioner.” CIC §10232.3 (a)(b)(c)

Eliminates Prior Hospital Stay Requirement CIC §10232.5 It is illegal today to sell a policy that won’t pay nursing home benefits without a prior hospital stay. Many older policies were sold with this restriction, and their premiums are lower because these policies screen out a large number of claims. With strict hospital admission guidelines set forth by private insurance and Medicare, doctors can no longer admit patients just to satisfy an insurance requirement such as this. For example, Alzheimer’s patients or the frail elderly usually do not need hospitalization.

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“In California, on or after January 1, 1990, no long-term care insurance policies may be sold in this state which does any of the following:

Conditions eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care.

Preconditions the availability of benefits for community-based care, home health care, or home care on prior institutionalization.

Preconditions the availability of benefits on prior hospitalization. Conditions eligibility for non-institutional benefits, other than those on a prior

institutional stay of more than 30 days.” CIC §10232.5 Inflation Escalator and Benefit Increases and Illustrations CIC §10237.1 This applies to all long-term care insurance policies delivered or issued for delivery in this state on or after January 1, 1991. The California Insurance Code 10237.1 states that no insurer may deliver or issue for delivery a long-term care insurance policy or certificate in California unless the insurer offers to each policyholder and certificate holder, in addition to any other inflation protection, the option to purchase a long-term care insurance policy or certificate that provides for benefit levels and benefit maximums to increase to account for reasonably anticipated increases in the costs of long-term care services covered by the policy. Insurers shall offer to each policyholder and certificate holder, at the time of purchase, the option to purchase a long-term care insurance policy or certificate containing an inflation protection feature which is no less favorable than one that does one or more of the following:

• Increases benefit levels annually in a manner so that the increases are compounded annually at a rate of not less than 5%.

• Guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status and without regard to claim status or history so long as the option for the previous period has not been declined. The amount of the additional benefit shall be no less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least 5% for the period beginning with the purchase of the existing benefit and extending until the year in which the offer is made.

• Covers a specified percentage of actual or reasonable charges and does not include a maximum specified indemnity amount limit.

The insurer of a group long-term care insurance policy shall offer the holder of the group policy the opportunity to have the inflation protection pursuant to this section extended to existing certificate holders, but the insurer is relieved of the obligations imposed by this section if the holder of the group policy declines the insurer’s offer. The California Insurance Code 10237.2 states that if the policy is issued to a group, the required offering shall be made to the group policyholder; except that if the policy is issued to a group other than to a continuing care retirement community, the offering shall be made to each proposed certificate holder. The offer in Section 10237.1 shall not be required of any of the following:

• Life insurance policies or riders containing accelerated long-term care benefits. • Expense incurred long-term care insurance policies.

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For purposes of this subdivision, “expense incurred” does not include policies paying a certain percentage of reasonable and customary charges up to a specified, indemnity-type maximum amount. The California Insurance Code 10237.4 states that inflation protection benefit increases under a policy that contains these benefits shall continue without regard to an insured’s age, claim status or claim history, or the length of time the person has been insured under the policy. An offer of inflation protection that provides for automatic benefit increases shall include an offer of a premium which the insurer expects to remain constant. The offer shall disclose in a conspicuous manner that the premium may change in the future unless the premium is guaranteed to remain constant. The inflation protection benefit increases under a policy or certificate that contains an inflation protection feature shall not be reduced due to the payment of claims. Requirement for Waiver The California Insurance Code 10237.5 states that an inflation protection provision that increases benefit levels annually in a manner so that the increases are compounded annually at a rate not less than 5 percent shall be included in a long-term care insurance policy unless an insurer obtains a rejection of inflation protection signed by the policyholder. The rejection, to be included in the application or on a separate form, shall state:

“I have reviewed the outline of coverage and the graphs that compare the benefits and

premiums of this policy with and without inflation protection. Specifically, I have reviewed the plan, and I reject 5% annual compound inflation protection.

________________________________________ ______________

Signature of Applicant Date

Requirement for Illustration The California Insurance Code 10237.6 states that an insurer shall include the following information in or with the outline of coverage:

• A graphic comparison of the benefit levels of a policy that increases benefits at a compounded annual rate of not less than 5% over the policy period with a policy that does not increase benefits. The graphic comparison shall show benefit levels over at least a 20-year period.

• Any expected premium increases or additional premiums to pay for automatic or optional benefit increases.

An insurer may use a reasonable hypothetical or graphic demonstration for purposes of this disclosure. The inflation option, under the California Insurance Code, states that it would increase the benefit levels annually. It would cover specified percentage of actual or reasonable charges. It would guarantee the individual the right to increase benefit levels without the person having to provide evidence of insurability or health status as long as the option for the previous period has not been declined.

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Insurers May Verify Necessity with Any Source of Independent Judgment CIC §10232.8(c) & 10233 “Any insurer offering long-term care insurance as described in Section 10231.2 may obtain a written declaration by a physician, independent needs assessment agency, or any other source of independent judgment suitable to the insurer that services are necessary precedent to the payment of benefits for any care covered by the terms of the policy. A licensed health care practitioner, independent of the insurer, shall certify that the insured meets the definition of "chronically ill individual" as defined under Public Law 104-191. If a health care practitioner makes a determination, pursuant to this section, that an insured does not meet the definition of "chronically ill individual," the insurer shall notify the insured that the insured shall be entitled to a second assessment by a licensed health care practitioner, upon request, who shall personally examine the insured. The requirement for a second assessment shall not apply if the initial assessment was performed by a practitioner who otherwise meets the requirements of this section and who personally examined the insured. The assessments conducted pursuant to this section shall be performed promptly with the certification completed as quickly as possible to ensure that an insured's benefits are not delayed. The written certification shall be renewed every 12 months. A licensed health care practitioner shall develop a written plan of care after personally examining the insured. The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of "chronically ill individual," or to prepare written plans of care shall not count against the lifetime maximum of the policy or certificate. In order to be considered "independent of the insurer," a licensed health care practitioner shall not be an employee of the insurer and shall not be compensated in any manner that is linked to the outcome of the certification. It is the intent of this subdivision that the practitioner's assessments be unhindered by financial considerations. This subdivision shall apply only to a policy or certificate intended to be a federally qualified long-term care insurance contract.” CIC §10232.8(c) & 10233 Benefits for LTC Contracts and Other Contract Benefits CIC §10233.2 – 10233.5 Providers will be required to provide an expanded explanation of LTC plan benefits, design and variations. As many new features have been included by the state and federal legislation as well as ancillary features not required by legislation. CIC §10233.2 – 10233.5 Premium Credits for Replacement Policies or Certificates CIC §10234.87(Life riders exempt)(Amended 1999). 5% of prior premium Insurance companies may from time to time create new versions of their LTC policies. This may come about for a number of reasons. They might be for competitive reasons, for suitability reasons, for updating to coincide with new choices in care to be insured reasons, for complying with regulation changes, for financial reasons, etc.

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Existing policyholders in California have rights afforded to them when this happens in that companies are required to make those changes available in the newer policy versions to their existing policyholders. This provides a level playing field for all LTC policy insureds, both old and new. Insurers can make these new benefits and/ or benefit eligibility available to their existing policyholders in a number of ways as provided in the regulations. They can offer the new level of benefits and advantages by offering a rider that updates one’s original policy to coincide with the newer version. In this case, they would keep the original premium for the older policy and add a new premium for the increased or more advantageous benefits or benefit eligibility. Or, the company can issue a new policy to the older policyholder that contains all the old and new benefits combined and cancel the older one. The company would charge the premium for the new one at the issue age of the older one as one might be considerably older now than when they bought the original one and subject to the higher issue age of the newer one. In addition, the company might issue the newer one in lieu of the older one and charge a premium for the newer on with a premium credit of 5% of the older one for every year they paid premiums with a 50 % maximum discount on the newer premium. (The Note below reminds us of this section of the CIC.) To grasp the more formal details of this according to the regulations the California Insurance Code 10235.52 states that every policy shall contain a provision that, in the event the insurer develops new benefits or benefit eligibility or new policies with new benefits or benefit eligibility not included in the previously issued policy, the insurer will grant current holders of its policies who are not in benefit payout or within the elimination period the following rights: The policyholder will be notified of the availability of the new benefits or benefit eligibility or new policy within 12 months. The insurer’s notice shall be filed with the department at the same time as the new policy or rider. The insurer shall offer the policyholder new benefits or benefit eligibility in one of the following ways:

By adding a rider to the existing policy and paying a separate premium for the new benefits or benefit eligibility based on the insured’s attained age. The premium for the existing policy will remain unchanged based on the insured’s age at issuance.

By replacing the existing policy or certificate with a new policy or certificate in which case consideration for past insured status shall be recognized by setting the premium for the replacement policy or certificate at the issue age of the policy or certificate being replaced.

By replacing the existing policy or certificate in accordance with Section 10234.87. CIC 10235.52

Note – the CIC section 10234.87 referred to above is states the following: (a) If an insurer replaces a policy or certificate that it has previously issued, the insurer shall recognize past insured status by granting premium credits toward the premiums for the replacement policy or

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certificate. The premium credits shall equal five percent of the annual premium of the prior policy or certificate for each full year the prior policy or certificate was in force. The premium credit shall be applied toward all future premium payments for the replacement policy or certificate, but the cumulative credit allowed need not exceed 50 percent. No credit need be provided if a claim has been filed under the original policy or certificate. (b) The cumulative credits allowed need not reduce the premium for the replacement policy or certificate to less than the premium of the original policy or certificate. (c) This section shall not apply to life insurance policies that accelerate benefits for long-term care Premium Credits Examples

The insurer must provide premium credits that take into account the insured’s previous premiums paid on the original contract when an agent of and an insurer for long term care policies engages in the replacement of a policy or group certificate that they originally issued. They must apply premium credits toward the new premium amount for the newer policy. The following examples show how this would work in two situations:

Credit less than maximum of 50%

Steve has had and paid for a long-term policy for 5 years with a premium of $2,000 per year. He wants to replace his policy with a new one with the same company which has a premium of $3,000 per year. In this case, Steve is allowed a premium credit on his newer policy for a portion of the premiums he had paid on his original policy. Since California regulations requires a credit that must equal 5% of the original premium of $2,000 for the number of 5 years that she paid on it, her credit toward the new $3,000 premium each year will be as follows: 5% times 5 years = 25% times $2,000 = $500 Credit; which when subtracted from the new premium of $3,000 = $2,500. This $2,500 amount would be Pat's new premium on her newer policy. Credit more than maximum of 50% Sandra has had and paid for a long-term policy for 15 years with a premium of $2,000 per year. She wants to replace her policy with a new one with the same company which has a premium of $3,000 per year. In this case, Sandra is allowed a premium credit on his newer policy for a portion of the premiums she had paid on her original policy. Since California regulations requires a credit that must equal 5% of the original premium of $2,000 for the number of 15 years that she paid on it up to 50%, her credit toward the new $3,000 premium each year will be as follows: 5% times 15 years = 75%(limited to 50% maximum)so, 50% times $2,000 = $1000 Credit; which when subtracted from the new premium of $3,000 = $2,000. This $2,000 amount would be Sally's new premium on her newer policy.

Long Term Care Personal Worksheet

CIC §10508.5 The 1996 NAIC Suitability Standards are required to be used by every insurer and other entity marketing LTC insurance. It is designed to provide a tool for agents and CA consumers as it relates to their ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage. It helps to determine the applicant’s goals or needs with respect to LTC and the advantages and disadvantages of the insurance to met those goals or needs. It also describes the values, benefits and cost of the applicant’s existing insurance, if any, when compared to the values, benefit and costs of the recommended purchase or replacement.

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To preserve and maintain all applicable records defined in Section 10508 in his or her possession, it is the obligation of each life, life and disability, and disability insurance agent and any other agent and insurer, in addition to those records transmitted to the insurer, at his or her principal place of business for a minimum of five years. The records shall be kept in an orderly manner so that the information therein is readily available, and shall be open to inspection or examination by the commissioner at all times.

FORMS REQUIRED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) AND STATE LAW

NAIC and California State law require that a Long Term Care Insurance Worksheet be included so as to help you and the insurance company to see if a person should buy a long-term care insurance policy. Also required along with the Long Term Care Insurance Worksheet which is included below is a Long Term Care Insurance Suitability Letter. Long Term Care Suitability Letter (Source: 1997 National Association of Insurance Commissioners) Dear (Applicant): Your recent applicant for long-term care insurance included a “personal worksheet”, which asked questions about your finances and your reasons for buying long term care insurance. For your protection, state law requires us to consider this information when we review your application, to avoid selling a policy to those who do not need coverage. (Your answers indicate that long-term care insurance may not meet your financial needs. We suggest you review the information provided along with the application, including the booklet “Shoppers’s guide to long-term Care Insurance”. Your state insurance department also has information about long-term care insurance and may be able to refer you to a counselor free of charge who can help you decide whether to buy this policy.) (You chose not to provide any financial information for us to review) Note: Insurer choose the paragraph that applies. We have suspended our final review of your application. If, after careful consideration, you still believe this policy is what you want, check the appropriate box below and return this letter to us within the next 60 days. We will then continue reviewing your application and issue a policy if you meet our medical standards. If we do not hear from you within the next 60 days, we will close your file and not issue you a policy. You should understand that you will not have any coverage until we hear back from you, approve your application and issue you a policy. Please check one box and return in enclosed envelope. Yes, (although my worksheet indicate that long-term care insurance may not be a

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suitable purchase,) I wish to purchase this coverage. Please resume review of my application. Drafting Note: Delete the phrase in brackets if the applicant did not answer the questions about income. No, I have decided not to buy a policy at this time. ____________________________ _________________ APPLICANT’S SIGNATURE DATE Please return to (issuer) at (address) by (date) LONG TERM CARE INSURANCE PERSONAL WORKSHEET (Source: National Association of Insurance Commissioners, Suitability, Section 21, 1997) This worksheet is for the purpose of establishing suitability for a prospect to buy long-term insurance because not everyone needs this type of insurance. The State of California requires all insurance companies to have applicants fill this out before buying long-term care insurance. Must be in 12 point type at time of application. Premium The premium for the coverage you are considering will be $_________per month, or $__________per year. (A one-time single premium of $_____________.) (The company cannot raise your rates on this policy.) (The company has a right to increase premiums in the future.) The company has sold long-term care insurance since (year) and has sold this policy since (year). (The last rate increase for this policy in this state was in (year), when premiums went up by an average of (%). (The company has not raised its rates for this policy.) Drafting Note: The issuer shall use the bracketed sentence or sentences applicable to the product offered. If a company includes a statement regarding not having raised rates, it must disclose the company’s rate increases under prior policies providing essentially similar coverage. (Have you considered whether you could afford to keep this policy if the premiums are raised, for example by 20%?) Drafting Note: The issuer shall use the bracketed sentence unless the policy is fully paid up or is a noncancellable policy. Income Where will you get the money to pay each year’s premium? Income Savings Family Members What is your annual income? (check one) Under $10,000 ($10-20,000) ($20-30,000) ($30,50,000) Over $50,000 Note: The insurer may choose the number to put in brackets to fit its suitability standards.

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How do you expect your income to change over the next 10 years? (check one) No change Increase Decrease If you will be paying premiums with money received only from your own income, a rule of thumb is that you may not be able to afford this policy if the premiums will be more than 7% of your income. Savings and Investments Not counting your home, what is the approximate value of all your assets (savings and investments)? (check one) under $20,000 $20,000-$30,000 $30,000-$50,000 Over $50,000 How do you expect your assets to change over the next ten year? (check one) Stay about the same Increase Decrease If you are buying this policy to protect your assets and your assets are less than $30,000, you may wish to consider other options for financing your long-term care. Disclosure Statement The information provided above accurately I choose not to complete this describes my financial situation. Information. Signed_________________________________ ___________________________ (Applicant) (Date) ( I explained to the applicant the importance of completing this information. Signed:__________________________ _____________________ (Agent) (Date) Agent’s Printed Name____________________________________________) (Note: In order for us to process your application, please return this signed statement to (name of company) along with your application) (My agent has advised me that this policy does not appear to be suitable for me. However, I still want the company to consider my application. Signed_____________________________ _____________________ (Applicant) (Date) The company may contact you to verify your answers. Agents should have a solid understanding of the basic NAIC model requirements and the reasoning behind them even though it is the carrier responsibility to develop and use suitability standards and train its agents on its use. Replacement Policy Conversions, Section 10236.5 of the CIC Convert or Retain Existing Policy CIC §10236.5.

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The consumer’s individual situation depends on whether an insured converts or buys a new policy. Cost, health, need, tax situation, and desire to stay with the existing issuer for a policy on an individual or converted basis are all considerations for the agent and the policyholder to work through for the policyholder’s benefit. “Every certificate of group insurance issued or delivered in California must provide for continuation or conversion coverage for the certificate holder if the group coverage terminates for any reason except the following reasons:

The termination of group coverage resulted from the insured's failure to make any required payment of premium or contribution when due.

The terminating coverage is replaced not later than 31 days after termination by new group coverage effective on the day following the termination and the replacement coverage meets both of the following criteria:

The replacement coverage provides benefits identical to, or

benefits determined by the commissioner to be substantially equivalent to or in excess of, those provided by the terminating coverage.

The premium for the replacement coverage is calculated on the

insured's age at the time of issue of the group certificate for the coverage which is being replaced. If the coverage being replaced has itself replaced previous group coverage, the premium for the newest replacement coverage is calculated on the insured's age at the time the previous group certificate was issued.”

"Continuation coverage" means the maintenance of coverage under an existing group policy when that coverage would be or has been terminated and which is subject only to continued timely payment of the premium. “ “Any insured individual whose eligibility for group coverage is based on his or her relationship to another person, will be entitled to continuation coverage under the group policy if the qualifying relationship terminates by dissolution of marriage or death.” "Conversion coverage" means an individual policy of long-term care insurance, issued by the insurer of the terminating group coverage, without considering insurability, containing benefits which are identical, or which have been determined by the commissioner to be at least substantially equivalent, to the group coverage which would be or has been terminated for any reason.” “The commissioner will consider, in determining whether benefits are substantially equivalent, if applicable, the relative advantages of managed care plans which use restricted provider networks, considering items such as service availability, benefit levels, and administrative complexity.” If the terminating group coverage replaced previous group coverage, the premium for the converted policy will be calculated on the insured's age at the time the previous group certificate was issued. The premium for the converted policy must be calculated on the insured's age at the time the group certificate was issued.

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The insurer may require, if adequate notice is provided to certificate holders in the certificate, before issuing conversion coverage, that:

The conversion policy contains a provision for a reduction of benefits if the insured has existing long-term care insurance, payable on an expense-incurred basis, which, together with the conversion policy, would result in payment of more than 100 percent of incurred expenses. This provision shall not be included in the conversion policy unless the reduction in benefits is reflected in a premium decrease or refund.

The insured must submit written application for a conversion policy within a reasonable period after termination of the group coverage, and the premium paid as directed by the insurer, in order that the conversion policy be issued effective on the day following termination of group coverage.

The individual must have been continuously insured under the group policy, or any group policy which it replaced, for at least six months immediately prior to termination in order to be entitled to conversion coverage.

The conversion policy contains a provision limiting the payment for a single claim, spell of illness, or benefit period occurring at the time of conversion, to the amount that would have been payable had the group coverage remained in effect. CIC §10236.5.

Replacement Commissions CIC §10234.97 Agent sales commissions that is paid by the insurer any time long-term care coverage is replaced, and that represents the percentage of the sale normally paid for first year sales of long-term care policies or certificates must be calculated based on the difference between the annual premium of the replacement coverage and that of the original coverage. The sales commission must be limited to the percentage of the sale normally paid for renewal of long-term care policies or certificates, if the premium on the replacement product is less than or equal to the premium for the product being replaced. This does not apply to replacement coverage which is group insurance. Replacement must be contingent upon the insurer's declaration that the replacement policy materially improves the position of the insured. "Commission or other compensation" includes pecuniary or non-pecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate including, but not limited to, bonuses, gifts, prizes, awards, and finder's fees.” Within six months of the effective date of regulations, every long-term care insurer must file with the commissioner, its commission structure or an explanation of the insurer's compensation plan. Any amendments to the commission structure must be filed with the commissioner before implementation. Distinguish Between Groups and Individual Disclosure in Certificates CIC §10233.6 “A certificate issued pursuant to a group long-term care insurance policy, which policy is delivered or issued for delivery in this state, shall include all of the following:

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A description of the principal benefits and coverage provided in the policy. A statement of the principal exclusions, reductions, and limitations contained in

the policy. A statement of the terms under which the policy or certificate, or both, may be

continued in force or discontinued, including any reservation in the policy of a right to change premiums.

A statement that the group master policy determines governing contractual provisions.

An explanation of the insured's rights regarding continuation, conversion, and replacement.” CIC §10233.6

Outline of Coverage (OOC) CIC §10233.5

Company Responsibilities In the case of direct response solicitations, the outline of coverage must be presented in conjunction with any application or enrollment form. In the case of agent solicitations, an agent must deliver the outline of coverage prior to the presentation of an application or enrollment form. An outline of coverage must be delivered to a prospective applicant for long-term care insurance at the time of initial solicitation through means which prominently direct the attention of the recipient to the document and its purpose. Use of the text and sequence of the text of the outline of coverage set forth in this section is mandatory, unless otherwise specifically indicated. The outline of coverage must be a freestanding document, using no smaller than 10-point type. Text which is capitalized or underscored in the outline of coverage may be emphasized by other means which provide prominence equivalent to capitalization or underscoring. The outline of coverage must contain no material of an advertising nature. Outline of Coverage (OOC) reflecting most current revisions SB 870 CIC §10233.5 “According to the CA Long-term care Rate Guide-A Guide to Long-Term Care, “an outline of coverage is a summary of the terms of a policy or certificate that you can use to compare different policies. If you are purchasing insurance through the mail, then the Outline of Coverage must be delivered to you at the time you receive the application or enrollment form. An Outline of Coverage must be delivered to you at the time of an insurance agent’s first presentation. You do not need to fill out an application in order to get the Outline of Coverage. An agent or insurance company should be willing to give you an Outline of Coverage.” CA Long-term care Rate Guide-A Guide to Long-Term Care

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OOC Delivered at Solicitation At the time of initial solicitation, an outline of coverage must be delivered to a prospective applicant for long-term care insurance through means which prominently direct the attention of the recipient to the document and its purpose. An agent must deliver the outline of coverage prior to the presentation of an application or enrollment form. The outline of coverage must be presented in conjunction with any application or enrollment form in the case of direct response solicitations. OOC Must Include CIC §10237.6 “An insurer must include the following information in or with the outline of coverage:

A graphic comparison of the benefit levels of a policy that increases benefits at a compounded annual rate of not less than 5 percent over the policy period with a policy that does not increase benefits. The graphic comparison must show benefit levels over at least a 20-year period.

Any expected premium increases or additional premiums to pay for automatic or optional benefit increases.

An insurer may use a reasonable hypothetical or graphic demonstration for purposes of this disclosure.”

HICAP notice on outline of coverage The outline of coverage must be in the following Mandatory OOC form: (COMPANY NAME) (ADDRESS--CITY AND STATE) (TELEPHONE NUMBER) LONG-TERM CARE INSURANCE OUTLINE OF COVERAGE (Policy Number or Group Master Policy and Certificate Number) 1. This policy is (an individual policy of insurance) ((a group policy) which was issued in the

(indicate jurisdiction in which group policy was issued)). (Individual or group) 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 coverage for other policies available to you. This is not an insurance contract, but only a summary of coverage. Only the individual or group policy contains governing contractual provisions. This means that the policy or group policy sets forth 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 CERTIFICATE) CAREFULLY! (Purpose. “Read your policy carefully!”)

3. TERMS UNDER WHICH THE POLICY OR CERTIFICATE MAY BE RETURNED AND

PREMIUM REFUNDED. (a) Provide a brief description of the right to return--"free look" provision of the policy. (b) Include a statement that the policy either does or does not contain provisions providing for a refund or partial refund of premium upon the death of an insured or surrender of the policy or certificate. If the policy contains those provisions, include a description of them. (Free look provision)

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4. THIS IS NOT MEDICARE SUPPLEMENT COVERAGE. If you are eligible for Medicare,

review the Medicare Supplement Buyer's Guide available from the insurance company. (a) (For agents) Neither (insert company name) nor its agents represent Medicare, the federal government or any state government. (b) (For direct response) (insert company name) is not representing Medicare, the federal government or any state government. (“This is not Medicare supplement coverage”)

5. LONG-TERM CARE COVERAGE. Policies of this category are designed to provide

coverage for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital, such as in a nursing home, in the community, or in the home. 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 (coinsurance) requirements. (Modify this paragraph if the policy is not an indemnity policy. (Explain method of benefit payment (reimbursement, cash)

6. BENEFITS PROVIDED BY THIS POLICY. (a) (Covered services, related deductible(s),

waiting periods, elimination periods, and benefit maximums.) (b) (Institutional benefits, by skill level.) (c) (Non-institutional benefits, by skill level.) (Any benefit screens must be explained in this section. If these screens differ for different benefits, explanation of the screen should accompany each benefit description. If an attending physician or other specified person must certify a certain level of functional dependency in order to be eligible for benefits, this too must be specified. If activities of daily living (ADLs) are used to measure an insured's need for long-term care, then these qualifying criteria or screens must be explained.) (Benefits, waiting periods, maximums, skill levels, triggers)

7. LIMITATIONS AND EXCLUSIONS. (Describe: (a) Preexisting conditions. (b) Non-eligible

facilities/provider. (c) Non-eligible levels of care (e.g., unlicensed providers, care or treatments provided by a family member, etc.). (d) Exclusions/exceptions. (e) Limitations.) (This section should provide a brief specific description of any policy provisions which limit, exclude, restrict, 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 EXPENSES ASSOCIATED WITH YOUR LONG-TERM CARE NEEDS. (Limitations or exclusions)

8. RELATIONSHIP OF COST OF CARE AND BENEFITS. Because the costs of long-term care

services will likely increase over time, you should consider whether and how the benefits of this plan may be adjusted. (As applicable, indicate the following: (a) That the benefit level 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 a guarantee, include whether additional underwriting or health screening will be required, the frequency and amounts of the upgrade options, and any significant restrictions or limitations. (e) And finally, describe whether there will be any additional premium charge imposed, and how that is to be calculated.) (Inflation protection features, if any)

9. TERMS UNDER WHICH THE POLICY (OR CERTIFICATE) MAY BE CONTINUED IN

FORCE OR 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 no waiver of premium provisions. (d) State whether or not the company has a right to

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change premium, and if that right exists, describe clearly and concisely each circumstance under which the premium may change. (Renewability, conversion continuation, premium changes)

10. ALZHEIMER'S DISEASE, ORGANIC DISORDERS, AND RELATED MENTAL DISEASES.

(State that the policy provides coverage for insureds clinically diagnosed as having Alzheimer's Disease, organic disorders, or related degenerative and dementing illnesses. Specifically describe each benefit screen or other policy provision that provides preconditions to the availability of policy benefits for that insured.) (Alzheimer’s disease covered)

11. 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. (Total annual premium)

12. ADDITIONAL FEATURES. (a) Indicate if medical underwriting is used. (b) Describe other

important features. (Additional features: medical underwriting, etc.) 13. INFORMATION AND COUNSELING. The California Department of Insurance has prepared

a Consumer Guide to Long-Term Care Insurance. This guide can be obtained by calling the Department of Insurance toll-free telephone number. This number is 1-800-927-HELP. Additionally, the Health Insurance Counseling and Advocacy Program (HICAP) administered by the California Department of Aging, provides long-term care insurance counseling to California senior citizens. Call the HICAP toll-free telephone number 1-800-434-0222 for a referral to your local HICAP office." CIC §10233.5 (Information and counseling 1-800-927-HELP (Department’s LTC Guide and HICAP)

30-Day Free Look Clause CIC §10232.7 An applicant for a long-term care insurance policy or a certificate, other than an applicant for a certificate issued under a group long-term care insurance policy issued to a group, shall have the right to return the policy or certificate by first-class United States mail within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason. The return of a policy or certificate shall void the policy or certificate from the beginning and the parties shall be in the same position as if no policy, certificate, or contract had been issued. All premiums paid and any policy fee paid for the policy shall be fully refunded directly to the applicant by the insurer within 30 days after the policy or certificate is returned. Notwithstanding Section 10276 or any other law, long-term care insurance policies or certificates to which this section applies shall have a notice prominently printed on the first page of the policy or certificate, or attached thereto, stating in substance the conditions. “Purchasers of individual long-term care insurance (except purchasers through employer groups or trade associations) have the right to review the policy or certificate for 30 days after they receive it. If they decide not to buy the insurance, for any reason, they may return the policy to the insurer or the agent without explanation, and all the money they paid will be refunded to them. Policyholders should always keep a record of the date when received the policy and the date they returned it, or return it by certified mail.)

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California regulations speak to this issue as follows. It says that the return of a policy or certificate will void the policy or certificate from the beginning and the parties will be in the same position as if no policy, certificate, or contract had been issued. All premiums paid and any policy fee paid for the policy must be fully refunded directly to the applicant by the insurer within 30 days after the policy or certificate is returned. Long-term care insurance policies or certificates must have a notice prominently printed on the first page of the policy or certificate, or attached to it, stating clearly the 30 day look provision.” CIC §10232.7 Insurers Must Provide RCFE Coverage Insurers Must Provide RCFE Coverage with Facility and Comprehensive LTC Policies Minimum Benefit 70% of Nursing Home Benefit CIC §10232.92 (b) “California Residential Care Facilities coverage and home care benefits must be similarly provided in long term care insurance policies. The benefit amounts cannot be less than 70% of the benefit amount otherwise payable for a nursing home.” All expenses incurred by insured must be covered up to (but not to exceed daily maximum) Assisted living benefits in policies generally covers costs associated with room and board in facilities with 24-hour staff assistance and care available by full time staff. When one receives care in an assisted living residential care facility, formally called a Residential Care Facility for the Elderly in California, it must be covered in California's facility and comprehensive long-term care policies. These staff members assist residents in performing their activities of daily living. The facility also provides three meals a day. Benefit Eligibility Now, it is required that the policy offer benefits for Residential Care Facility for the Elderly specifically. In the past the California Insurance Code required that a person be offered a policy for care required in an assisted living center. The facilities must have 24-hour care provided by qualified staff. They must also provide three meals a day to include any special dietary requirements of the resident as well as have available to residents the services and medical care by physicians and nurses. For “out-of-state” facilities, they must be in sync with all appropriate licensing standards. They must offer continuous care in all relevant care and services to meet the needs of residents ranging from activities of daily to impairment in cognitive ability. They must be able to provide and administer the specific medication needs of their individual residents. Flexible Benefit Mandated Section 10232.93 of the CIC

In California, long-term care policies must allow the policy lifetime maximum amount to be used interchangeably for any of the benefits covered by the policy. If a policy covers both home and institutional care, the company is allowed to pay less each day for home care that for nursing home care.

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However, the company must continue to pay until the maximum amount of the policy is exhausted, unless the person dies, or does not meet the requirements of the policy. For example: If a policy pays $200 a day in a nursing home for 2 years and the daily home care benefit is $100, it could take four years to use up the maximum benefit for home care, but only two years for the nursing home care. California regulations speak to this issue in CIC 10232.93 when it states that: Policy Lifetime maximum must be stated in integrated pool of dollars CIC §10232.93 “In California, every long-term care policy or certificate must define the maximum lifetime benefit as a single dollar amount that may be used interchangeably for any home and community-based services, assisted living benefit, or institutional care covered by the policy or certificate. There can be no limit on any specific covered benefit except for a daily, weekly, or monthly limit set for home and community-based care and for assisted living care, and for the limits for institutional care.” CIC §10232.93 Outline of Topics for Inflation Protection in 8-hour LTC Course Outline of Topics for Inflation Protection in 8-hour LTC course shall include the following illustrations: CIC §10237.6 What things cost to live today will assuredly continue to cost more and more in the future. And, the longer we live, the more likely that we will have increased need for and larger costs associated with medical and care over the rest of our lives. When people buy long-term care insurance today, they generally have a lot of time and years to live before they die. Long-term care insurance was created for and is in existence to financially protection against and the dollars for the costs associated with the needs to have long term care and help pay for the long term care needs resulting from an illness. How to keep our incomes growing at a rate that will at least keep up with the effects of inflation on costs of things we want and need is the issue that we all have dealt with over the years. With long term care insurance and long-term care costs now and in the future, the issue here is how the long-term benefit amounts purchased today will be able to keep up with the rise in costs over the years, both near and longer term. No insurer may deliver or issue for delivery a long-term care insurance policy or certificate unless the insurer offers to each policyholder and certificate holder, in addition to any other inflation protection, the option to purchase a long-term care insurance policy or certificate that provides for benefit levels and benefit maximums to increase to account for reasonably anticipated increases in the costs of long-term care services covered by the policy. CIC §10237.6 Statutory Requirements CIC §10237.1 Applicant Must Be Offered 5% Annual Compounded Inflation Adjustments “Applicant must be offered 5% annual compounded inflation adjustments in benefits. In simple terms to be expanded later, California requires a 5% inflation increase provision to be offered to every policyholder that buys a long term policy.”

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Applicant Must Sign statement Refusing 5% Annual Compounded Adjustments The benefit does add to the cost of the coverage, so it is allowed to be optional. They have the right to either accept the benefit or to sign a statement refusing it. Past Increases in California Long-Term Care Costs We looked earlier in your text at the growing numbers of the aging population in California. We take a look specifically at the cost side of the equation to have a better grasp of history, as well as the future outlook using different scenarios and comparisons.

Annual increases in California nursing home rates for past 30 years (Office of Statewide Health Planning and Development, OSHPD, data)

Annual Increases in Nursing Home Rates Compared with(CPI) Consumer Price Index Annual increases in recent years have trended downward toward 5%, but still exceed CPI

Year Average Daily Nursing

Home Rate Percentage Increase From Previous Year

Consumer Price Index

1980 $42.89 12.01% 12.5% 1985 $62.20 7.0% 3.8% 1990 $87.80 6.6% 6.1% 1991 $92.67 5.5% 3.1% 1992 $98.09 5.8% 2.9% 1993 $101.29 3.3% 2.7% 1994 $105.43 4.1% 2.7% 1995 $110.78 5.1% 2.5% 1996 $116.05 4.8% 3.3% 1997 $118.69 2.3% 1.7% 1998 $123.25 3.8% 1.6% 1999 $127.80 3.7% 2.7% 2000 $132.33 3.5% n/a 2010 $239.00 n/a% n/a 2013 $268.00 n/a% n/a

California Office of Statewide Health Planning and Development Cost of Nursing Home Care Today Current Nursing Home Average Daily Rates in California Current Nursing Home Daily Rates in Various California Communities Nursing home care in urban areas like Los Angeles, San Francisco, Sacramento, and San Diego average from $217 per day to $311 per day. Rural areas cost vary as widely as in the larger metro areas. Costs vary widely across the USA as well as in California. Some notes on costs follow:

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The 2013 average for nursing home care in California is $97,820 per year that equates to $268 a day. The average Adult Day Care is $55.00 per day. The average Home Health Care is $90.00 per hour. The average Home Care cost is $21 per hour and $115.00 per day for live-in.

(Sea Shell Home Care, Los Osos, CA) (American Health Care) (American Health Care) (California Partnership’s Consumer Guide)

Nursing Home (Private Room)

Across California, nursing home costs have increased 4 percent over the past five years, compared to an increase of 5 percent across the U.S.(3) Costs are 16 percent greater in California than nationally for this type of care. Costs Vary by Area

Region

State

Daily Private Nursing Home Costs

Average Hourly Home Health Care Aide

Los Angeles CA $268 ($97,678) $20

San Diego CA $300 ($109,500) $21

San Francisco CA $562 ($205,130) $25

Genworth's 2013 Cost of Care Survey – 2013 See also Previous Page 16 for more CA areas

Estimate Life Expectancy for Applicants at Different Ages The Average Number of Remaining Years of Life for Different Ages - using California data are illustrated here:

Life Expectancies Current Age White Men Black Men White Women Black Women

50 27.1 more years 23 more years 31.9 more years 28.5 more years

55 22.9 more years 19.5 more years

27.5 more years 24.5 more years

60 19.1 more years 16.3 more years

23.2 more years 20.8 more years

70 12.4 more years 11 more years 15.6 more years 14.3 more years

75 9.6 more years 8.9 more years 12.2 more years 11.4 more years

80 7.2 more years 6.8 more years 9.2 more years 8.6 more years CA Agency on Aging

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Note: Half will live longer and Half Less Than The Average …but persons healthy enough to qualify for LTC insurance are expected to live longer than average Project Future Nursing Home Costs (NH) (For Daily Benefits and Average NH Stay of 2.25 years) Calculate Future Costs of $134 Per Day Using 5% Compounded Annual Increases Here we calculate future costs of $134 per day using 5% compounded annual increases for 14, 20 and 30 years (note costs double every 14 years if increases are 5% compounded)

Year: 3% Compound Increase 5% Compound Increase 2010 $48,874 $49,823 2015 $56,688 $63,588 2020 $65,717 $81,156 2025 $76,185 $103,578 2030 $88,320 $132,195 2035 $102,387 $168,718 2040 $118,693 $215,332

California Office of Statewide Health Planning and Development

Illustrated Daily/Annual Out of Pocket Costs without Inflation Protection - Compound (Compound Interest Model) Here we illustrate daily and annual out-of-pocket expenditures between policies with a daily benefit equal to the average NH cost but without inflation protection and 5% compounded annual increases

Year: 5% Compound Increase $136 /Day policy $ Out of Pocket

2000 $49,823 $49,823 $0 2005 $63,588 $49,823 $13,765 2010 $81,156 $49,823 $31,333 2015 $103,578 $49,823 $53,755 2020 $132,195 $49,823 $82,372 2025 $168,718 $49,823 $118,895 2030 $215,332 $49,823 $165,509

California Office of Statewide Health Planning and Development Illustrated Daily/Annual Out of Pocket Costs without Inflation Protection - Simple (Simple Interest Model) Here we illustrate the daily and annual out-of-pocket expenditures between policies without inflation protection and 5% simple annual increases

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Year: 5% Simple Increase $136 /Day policy $ Out of Pocket

2000 $49,823 $49,823 $0 2005 $62,279 $49,823 $12,456 2010 $74,734 $49,823 $24,911 2015 $87,191 $49,823 $37,367 2020 $99,647 $49,823 $49,823 2025 $112,102 $49,823 $62,279 2030 $124,559 $49,823 $74,735

California Office of Statewide Health Planning and Development Option to Purchase Inflation Protection for Benefits Requirement, Section 10237.1 of the CIC Application of Article CIC §10237 This article applies to all long-term care insurance policies delivered or issued for delivery in this state on or after January 1, 1991. Insurer must offer Inflation Protection CIC §10237.1 The inflation option, under the California Insurance Code, states that it would increase the benefit levels annually. It would cover specified percentage of actual or reasonable charges. It would guarantee the individual the right to increase benefit levels without the person having to provide evidence of insurability or health status as long as the option for the previous period has not been declined. In the past, long-term care costs in California have increased at an annual rate of more than 5%. Inflation Protection is intended to help maintain the value of the benefits one purchases today so they will keep up with future increases in the cost of care. One of the most important choices they will make is protecting against the rising costs of care. Inflation protection increases the Daily Maximum, the Maximum Lifetime Benefit, and other benefit amounts. If they purchase individual long-term care insurance, their insurer must offer them at the time they purchase their policy the option to purchase an inflation protection feature. 5 Percent Compounded Annually Unless Applicant signs Rejection Section 10237.5(a) of the CIC “Increases benefit levels annually in a manner so that the increases are compounded annually at a rate of not less than 5 percent.” Insurance companies must offer inflation protection which is no less favorable than the following options:

Increases benefit levels annual so that the increases are compounded annually at least 5%;

a Benefit Increase Option, or

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coverage of a specified percentage of actual charges without a maximum specified indemnity amount limit.

California law requires the insurer to offer the option of a 5% annual compound inflation protection feature that automatically increases their previous year's Daily Maximum and Lifetime Maximum Benefit amounts by 5%. If they decide not to purchase the 5% compound annual inflation protection feature, they will be asked to sign a rejection of the offer. If they do not purchase 5% compound inflation, some insurers may also offer them the option of a 5% (or other percentage) annual simple inflation protection that automatically increases each year the Daily and Lifetime Maximum Benefits by a fixed 5% of the amounts in their original policy. Section 10237.5(a) of the CIC Since they automatically include the annual increases in benefits one needs to keep pace with inflation, policies with inflation protection cost considerably more initially. While the premiums are designed to remain level, insurance companies may apply for rate increases that, if approved by the Department, will increase their premium in the future. To increase the benefit coverage amounts at stated intervals during the life of the policy (often referred to as guaranteed insurability or future purchase options), this option allows you to pay an additional premium Usually there are a limited number of increase options offered to you over the life of the policy. If you decide not to exercise this option one or more times when it is offered, you will lose any chances to increase your benefits in the future. Premiums will increase with the Benefit Increase Option each time one chooses to accept the insurer's offer to increase the coverage amounts. Because rates for older individuals are significantly higher and you will be older when each upgrade is offered, each Benefit Increase Option you accept will result in a larger premium increase than the prior offers. The premium increase for each benefit upgrade will be based on the amount of coverage added and your age at the time you exercise the Benefit Increase Option. The advantage of the Benefit Increase Option is that the initial premium you pay for the policy will be much lower than if you choose the Annual benefit increases Option. However, in the long run, you may end up paying more in total premiums to protect your benefits against inflation protection because of the additional premiums you must pay to purchase each Benefit Increase Option. Periodic Options to Increase “Guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status and without regard to claim status or history so long as the option for the previous period has not been declined. The amount of the additional benefit must be no less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least 5 percent for the period beginning with the purchase of the existing benefit and extending until the year in which the offer is made.” Percentage of Charges “Covers a specified percentage of actual or reasonable charges and does not include a maximum specified indemnity amount limit.” This type of policy may not cap the actual charges, so inflation protection is not an issue. At this time, no policy of this type is offered in California. This type of policy pays a specified

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percentage of actual charges, for example, the daily facility benefit is 80% of a facility's daily charge. An illustration of the effect of inflation on the cost of care, is something Agents must show clients, and how the benefits of a policy with and without inflation protection compare to the cost of care over time. Before one makes a decision, they might want to consult with a financial planner, an attorney, a HICAP counselor or a family member. CA Long-term care Rate Guide-A Guide to Long-Term Care California regulations outline these below as well as other key areas to be known and implemented in the process of providing long-term care for California residents. “No insurer may deliver or issue for delivery a long-term care insurance policy or certificate unless the insurer offers to each policyholder and certificate holder, in addition to any other inflation protection, the option to purchase a long-term care insurance policy or certificate that provides for benefit levels and benefit maximums to increase to account for reasonably anticipated increases in the costs of long-term care services covered by the policy.” “Insurers must offer to each policyholder and certificate holder, at the time of purchase, the option to purchase a long-term care insurance policy or certificate containing an inflation protection feature which is no less favorable than one that does one or more of the following:” Group policy offering CIC §10237.2 “The insurer of a group long-term care insurance policy must offer the holder of the group policy the opportunity to have the inflation protection extended to existing certificate holders, but the insurer is relieved if the holder of the group policy declines the insurer's offer.” Implications to Clients on Fixed Incomes Seniors on fixed incomes may not have the capacity in their incomes to keep up with the increases. The increases in benefits created by the options to increase also increases the cost of the benefits and the policies, as well. This should be considered when looking at the short -term and longer-term suitability of a LTC policy purchase. Mandated Offer Goes to Group Policyholder CIC §10237.1 “If the policy is issued to a group, the required offering must be made to the group policyholder; except that if the policy is issued to a group other than to a continuing care retirement community, the offering must be made to each proposed certificate holder.” Life Insurance with Accelerated Benefits & Expense Incurred Plans Exempt CIC §10237.3 “The previous requirements are not required of any of the following:

Life insurance policies or riders containing accelerated long-term care benefits. Expense incurred long-term care insurance policies. For purposes of this

subdivision, "expense incurred" does not include policies paying a certain

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percentage of reasonable and customary charges up to a specified, indemnity-type maximum amount.

HIPAA also allows Life Insurance Contracts to Pay an Accelerated Benefit in the event the insured suffers a chronic illness as defined in IRC Sections 7702(B) and 101(g)(1). The IRS is silent on chronic illness riders in annuity contracts” No Limits on Inflation Protection (age, claim status, claim history, policy term) CIC §10237.4(a) “Inflation protection benefit increases under a policy that contains these benefits must continue without regard to an insured's age, claim status or claim history, or the length of time the person has been insured under the policy.” Insurer Must Offer Level Premiums If Offering Automatic Increases CIC §10237.4(b) “An offer of inflation protection that provides for automatic benefit increases must include an offer of a premium which the insurer expects to remain constant. The offer must disclose in a conspicuous manner that the premium may change in the future unless the premium is guaranteed to remain constant.” No Reduction of Inflation Benefit Increase Due to Payment of Claims CIC §10237.4(c) “The inflation protection benefit increases under a policy or certificate that contains an inflation protection feature must not be reduced due to the payment of claims.” Insurer Must Provide 5% Compounded Unless Applicant Signs Rejection CIC §10237.5(a) “An inflation protection provision that increases benefit levels annually in a manner so that the increases are compounded annually at a rate not less than 5 percent must be included in a long-term care insurance policy unless the policyholder rejects it. Rejection, Verbatim CIC §10237.5(b) “The rejection, to be included in the application or on a separate form, must state: "I have reviewed the outline of coverage and the graphs that compare the benefits and premiums of this policy with and without inflation protection. Specifically, I have reviewed the plan, and I reject 5 percent annual compound inflation protection. ________________________ Signature of Applicant Date" Outline Of Coverage Must Include CIC §10237.6

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“An insurer must include the following information in or with the outline of coverage: A 20-year Graph Contrasting IP With No IP A graphic comparison of the benefit levels of a policy that increases benefits at a compounded annual rate of not less than 5 percent over the policy period with a policy that does not increase benefits. The graphic comparison must show benefit levels over at least a 20-year period. Expected Premium Increases to Pay for IP Any expected premium increases or additional premiums to pay for automatic or optional benefit increases. Illustration Must Be Reasonable An insurer may use a reasonable hypothetical or graphic demonstration for purposes of this disclosure.” Other Optional Forms of Inflation Protection Other optional forms of inflation protection include:

• automatic, simple and compound (USC), • consumer price index (CPI), and • future purchase option (FPO)

Agent Responsibilities and Prohibitions

Duty of Honesty, Good Faith, Fair Dealing This section has been amended as of 2000/SB 2107. CIC §10234.8 Every long-term care insurer and insurance agent owes every applicant and policyholder a duty of honesty, good faith and fair dealing. LTC agents have the responsibility to inform policyholders or prospective policyholders a duty of honesty, and a duty of good faith and fair dealing as well as explaining the difference between tax qualified and non-tax qualified policies, choices between home care only, nursing home only and comprehensive policies and benefit triggers for federal and state policies. Among other things, this duty means that advertisements and other marketing materials may not be misleading. Applicants must be given fair and accurate comparisons of policies. No excessive insurance or inappropriate replacement policies may be sold. High pressure tactics are expressly forbidden, and insurance agents must receive special training in order to sell long-term care insurance. The conduct of an insurer, broker, or agent during the offer and sale of a policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing. CA Long-term care Rate Guide-A Guide to Long-Term Care

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Long Term Care Training Section CIC §10234.93 Eight-Hour Mandatory Long-Term Care Continuing Education

For licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of training prior to each license renewal.

“Every insurer of long-term care in California must:

Establish marketing procedures to assure that any comparison of policies by its agents or other producers will be fair and accurate.

Establish marketing procedures to assure excessive insurance is not sold or

issued.

Submit to the commissioner within six months of the effective date of this act, a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions shall be updated at least semiannually.

Provide the following training and require that each agent or other insurer

representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following training requirements that, for resident licensees, shall be part of, and not in addition to, the continuing education requirements in Section 1749.3.

For licensees issued a license before January 1, 1992, eight hours of training

prior to each license renewal.

For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4.

Licensees shall complete the initial training requirements of this section prior to

being authorized to solicit individual consumers for the sale of long-term care insurance. The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines.

Display prominently on page one of the policy or certificate and the outline of

coverage: "Notice to buyer: This policy may not cover all of the costs associated

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with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations."

Inquire and otherwise make every reasonable effort to identify whether a

prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance.

Every insurer or entity marketing long-term care insurance shall establish

auditable procedures for verifying compliance with this subdivision.

Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222.

Provide a copy of the long-term care insurance shoppers guide developed by the

California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.

In addition to other unfair trade practices, including those identified in this code,

the following acts and practices are prohibited:

o Twisting. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer.

o High pressure tactics. Employing any method of marketing having the

effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.

o Cold lead advertising. Making use directly or indirectly of any method of

marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.” CIC §10234.93

Requirement — Section 10234.93 of the CIC Responsibilities of Long-Term Care Insurers Responsibilities of long-term care insurers with respect to marketing procedures, supplying list of agents, continuing education, buyer notification, inquiring about applicant’s existing insurance, auditable procedures, insurance counseling, and insurance shoppers guide; unfair trade practices. CIC §10234.93 Every insurer of long-term care in California shall:

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Establish marketing procedures to assure that any comparison of policies by its agents or other producers will be fair and accurate.

Establish marketing procedures to assure excessive insurance is not sold or issued.

Submit to the commissioner within six months of the effective date of this act, a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions shall be updated at least semiannually.

make specimen policy available on website and by request (Section 10237.93(a)(1 0) of the CIC)

Insurer must retain auditable procedures for compliance (Section 10234.93(a)(7) of the CIC)

Provide the following training and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following training requirements that, for resident licensees, shall be part of, and not in addition to, the continuing education requirements in Section 1749.3: (A) For licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of training prior to each license renewal. (B) For licensees issued a license before January 1, 1992, eight hours of training prior to each license renewal. (C) For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4. Licensees shall complete the initial training requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance. The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines.

Display prominently on page one of the policy or certificate and the outline of coverage: "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations."

Inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance.

Every insurer or entity marketing long-term care insurance shall establish auditable procedures for verifying compliance with this subdivision.

Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free

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of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222.

Provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.

In addition to other unfair trade practices, including those identified in this code, the following acts and practices are prohibited:

o Twisting. Knowingly making any misleading representation or

incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer.

o High pressure tactics. Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.

o Cold lead advertising. Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.

California Partnership Licensees shall complete the initial training requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance. The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines. State Reciprocity For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4. Suitability Standards CIC §10234.95 Long-term care insurance is not suitable for everyone. It is to everyone’s benefit if the right and suitable LTC policy is purchased and it is to everyone’s benefit if an unsuitable LTC policy is not purchased by a customer. No one wins when a client buys something that is unsuitable for them both in the short and longer terms.

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There are a number of considerations that should always be considered along with the client to determine if and how much and why they should buy protection. Companies and agents marketing, selling, and issuing LTC insurance are required to make reasonable efforts to determine the suitability of the LTC policy for their clients and customers. Current income and the longer-term picture of available funds to pay premiums even during one’s elder years is a key to the suitability issue. The clients wishes, goals, and needs for the future and how the LTC policy will help them achieve those objectives and goals is critical. And, the client’s current LTC insurance situation and/or policies and how they already fit the client’s situation should be considered in looking at the suitability of buying new LTC insurance. One would NEVER consider something like the race or religion of the client. All insurers marketing long-term care products have to develop and apply suitability standards to determine whether the purchase or replacement of a long-term care product is appropriate for the applicant. The insurers are required to train their agents in the implementation of their suitability standards to make sure they are being used properly. Insurers and agents must follow specific procedure and use specific forms in conjunction with their clients when determining if the LTC policy is suitable. Records have to be retained by the client and the company and agent. The information on the suitability forms cannot be used for any other reason than determining suitability of the proposed insurance. Insurers and agents have to use suitability standards in the issuing and marketing of LTC insurance. Companies must maintain their suitability standards in written form and make them available, if requested, for the commissioner to view. Company Standards To determine whether the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant, insurance companies develop and use suitability standards. The company’s develop procedures that take into consideration the consumer's ability to pay for the insurance, the consumer's goals or needs with respect to long-term care, including advantages and disadvantages of the insurance to meet these goals and needs, and the value, benefits, and costs of the existing policy (if there is one), when compared to the values, benefits, and costs of the replacement policy. They must have and develop suitability standards and scenarios that point to situations where the insurance is not in sync with the issuance of the policy. They are in a better situation to work with their client’s at the time of the presentation and the sale and application process to weed out those who are not suitable before it reaches the company by having their agents understand the standards The following items from the California Insurance Code relate directly to the suitability arena and serve to alert insurers and agents once again of the responsibility they have to insure that an applicant has the proper long-term care insurance, ability to pay for it and to also enable the client to compare insurance rates. Because this is so important, it is quoted here in its entirety.

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The 1993 California Insurance Code 10234.95 says that an agent must make reasonable efforts to determine the appropriateness of a recommended purchase or replacement.

The insurer or anyone else marketing long-term care insurance must:

• Develop and use suitability standards to determine whether the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant.

• Train its agents in the use of its suitability standards. • Maintain a copy of its suitability standards and make them available for

inspection upon request by the commissioner. • The agent and insurer shall develop procedures that take into consideration,

when determining whether the applicant meets the following standards developer by the insurer, the following:

Does the applicant have the ability to pay for proposed coverage and what affect it would have on other financial obligations the applicant might have? The applicant’s goals and needs with respect to long-term care and the advantages or disadvantages of insurance to meet those goals or needs. Finally, does the applicant have other insurance, and if so, how does it compare to the values, benefits and cost of the recommended purchase or replacement?

a) The issuer and agent shall make reasonable efforts to obtain the information set out above.

b) The efforts shall include presentation to the applicant at or prior to application of the “Long-Term Care Insurance Worksheet”

c) The worksheet shall contain the information in the NAIC in not less than 12-point type. The insurer may request applicant to provide additional information to comply with its suitability standards.

d) In the premium section of the personal worksheet, the insurer shall disclose all rate increases and rate increase requests for all policies, whether issued by insurer or purchased or acquired from another insurer, in the United States on or after January 1, 1990.

e) The premium section shall include a statement that reads as follows: CIC 10234.95

f) A consumer may decline to provide information to an agent or the company (Section10234.95(h) of the CIC)

“A rate guide is available that compares the policies sold by different insurers, the benefits provided in those policies, and sample premiums. The rate guide also provides a history of the rate increases, if any, for the policies issued by different insurers in each state they do business in, since January 1, 1990. You can obtain a copy of this rate guide by calling the Department of Insurance’s toll-free telephone number (1-800-927-help) by calling the Health Insurance Counseling and Advocacy Program (HICAP) toll-free number (1-800-434-0222), or by accessing the Department of Insurance’s Internet Web site (www.insurance.ca.gov).” CIC 10234.95 If the personal worksheet is approved prior to the availability of the rate guide, the worksheet shall indicate that rate guide will be available by December 1, 2000.

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a) A copy of the issuer’s personal worksheet shall be filed and approved by the Commissioner. A new personal worksheet shall be filed and approved each time a rate increase in California and each time a new policy is filed for approval by the commissioner. The new personal worksheet shall disclose the amount of the rate increase in California and all prior rate increases in California as well as all prior rate increases and rate increase requests or filings in any other state. The insurer shall use the new personal worksheet within 60 days of approval by the commissioner in place of the previously approved worksheet.

b) A completed personal worksheet shall be returned to the issuer prior to the issuer’s consideration of the applicant for coverage, except the personal worksheet need not be returned for sale of employer group long-term care insurance to employees and their spouses and dependents.

c) The sale or dissemination outside the company or agency by the issuer or agent of information obtained through the personal worksheet is prohibited.

d) The issuer shall use the suitability standards it has developed pursuant to this section in determining whether issuing long-term insurance coverage to an applicant is appropriate.

e) Agents shall use the suitability standards develop by insurer in marketing long-term care insurance.

f) If the issuer determines that the applicant does not meet its financial suitability standards, or if the applicant has declined to provide the information, the issuer may reject the application. Or the issuers shall send the applicant a letter similar to the “Long-Term Care Insurance Suitability Letter” contained in the Long-Term Care Model Regulations of the National Association of Insurance Commissioners. If the applicant has declined to provide financial information, the issuer may use some other method to verify the applicant’s intent. Either the applicant’s returned letter or a record of the alternative method of verification shall be made a part of the applicant’s file.

g) The insurer shall report annually to the commissioner the total number of applications received from residents of this state, the number of those who declined to provide information on the personal worksheet, the number of applicants who did not meet the suitability standards and the number who chose to conform after receiving a suitability letter.

This section shall not apply to life insurance policies that accelerate benefits for long-term care. CIC 10234.95 Agents should understand how the company’s suitability policy guidelines determine when LTC insurance is not appropriate. Improvement of insured's position Replacement shall be contingent upon the insurer's declaration that the replacement policy materially improves the position of the insured, pursuant to Section 10235.16. Additional Insurer Obligations In addition to any other requirements of law, the following shall apply to a long-term care insurance policy:

• Insurers may not require an amount greater than one month' s premium to be submitted with an application for the policy of insurance if interim coverage is not

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provided. If interim coverage is provided, the insurer may not require an amount greater than two months' premium for that purpose. No further premiums may be collected until the policy is delivered to the applicant.

• The insurer must notify the applicant within 60 days from the date the insurer or insurer's authorized representative or producer receives the application and the amount as to whether or not the applicant will be issued a policy of insurance. If the applicant is not so notified, the insurer or insurer's authorized representative or producer must pay interest to the applicant on the funds that the applicant submitted with the application, at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure, from the date the insurer or insurer's authorized representative or producer received those funds until they are refunded to the applicant or are applied toward the premium. (Section 10232.65 of the CIC)

FORMS REQUIRED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) AND STATE LAW California State law and NAIC require that a Long Term Care Insurance Worksheet be included so as to help the agent and the insurance company to see if the client should buy a long-term care insurance policy. A Long Term Care Insurance Suitability Letter is also required along with the Long Term Care Insurance Worksheet which is included below. Long Term Care Suitability Letter (Source: 1997 National Association of Insurance Commissioners) Dear (Applicant): Your recent applicant for long-term care insurance included a “personal worksheet”, which asked questions about your finances and your reasons for buying long term care insurance. For your protection, state law requires us to consider this information when we review your application, to avoid selling a policy to those who do not need coverage. (Your answers indicate that long-term care insurance may not meet your financial needs. We suggest you review the information provided along with the application, including the booklet “Shoppers’s guide to long-term Care Insurance”. Your state insurance department also has information about long-term care insurance and may be able to refer you to a counselor free of charge who can help you decide whether to buy this policy.) (You chose not to provide any financial information for us to review) Note: Insurer choose the paragraph that applies. We have suspended our final review of your application. If, after careful consideration, you still believe this policy is what you want, check the appropriate box below and return this letter to us within the next 60 days. We will then continue reviewing your application and issue a policy if you meet our medical standards. If we do not hear from you within the next 60 days, we will close your file and not issue you a

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policy. You should understand that you will not have any coverage until we hear back from you, approve your application and issue you a policy. Please check one box and return in enclosed envelope. Yes, (although my worksheet indicate that long-term care insurance may not be a suitable purchase,) I wish to purchase this coverage. Please resume review of my application. Drafting Note: Delete the phrase in brackets if the applicant did not answer the questions about income. No, I have decided not to buy a policy at this time. ____________________________ _________________ APPLICANT’S SIGNATURE DATE Please return to (issuer) at (address) by (date) Personal Worksheet CIC §10508.5 Agent Retention of Records for Five Years “It is the obligation of each life, life and disability, and disability insurance agent and any other agent and insurer to preserve and maintain all applicable records defined in Section 10508 in his or her possession, in addition to those records transmitted to the insurer, at his or her principal place of business for a minimum of five years. The records shall be kept in an orderly manner so that the information therein is readily available, and shall be open to inspection or examination by the commissioner at all times.” CIC §10508.5 LONG TERM CARE INSURANCE PERSONAL WORKSHEET (Source: National Association of Insurance Commissioners, Suitability, Section 21, 1997) This worksheet is for the purpose of establishing suitability for a prospect to buy long-term insurance because not everyone needs this type of insurance. The State of California requires all insurance companies to have applicants fill this out before buying long-term care insurance. Must be in 12 point type at time of application. Premium The premium for the coverage you are considering will be $_________per month, or $__________per year. (A one-time single premium of $_____________.) (The company cannot raise your rates on this policy.) (The company has a right to increase premiums in the future.) The company has sold long-term care insurance since (year) and has sold this policy since (year). (The last rate increase for this policy in this state was in (year), when premiums went up by an average of (%). (The company has not raised its rates for this policy.) Drafting Note: The issuer shall use the bracketed sentence or sentences applicable to the

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product offered. If a company includes a statement regarding not having raised rates, it must disclose the company’s rate increases under prior policies providing essentially similar coverage. (Have you considered whether you could afford to keep this policy if the premiums are raised, for example by 20%?) Drafting Note: The issuer shall use the bracketed sentence unless the policy is fully paid up or is a noncancellable policy. Income Where will you get the money to pay each year’s premium? Income Savings Family Members What is your annual income? (check one) Under $10,000 ($10-20,000) ($20-30,000) ($30,50,000) Over $50,000 Note: The insurer may choose the number to put in brackets to fit its suitability standards. How do you expect your income to change over the next 10 years? (check one) No change Increase Decrease If you will be paying premiums with money received only from your own income, a rule of thumb is that you may not be able to afford this policy if the premiums will be more than 7% of your income. Savings and Investments Not counting your home, what is the approximate value of all your assets (savings and investments)? (check one) under $20,000 $20,000-$30,000 $30,000-$50,000 Over $50,000 How do you expect your assets to change over the next ten year? (check one) Stay about the same Increase Decrease If you are buying this policy to protect your assets and your assets are less than $30,000, you may wish to consider other options for financing your long-term care. Disclosure Statement The information provided above accurately I choose not to complete this describes my financial situation. Information. Signed_________________________________ ___________________________ (Applicant) (Date) ( I explained to the applicant the importance of completing this information. Signed:__________________________ _____________________ (Agent) (Date) Agent’s Printed Name____________________________________________) (Note: In order for us to process your application, please return this signed statement to (name of company) along with your application)

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(My agent has advised me that this policy does not appear to be suitable for me. However, I still want the company to consider my application. Signed_____________________________ _____________________ (Applicant) (Date) The company may contact you to verify your answers. To provide a model for determining suitability or lack of suitability as the case may be for the variety of consumers that explore the need for and the purchase of long-term care insurance the model language contained in these above forms has been specially designed. Every insurer and other entity marketing LTC insurance are required to use The 1996 NAIC Suitability Standards. The key in determining suitability and affordability of the insurance, both now and in the future is the ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage. As premiums and needs for more coverage get larger, the capacity to be able to continue to afford it in the future is paramount. Current income and what the prospects are for future increases in income both decide suitability in being able to really afford the coverage now and down the line. As the level of assets may be so low as to point the consumer to those state programs that are more in line with their assets, assets now and anticipated asset totals in the longer term are critical to know. They may not benefit by paying premiums when they would be better off relying on Medi-Cal in the future. The purchase of LTC coverage is more in line with preservation of assets for future generations by having LTC benefits pay for costs so assets are preserved if their assets are significant and beyond the asset that would have to be spent down to qualify for Medi-Cal. A person may have sizable assets and not have goals that would require that LTC benefits pay instead of their using assets to provide care. An important consideration is the applicant’s goals or needs with respect to LTC and the advantages and disadvantages of the insurance to meet those goals or needs. Based on personal goals, assets, and family inheritance issues, partially funding the risk and partially funding care cost out of pocket may be a consideration. Family longevity and health histories may direct some to decide that nursing or home care or both are things that they want to cover. Key to the decision making process are the values, benefits and cost of the applicant’s existing insurance, if any, when compared to the values, benefit and costs of the recommended purchase or replacement. All of these are reasons, along with income and assets in determining suitability. Does the new policy solve the financial needs now and in the future better than what was bought previously? Are tax considerations more important now with a larger income than was evident when the first one was bought. Can the company amend the old one rather than buy a new one. Are health

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considerations now different than when the older one was purchased. If so, then how will that affect the new policy when it goes to underwriting? Agents should have a solid understanding of the basic NAIC model requirements and the reasoning behind them even though it is the carrier responsibility to develop and use suitability standards and train its agents on its use.

Replacement Replacement Coverage CIC §10234.97 RE: Sales commission; basis on improvement of insured’s position; applicability; definition; filing of commission structure The sales commission, any time long-term care coverage is replaced, that is paid by the insurer and that represents the percentage of the sale normally paid for first year sales of long-term care policies or certificates shall be calculated based on the difference between the annual premium of the replacement coverage and that of the original coverage. The sales commission shall be limited to the percentage of sale normally paid for renewal of long-term care policies or certificates if the premium on the replacement product is less than or equal to the premium for the product being replaced,. Replacement shall be contingent upon the insurer's declaration that the replacement policy materially improves the position of the insured, pursuant to Section 10235.16. This provision does not apply to replacement coverage which is group insurance as described in subdivision (a) of Section 10231.6.

For purposes of this section, "commission or other compensation" includes pecuniary or non-pecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate including, but not limited to, bonuses, gifts, prizes, awards, and finder's fees.

Every long-term care insurer shall file with the commissioner within six

months of the effective date of this section, its commission structure or an explanation of the insurer's compensation plan. Any amendments to the commission structure shall be filed with the commissioner before implementation.

Replacement Commissions -- difference between replacement and original coverage. Insurer must declare ‘material improvement’. Basis on Improvement of Insured's Position “Replacement shall be contingent upon the insurer's declaration that the replacement policy materially improves the position of the insured, pursuant to Section 10235.16. Any time long-term care coverage is replaced, the sales commission that is paid by the insurer and that represents the percentage of the sale normally paid for first year sales of long-term care policies or certificates shall be calculated based on the difference between the annual premium of the replacement coverage and that of the original coverage. If the premium on the replacement product is less than or equal to the premium for the product being replaced, the

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sales commission shall be limited to the percentage of sale normally paid for renewal of long-term care policies or certificates. This provision does not apply to replacement coverage which is group insurance as described in subdivision (a) of Section 10231.6.” Permitted Commissions CIC §10234.97 “No insurer, broker, agent, or other person shall cause a policyholder to replace a long term care insurance policy unnecessarily. Nothing in this section shall be construed to allow an insurer, broker, agent, or other person to cause a policyholder to replace a long term care insurance policy that will result in a decrease in benefits and an increase in premium. It shall be presumed that any third or greater policy sold to a policyholder in any 12-month period is unnecessary within the meaning of this section. This section shall not apply to those instances in which a policy is replaced solely for the purpose of consolidating policies with a single insurer.” Definition Includes Any Kind of Compensation “For purposes of this section, "commission or other compensation" includes pecuniary or non-pecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate including, but not limited to, bonuses, gifts, prizes, awards, and finder's fees.” CIC §10234.97 Filing of Commission Structure Commission Structure Filed with Commissioner Within Six Months “Every long-term care insurer shall file with the commissioner within six months of the effective date of this section, its commission structure or an explanation of the insurer's compensation plan. Any amendments to the commission structure shall be filed with the commissioner before implementation.” Prohibition of Unnecessary Replacement Q15 Rules governing replacement and the consequences of such an action depend on when the policy was issued. In general, an insurer, broker, agent or other person is prohibited from causing a policyholder to replace a long-term care insurance policy unnecessarily. In California, the code also presumes that any third or greater policy sold to a policyholder in any 12-month period is unnecessary unless a policy is replaced for the sole purpose of consolidating policies with a single insurer. Legislation clearly targets the exposure of agents with higher-than normal policy replacements and lapses. While replacement and lapses do not alone constitute a violation of insurance law, it is clear the DOI wants to monitor potential abuses. Further, with mandatory premium credits in place it may be economically unfeasible for agents to consider or recommend aggressive replacement of previous policies unless warranted. The California Insurance Code 10234.85 states that no insurer, broker, agent, or other person shall cause a policyholder to replace a long-term care insurance policy unnecessarily. Nothing in this section shall be construed to allow an insurer, broker, agent, or other person to cause a policyholder to replace a long-term care insurance policy that will result in a decrease in benefits and an increase in premium. It

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shall be presumed that any third or greater policy sold to a policyholder in any 12-month period is unnecessary within the meaning of this section. This section shall not apply to those instances in which a policy is replaced solely for the purpose of consolidating policies with a single insurer. Because of in-force rate increases, carriers struggling financially it may be necessary to develop some clear guidelines for agents when replacement is appropriate. CIC §10234.85 Replacement Form Includes a Comparison of Existing and Proposed Coverage Notice Must Be Delivered Before Delivery of Policy Upon determining that a sale will involve replacement, an insurer (other than an insurer using direct response solicitation methods) or its agent must furnish the applicant a notice regarding replacement of accident and sickness or long-term care coverage prior to issuance or delivery of a policy or certificate. Of this notice, one signed copy has to be retained by the applicant and an additional copy, signed by the applicant, must be retained by the insurer. Mandated Form of Notice before Delivery of the Policy The required notice shall be provided in the following form: California requires a specific form to be used: "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 long-term care insurance and replace it with long-term care insurance coverage to be issued by (company name) Insurance Company. Your new coverage provides thirty (30) days within which you may decide, without cost, whether you desire to keep the coverage. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new coverage. (Notice of 30 day free look) (1) Health conditions which you may presently have (preexisting conditions), may not be

immediately or fully covered under the new coverage. This could result in denial or delay in payment of benefits under the new coverage, whereas a similar claim might have been payable under your present coverage. (Pre-existing conditions warning)

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

proposed replacement of your present coverage. 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. (Contact your present insurer)

(3) If, after due consideration, you still wish to terminate your present coverage and replace it

with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical health history. Failure to include all material medical

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information on an application may provide a basis for the company to deny any future claims and to refund your premium as though your coverage had never been in force. After the application has been completed and before you sign it, reread it carefully to be certain that all the information has been properly recorded. (Warning: misstatement may = rescission)

The above "Notice to Applicant" was delivered to me on: ____________________________________ (Date) ____________________________________ (Applicant's Signature)" I. For group coverage not subject to the 30-day return provision of Section 10232.7, the notice shall be modified to reflect the appropriate time period in which the policy may be returned and premium refunded. (Modify Notice if 30-day free look does not apply) II. The replacement notice shall include the following statement except when the replacement coverage is group insurance as described in subdivision (a) of Section 10231.6: COMPARISON TO YOUR CURRENT COVERAGE: I have reviewed your current long-term care coverage. To the best of my knowledge, the replacement of insurance involved in this transaction materially improves your position for the following reasons: ____ Additional or different benefits (please specify) ______. ____ No change in benefits, but lower premiums. ____ Fewer benefits and lower premiums. ____ Other (please specify) ______. ____________________________________________ (Disclaimer by agent and insurer: COMPARISON TO YOUR CURRENT COVERAGE: Replacement materially improves your position – reasons must be listed) (Signature of Agent and Name of Insurer) ____________________________________________ (Signature of Applicant) ____________________________________________ (Date) As a further note in this regard, insurers using direct response solicitation methods must deliver a notice regarding replacement of accident and sickness or long-term care coverage to the applicant upon issuance of the policy or certificate. The required notice must be provided to the applicant in the following form: CIC §10235.18 The “Mandated” form of Notice is printed for you here: "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 long-term care insurance and replace it with long-term care insurance coverage to be issued by (company name) Insurance Company. Your new coverage provides thirty (30) days within which you may decide, without cost, whether you desire to keep the coverage. For your own information and protection, you should be aware of and seriously consider certain factors that may affect the insurance protection available to you under the new coverage.

(1) Health conditions which you may presently have (preexisting conditions), may not be immediately or fully covered under the new coverage. This could result in denial or delay in payment of benefits under the new coverage, whereas a similar claim might have been payable under your present coverage.

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

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proposed replacement of your present coverage. 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) (3) If, after due consideration, you still wish to terminate your present coverage and replace it with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical health history. Failure to include all material medical information on an application may provide a basis for the company to deny any future claims and to refund your premium as though your coverage had never been in force. After the application has been completed and before you sign it, reread it carefully to be certain that all the information has been properly recorded. The above "Notice to Applicant" was delivered to me on:

____________________________________(Date) ____________________________________ (Applicant's Signature)" Agents Should Be Able to Interpret Older Policies Agents must be able and competent in reading and understanding older as well as newer policies. This is essential so that you can know and understand where the services and benefits under older policies may be more restrictive and not benefit bearing, especially if you are helping someone to evaluate policies for the eventual replacement of one for another. Agents must be taught to read older policies and understand why the services may be more restrictive than those described in the newer policies. Agents should be able to explain both the newer and older ones fully when an older policy is replaced, and be able to accurately identify the reason for replacement and whether it constitutes a material improvement in the agent certification statement on the application. CIC 10235.16 Agent Requirement for Replacement Notice CIC §10235.16 Agents must take special care and be well versed in both the policy being replaced as well as the new one they are recommending to be purchased. Replacement of policies is serious business and great care and caution must be taken whenever this is done. Agents who recommend replacing policies owe it to their clients to make every effort to compare policies to make sure that the client ends up in a better position with the new policy than they had with their original one. There are some who would want to replace policies for the sake of making a commission. In order to make it difficult for some to do this in a way that the client may not know about the replacement and/or may not be made aware of the differences between the two, California introduced statutes to make it’s residents and agents do replacement of policies in an organized, documented way with a process to follow for the benefit of all concerned; company, client, and agent. “Long-term care insurance application forms must include a question designed to elicit information as to whether the proposed insurance is intended to replace any other accident and sickness or long-term care insurance presently in force. They provided for a supplementary application or other form to be required to be signed by the applicant with a question of whether this application was for replacement or not.” CIC §10235.16

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Disclosure 30-Day Free Look CIC §10232.7 “An applicant for a long-term care insurance policy or a certificate, other than an applicant for a certificate issued under a group long-term care insurance policy issued to a group, shall have the right to return the policy or certificate by first-class United States mail within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason. The return of a policy or certificate shall void the policy or certificate from the beginning and the parties shall be in the same position as if no policy, certificate, or contract had been issued. All premiums paid and any policy fee paid for the policy shall be fully refunded directly to the applicant by the insurer within 30 days after the policy or certificate is returned. Notwithstanding Section 10276 or any other law, long-term care insurance policies or certificates to which this section applies shall have a notice prominently printed on the first page of the policy or certificate, or attached thereto, stating in substance the conditions.” “Purchasers of individual long-term care insurance (except purchasers through employer groups or trade associations) have the right to review the policy or certificate for 30 days after they receive it. If they decide not to buy the insurance, for any reason, they may return the policy to the insurer or the agent without explanation, and all the money they paid will be refunded to them. Policyholders should always keep a record of the date when received the policy and the date they returned it, or return it by certified mail.)” CIC §10232.7 Outline of Coverage (OOC) CIC §10233.5 Agents are required to provide a prospective applicant (the prospect) for long-term care insurance an Outline of Coverage (OOC) at the time of initial solicitation in such a way as to prominently direct the attention of the prospect to the document and its purpose, i.e., it should be a freestanding document. If the agent solicited the prospect, the agent must deliver the Outline of Coverage prior to the presentation of an application or enrollment form. In the case of a direct response solicitation, the Outline of Coverage must be provided along with any application or enrollment form. Insurers/Agents to Provide "Taking Care of Tomorrow" to Applicant Insurers/Agents are to provide "Taking Care of Tomorrow" to applicant. This booklet can be accessed on the Department of Aging's web site at www.aging.ca.gov. It provides more in-depth information on a broad spectrum of long-term care issues. Agents must give their prospects and clients a copy of it when they attempt to sell someone a long-term care insurance policy. That booklet is also available from the local HICAP project. HICAP is the Health Insurance Counseling and Advocacy Program sponsored by the Department of Aging and funded in part by the Department of Insurance. It provides free counseling on long-term care insurance, as well as on Medicare and Medicare supplement policies. Call 1-800-434-0222 to find the local project in one’s community. A booklet is published by the National Association of Insurance Commissioners (NAIC) also called "A Shopper's Guide to Long-Term Care Insurance." It is available by calling the California Department of Insurance at 1-800-927-HELP (1-800-927-4357). There are detailed worksheets in the NAIC publication that may help Californians choose the coverage they need.

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California Department of Insurance’s (CDI) Toll Free Consumer Services Information is also available through CDI's Toll Free Consumer Services 1-800-927-HELP and counseling is available through HICAP at telephone numbers 1-800-434-0222 and the local HICAP) which can also be accessed on the Department of Aging’s website at www.aging.ca.gov (Section 10234.93(a)(9) of the CIC) Availability of a Consumer Rate Guide CIC §10234.6 & CIC §10236.11 –10236.15 Why and Implications to Agent So that they can make an informed choice now, the rate guide provides current and historical knowledge to the consumer and agents, as well. So that the mystery can be cleared up so they have a better handle on the future relative to their potential future costs and how they might deal with that eventuality, it allows them to have a grasp on the future. Because of the frequent and common concerns voiced by purchasers of long-term care insurance, it is an important issue. How consumers will be able to afford their coverage when they get older, when they stop working and when they have limited income for the rest of their lives. This is combined with the eventuality that rates will go up for the same coverage, as well as the reality that they will have to increase their benefit coverage levels and premium over the years to offset the inflationary costs of care and coverages. Unlike regular health insurance, LTCI pre-funds an event that, for the most part, occurs once and later in life. Policyholders typically pay premiums for 15 years or more, before accessing benefits. Rate stability is one of the most important regulatory issues in long term care insurance (LTCi). Since many people are on fixed incomes when they need care, a large rate increase can often compromise their ability to retain coverage, laying waste to years of premium payments. Rate Guide for LTC Insurance Publish Annually by CDI/HICAP “The commissioner will, by June 1 of each year, jointly design the format and content of a consumer rate guide for long-term care insurance with a working group that includes representatives of the Health Insurance Counseling and Advocacy Program, the insurance industry, and insurance agents. The commissioner shall annually prepare the consumer rate guide for long-term care insurance that shall include, but not be limited to, the following information: Different Kinds of LTC Insurance and Coverages Available to Consumers “A comparison of the different types of long-term care insurance and coverages available to California consumers.” Premium History of Each Insurer The consumer rate guide includes a premium history of each insurer that writes long-term care policies for all the types of long-term care insurance and coverages issued by the insurer in each state.

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Two parts comprise the consumer rate guide:

a history of the rates for all policies issued in the United States on or after January 1, 1990, and

a comparison of the policies, benefits, and sample premiums for all policies currently being issued for delivery in California.

The department collects, and each insurer provides to the department all of the following information for each long-term care policy, including all policies, whether issued by the insurer or purchased or acquired from another insurer, issued in the United States on or after January 1, 1990 for the rate history portion of the rate guide required by this section:

Company name. Policy type. Policy form identification. Dates sold. Date acquired (if applicable) Premium rate increases requested. Premium rate increases approved. Dates of premium rate increase approvals. Any other information requested by the department.

Whether issued by the insurer or purchased or acquired from another insurer, the department collects, and each insurer provides to the department, the information needed along with any other information requested by the department, for each long-term care policy currently issued for delivery in California, including all policies. The department will include in that section of the form for that policy a statement explaining that a policy fitting that criteria is not offered by the insurer and that the consumer may seek, from an agent, sample premium information for the insurer's policy that most closely resembles the policy in the sample if an insurer does not offer a policy for sale that fits the criteria set forth in the sample premium portion of the policy comparison section of the rate guide. The department separates the group policies from the individual policies available for sale so that group policies for all insurers appear together in the guide and individual policies for all insurers appear together in the guide. The rate guide contains a cross-reference for each policy form listed indicating the page in the rate guide where rate information on the policy form can be found. The consumer rate guide is published no later than December 1st of each year. Modes of Distributions for Rate Guide CIC §10234.6(d) The consumer rate guide is distributed using all of the following methods: HICAP (1/800-434-0222)

Through Health Insurance Counseling and Advocacy Program (HICAP) offices. (1/800-434-0222)

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CDI toll-free number (1/800-927-HELP (4357)

By telephone using the department's consumer toll-free telephone number. (1/800-927-HELP (4357)

CDI Internet Web Site (www.insurance.ca.gov)

On the department's Internet web site. (www.insurance.ca.gov) Long-Term Care Insurance Personal Worksheet

A notice in the Long-Term Care Insurance Personal Worksheet required by Section 10234.95.

“Notwithstanding any other provision of law, the data submitted by insurers to the department pursuant to this section are public records, and is open to inspection by members of the public. However, a trade secret, is not subject to this subdivision.” CIC §10234.6 Consumer Protection CIC §10234.6 and §10234.8 – 10234.97 Insurers, Brokers, and Agents; Duty of Honesty, Good Faith and Fair Dealing “High pressure tactics are expressly forbidden, and insurance agents must receive special training in order to sell long-term care insurance. Applicants must be given fair and accurate comparisons of policies. Long-term care insurer and insurance agents owe every applicant and policyholder a duty of honesty, good faith and fair dealing. Among other things, this duty means that advertisements and other marketing materials may not be misleading. No excessive insurance or inappropriate replacement policies may be sold.” CA Long-term care Rate Guide-A Guide to Long-Term Care “All insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing. Conduct of an insurer, broker, or agent during the offer and sale of a policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing.” CIC §10234.8 Replacement Sales and Lapse Rates; Maintenance of Agent Records; Reports CIC §10234.86

Every insurer shall maintain records for each agent of that agent's amount of replacement sales as a percent of the agent' s total annual sales and the amount of lapses of long-term care insurance policies sold by the agent as a percent of the agent's total annual sales.

Every insurer shall report annually by June 30, the 10 percent of its agents in the

state with the greatest percentage of lapses and replacements as measured by subdivision (a).

Every insurer shall report annually by June 30, the number of lapsed policies as

a percent of its total annual sales in the state, as a percent of its total number of policies in force in the state, and as a total number of each policy form in the state, as of the end of the preceding calendar year.

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Every insurer shall report annually by June 30, the number of replacement

policies sold as a percent of its total annual sales in the state and as a percent of its total number of policies in force in the state as of the end of the preceding calendar year.

Reported replacement and lapse rates do not alone constitute a violation of

insurance laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.

Replacement of Long Term Care Insurance Unnecessarily; Application “No insurer, broker, agent, or other person may cause a policyholder to replace a long term care insurance policy unnecessarily. Nothing in this section shall be construed to allow an insurer, broker, agent, or other person to cause a policyholder to replace a long term care insurance policy that will result in a decrease in benefits and an increase in premium. It shall be presumed that any third or greater policy sold to a policyholder in any 12-month period is unnecessary within the meaning of this section. This section shall not apply to those instances in which a policy is replaced solely for the purpose of consolidating policies with a single insurer.” Should I Replace My Existing Policy with a Newer One? Replacing an older policy has the advantage that newer policies may offer more desirable benefits and features and fewer restrictions. Assisted living in a Residential Care Facility for the Elderly (RCFE), Home Care benefits, Inflation Protection, and no requirements for a prior hospital stay are some of the benefits and features being offered in current long-term care products. However, just because a policy is newer does not necessarily mean it is better than the one you have. In some instances, your insurer may be required to offer you its newer policy, but you may have to undergo new underwriting to obtain the new coverage. A replacement disadvantage is that the insurance company will charge higher premiums because you are older than you were when you bought your original policy. In addition, if you have any preexisting conditions or you are 80 years old or older, Before you add benefits to an existing older policy you should check with your agent, company, or tax advisor to see if you will lose the grandfathered tax status granted policies purchased prior to January 1, 1997.companies may refuse to issue new coverage. If you are still insurable you might consider adding new coverage to the benefits you already have, or buying an additional policy to supplement your existing benefits. Whenever you are considering replacing a policy, consulting a HICAP counselor is recommended. CA Long-term care Rate Guide-A Guide to Long-Term Care Marketing Guidelines CIC §10234.93 Issues Affect Insurers, Agents and Consumers “The insurance producer has the duty of honesty, good faith and fair dealing. Agents must comply with on-going changes in policies and the law. An agent is guiding clients in a decision that may be one of the most important they will ever make so it is vital that he or she maintain the highest standards and fully understand obligations.

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In addition, he must make sure to avoid any of the following which shall be construed as being an unfair practice, unfair methods of competition, or unfair and deceptive acts.” CIC §10234.93

Agent Responsibilities “Every agent of long-term care in California must be mindful and do certain thing as they go about helping others to plan and purchase for their long-term care needs.” CIC §10234.93 Fair and Accurate Comparisons “Consumers need to have the right amount of accurate information to make the best decisions for themselves and their families. Every agent of long-term care in California must establish marketing procedures to assure that any comparison of policies by them will be fair and accurate.” CIC §10234.93 No Excessive Insurance

“Insurance is expensive and consumers need to be assisted in buying the right amount. They should be helped to buy only what they need. Every agent of long-term care in California must establish marketing procedures to assure excessive insurance is not sold or issued.” CIC §10234.93 Try to Determine Applicant’s Existing Coverage “Every agent of long-term care in California must inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance. Every agent of long-term care in California must provide a "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations." And, the agent should discuss the factors surrounding this fact.” CIC §10234.93

Must Establish Auditable Procedures

“Every agent of long-term care in California must establish auditable procedures for verifying compliance with this subdivision.” CIC §10234.93 Provide California Department of Aging Shoppers Guide Prior to Application “Every agent of long-term care in California must provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.” CIC §10234.93 Complete Required Continuing Education “Agents must complete eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of training prior to each license renewal, if they were issued a license after January 1, 1992.” CIC §10234.93

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“Agents must complete eight hours of training prior to each license renewal if licensed before January 1, 1992.” CIC §10234.93 Unnecessary Replacement Definition Rules governing replacement and the consequences of such an action depend on when the policy was issued. In general, an insurer, broker, agent or other person is prohibited from causing a policyholder to replace a long-term care insurance policy unnecessarily. In California, the code also presumes that any third or greater policy sold to a policyholder in any 12-month period is unnecessary unless a policy is replaced for the sole purpose of consolidating policies with a single insurer. Definition, comparison and replacement, replacement coverage, sales commission, basis on improvement of insured's position, applicability, definition, filing of commission structure, etc. (Please see Previous Discussion pages 145-150) Product Requirements Distinguishing between the Maximum Benefit Amount (Pool of Money) and Unlimited Benefits, Section 10232.93 of the CIC Benefits not used remain available. Unlimited benefits types of policies would have no limit no matter how much was paid out of the policy. The pool of money policies are flexible but still have an upper limit of payout. Flexible Benefit Mandated (Policy Lifetime maximum must be stated in integrated pool of dollars) CIC §10232.93 In California, long-term care policies must allow the policy lifetime maximum amount to be used interchangeably for any of the benefits covered by the policy. If a policy covers both home and institutional care, the company is allowed to pay less each day for home care that for nursing home care. However, the company must continue to pay until the maximum amount of the policy is exhausted, unless the person dies, or does not meet the requirements of the policy. For example: If a policy pays $200 a day in a nursing home for 2 years and the daily home care benefit is $100, it could take four years to use up the maximum benefit for home care, but only two years for the nursing home care. California regulations speak to this issue in CIC 10232.93 when it states that: “Every long-term care policy or certificate shall define the maximum lifetime benefit as a single dollar amount that may be used interchangeably for any home- and community-based services defined in Section 10232.9, assisted living benefit defined in Section 10232.92, or institutional care covered by the policy or certificate. There shall be no limit on any specific covered benefit except for a daily, weekly, or monthly limit set for home- and community-based care and for assisted living care, and for the limits for institutional care. Nothing in this section shall be

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construed as prohibiting limitations for reimbursement of actual expenses and incurred expenses up to daily, weekly, and monthly limits.” CIC 10232.93 Rights to Reduce, Add or Purchase New Coverage California provides rights to its residents who own LTC policies to reduce, add or purchase new coverage in order to keep coverages suitable for the policy owner (Sections 10235.50- 10235.52 of the CIC) Right to Choose a Paid Up Benefit California provides rights to its residents who own LTC policies the right to choose a paid up benefit (contingent benefit upon lapse) following a rate increase (Sections 10235.35 and 10236.13(e)(3) of the CIC) Right to Request and Receive Sample Policy California provides rights to its residents who own LTC policies the right to request and receive a sample policy (Section 1 0234.93(a)(1 0) of the CIC) Right to Appeal Contract Language California provides rights to its residents who own LTC policies the right to appeal contract language. (Section 10235.94 of the CIC) Minimum Standards for Home Care CIC §10232.9 Six Mandated Elements of Home Care CIC §10232.9 “Every long-term care policy or certificate that purports to provide benefits of home care or community-based services, shall provide at least the following: (1) Home health care. (2) Adult day care. (3) Personal care. (4) Homemaker services. (5) Hospice services. (6) Respite care.” Nursing Facility Benefit Must Cover “Ancillary Supplies and Services” CIC §10232.95 The California Insurance Code 10232.95 states that every long-term care policy or certificate that provides reimbursement for care in a nursing facility shall cover and reimburse for per diem expenses, as well as the costs of ancillary supplies and services, up to but not to exceed the maximum lifetime daily facility benefit of the policy or certificate. There are three methods of pay reimbursement – reimbursement, cash, and per diem. Reimbursement is the usual method of payment. The policy owner will be reimbursed up to his or her daily benefit maximum for care services that was actually received. The cash payment makes it easier for the family to manage the benefit, unlike the reimbursement policy which is less flexible. The cash benefit policy does not stipulate how benefits will be used, does not interfere with how the money should be spent. The actual payment can be the payment basis if the so-called per diem approach is used, or up to the payment basis if the reimbursement method is used. But if the per-diem method is used, care must be taken not to exceed the maximum allowable payment. Preexisting Condition CIC §10232.4

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A “pre-existing condition” means a condition for which medical advice was given or treatment was recommended by, or received from, a licensed health care provider within six months before the effective date of coverage of the insured person. Benefits will not be payable for care related to the preexisting condition for up to six months AFTER buying the policy. This means that if one needs care, one will have to wait up to six months before coverage begins. An individual must pay for his or her own care during that time. Some experts have said that this pre-existing condition limitation has little practical meaning in long-term care insurance because the insurer probably will not sell a policy if one might need long-term care within six months. In fact, some policies do not have any pre-existing condition limitation. Pre-existing condition limitations are somewhat straightforward. Long-term care insurance policies may not have pre-existing condition limitations of more than six months. In California CIC §10232.4 regards it this way.

No long-term care insurance policy or certificate other than a group policy or certificate, as described in subdivision (a) of Section 10231.6, shall use a definition of preexisting condition which is more restrictive than a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within six months preceding the effective date of coverage of an insured person.

Every long-term care insurance policy or certificate shall cover preexisting

conditions that are disclosed on the application no later than six months following the effective date of the coverage of an insured, regardless of the date the loss or confinement begins.

The definition of preexisting condition does not prohibit an insurer from using an

application form designed to elicit the complete health history of an applicant, and on the basis of the answers on that application, from underwriting in accordance with that insurer's established underwriting standards. Unless otherwise provided in the policy or certificate a preexisting condition, regardless of whether it is disclosed on the application, need not be covered until the waiting period described in subdivision (b) expires.

Unless a waiver or rider has been specifically approved by the commissioner, no

long-term care insurance policy or certificate may exclude or use waivers or riders of any kind to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions beyond the waiting period described in subdivision (b).

Policy Must Provide RCFE Coverage with Facility and Comprehensive LTC Policies. All expenses incurred by insured must be covered up to (but not to exceed daily maximum) Assisted living benefits in policies generally covers costs associated with room and board in facilities with 24-hour staff assistance and care available by full time staff. When one receives care in an assisted living residential care facility, formally called a Residential Care Facility for the Elderly in California, it must be covered in California's facility and comprehensive long-term care policies. These staff members assist residents in performing their activities of daily living. The facility also provides three meals a day.

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Definition of Assisted Living Provider In/Out CA Now, it is required that the policy offer benefits for Residential Care Facility for the Elderly specifically. In the past the California Insurance Code required that a person be offered a policy for care required in an assisted living center. The facilities must have 24-hour care provided by qualified staff. They must also provide three meals a day to include any special dietary requirements of the resident as well as have available to residents the services and medical care by physicians and nurses. For “out-of-state” facilities, they must be in sync with all appropriate licensing standards. They must offer continuous care in all relevant care and services to meet the needs of residents ranging from activities of daily to impairment in cognitive ability. They must be able to provide and administer the specific medication needs of their individual residents. No New Preexisting Conditions on Replacement Policies CIC §10232.4 Consumers may decide to replace a current policy as new provisions and coverage are developed. If this should be the case, the replacing insurance company cannot require a new waiting period in the policy. This is true even if the policy is converted within the same company. No long-term care insurance policy or certificate, other than a group policy or certificate, can use a definition of preexisting condition which is more restrictive than a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within six months preceding the effective date of coverage of an insured person. No later than six months following the effective date of the coverage of an insured, every long-term care insurance policy or certificate must cover preexisting conditions that are disclosed on the application, regardless of the date the loss or confinement begins. The preexisting condition definition does not prohibit an insurer from using an application form designed to elicit the complete health history of an applicant, and on the basis of the answers on that application, from underwriting it in accordance with that insurer's established underwriting standards. A preexisting condition need not be covered until the waiting period expires, unless otherwise provided in the policy or certificate, regardless of whether it is disclosed on the application. No long-term care insurance policy or certificate, unless a waiver or rider has been specifically approved by the commissioner, may exclude or use waivers or riders of any kind to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions beyond the waiting period. No Benefit Reductions Because of Out-of-Pocket Expenditures CIC §10233.4 “In California, no long-term care insurance benefits may be reduced because of out-of-pocket expenditures by the insured or on behalf of the insured by a family member of the insured or by

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any other individual. It doesn’t matter whether the out-of-pocket expenses were paid by the policyholder or by someone else on their behalf.” “Usual and Customary” Standard Prohibited CIC §10232.2 “Long-term care insurance may not provide for payment of benefits based on a standard described as "usual and customary," "reasonable and customary," or words of similar import.” Insurers may not: “They may not use a "usual and customary" standard of definition in the policy. Provide for payment of benefits based on a standard described as "usual and customary," "reasonable and customary," or words of similar import. Policies may not be terminated due to a divorce, even if a discount has been given based on the spouse's application. Terminate a policy, certificate, or rider, or contain a provision that allows the premium for an in-force policy, certificate, or rider, to be increased due to the divorce of a policyholder or certificate holder.

They must use clarifying language regarding the lifetime maximum benefits in any policy which offers the following option. Include an additional benefit for a service with a known market value other than the statutorily required home and community-based service benefits in Section 10232.9, the assisted living benefit in Section 10232.92, or a nursing facility benefit, unless the additional benefit provides for the payment of at least five times the daily benefit and the dollar value of the additional benefit is disclosed in the schedule page of the policy.” CIC §10232.2 Medical Necessity Prohibited CIC §10233.9 (c)(7) Note: Medical Necessity is prohibited from claims payment. Home care benefits cannot be limited or excluded requiring "medical necessity" or similar standard as a criteria for benefits. Medical necessity is prohibited from claims payment. Some policies allow medical necessity as a qualifying criteria. This usually means that one’s doctor has certified that their medical condition will deteriorate if they do not receive the nursing home care or home care recommended for them. Qualified long-term care insurance policies may not use “medical necessity” as a benefit trigger and must coordinate benefit payment with Medicare. a medical necessity benefit trigger is prohibited in HIPAA. CIC §10233.9 (c)(7) Inflation Protection and Illustrations (Please see previous discussion pages 128-137) Commissioner May Waive Any Provisions CIC §10235.20 It’s nice to know that in California, “the Commissioner may waive any provisions in this Article if it is in the best interest of the insureds. “The commissioner may waive a specific provision or provisions of this article with respect to a specific long-term care insurance policy or certificate upon making written findings specified in subdivisions as follows:

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The waiver would be in the best interest of the insureds. The underlying purposes of this article could not be effectively or efficiently

achieved without the waiver. Any of the following:

o The waiver is necessary to the development of an innovative and

reasonable approach for insuring long-term care. o The policy or certificate is to be issued to residents of a life care or

continuing care retirement community or some other residential community for the elderly and the waiver is reasonably related to the special needs or nature of such a community.

o The waiver is necessary to permit long-term care insurance to be sold as part of, or in conjunction with, another insurance product. The commissioner may condition any waiver upon compliance with alternative requirements to achieve the purposes of this article.” CIC §10235.20

Statutory Rate Stabilization Requirements Rate stability is one of the most important regulatory issues in long-term care insurance (LTCI). Unlike regular health insurance, LTCI pre-funds an event that, for the most part, occurs once and later in life. Policyholders typically pay premiums for 15 years or more, before accessing benefits. Since many people are on fixed incomes when they need care, a large rate increase can often compromise their ability to retain coverage, laying waste to years of premium payments. Importance of Rate Stability in LTCi The National Association of Insurance Commissioners (NAIC) has adopted the new Long-Term Care Insurance (LTCI) Model Regulation that dramatically alters the rating requirements for Long-Term Care Insurance. This regulation is intended to promote stable LTCI premiums. The new regulation places new responsibilities on the pricing actuary. The new LTCI Model Regulation is a significant departure from the traditional requirements associated with individual health products. Typically, individual health insurance premium rates were filed with state insurance departments based on a minimum loss ratio requirement. These departures are most pronounced during the initial filing of the premium rates (Section 10 of the new Model Regulation) and at the time of a future premium increase (Section 20 of the new Model Regulation). Though the NAIC has promulgated model regulations for rate stability, no state has enlarged on the NAIC rate provisions like California. While the NAIC Model places certain restrictions on rate increases, the provisions of SB 898 have extended these to include additional requirements and sanctions when insurers exceed specific benchmark amounts. These and other requirements to certify the adequacy of initial rate filings and requests for rate increases makes California unique and at the forefront of consumer protection in rate stability. Understanding of the Provisions of the SB 898 Senate Bill 898 is a rate stabilization bill, which creates more stringent standards for long-term care insurance premium pricing and regulation. The premium rates for policies issued after January 1, 2003 (or, in some cases July 1, 2003) are subject to actuarial review by the

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Department and rate increases on these policies will be subject to additional review and justification requirements. If one is considering purchasing a long-term care insurance policy, ask the agent if the rates were approved pursuant to the SB 898 standards. If a client purchases a policy which uses pre-SB 898 rates, they must be offered the SB 898 rates/policy within 12 months of the availability of the new, SB 898 policy, but one may also have to go through the underwriting process again. It is a good idea not to cancel the existing policy prior to being approved by the new SB 898 policy. That they provide regulations that monitor, measure, record, and provides guidelines to protect consumers from unfair increases from company potentially if they did not have to operate within guidelines designed to minimize long term problems for consumers in having benefits when the time comes many years into the future is of primary concern of the state of California. It is a concern for the agent to deal responsibly with. It is also a responsibility for the company to operate within sound financial and business parameters. Rate History in California Premium rates are subject to actuarial review by the Department and rate increases on these policies are subject to additional review and justification requirements. Policies are subject to the "rate stabilization" law. If one purchased a policy before rate stabilization came into effect, they may be able to purchase a "rate stabilization" policy within 12 months of the availability of their insurer's new policy. If one is eligible for a new policy, they may have to go through the underwriting process again. The rate increase history has two sections:

Rate History for Companies That Are Not Actively Writing New Business in California and;

Rate History for Companies That Are Actively Writing New Business in California The links on the web site shown below show which companies have had rate increases and those that had no rate increase on long-term care insurance policies since January 1, 1990. Go to: http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0050-health/ltc-rate-history-guide/upload/2008LTCCONSUMERGUIDE.pdf Rate increases are not necessarily a sign of a "bad’ policy. The absence of a rate increase is not a sign of a "good" policy. Just because a company has not had any rate increases does not mean that it never will raise its rates. The unique aspects of LTC that give rise to rate inadequacy and how the failure to price properly can hurt consumers; Some companies screen people very carefully. The reject anyone who might have a pre-existing health condition. This "screening process" is called medical underwriting. Companies may also price their policies very conservatively to avoid any future increases, and their premiums may be higher as a result. Other companies may do neither of these things. Rate increases are a function of a very complicated process. Companies use it try to limit risk of paying out more benefits than the premiums they collect.

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It may be harder to get coverage from a company that uses strict underwriting. The risk of later rate increases may be less. Consumers may want to consider how a company "underwrites" applicants. Agents should know about and tell their customers all about medical underwriting by the companies they are considering. If one has a health condition and a company agrees to issue them a policy anyway, they may very well need to plan for later increases. When a consumer buys long-term care insurance, he should expect to keep it for the rest of his life. He needs to choose a premium he will be able to afford to pay each year, way into the future. For questions about the data shown in the rate increase history section, contact the California Department of Insurance’s Consumer Hotline at 1-800-927-HELP (1-800-927-4357). Company Responsibilities Consumers lose when they have paid out money on something that will not be there when they need it as they were not able to afford it in the beginning anyway. When an insurance policy is bought and later it is found that the sale of the product was unsuitable and incorrect in any way for the consumer no one wins. Suitability Standards through the 1996 National Association of Insurance Commissioners (NAIC) are required to be used by every insurer and other entity marketing LTC insurance. “The model language must be described, and providers must explain what it means and how it applies to the agent and California consumer.” CIC §10234.95 The agent loses. They do not have a satisfied client. No relationship for the future for anything that this client might need that is suitable for them. Their reputation can be tarnished. Bad news travels fast. The company loses. They do not have a viable long term customer. They do not have a flow of premium dollars. They have invested a considerable amount of time and money. Their offset of initial and longer term potential investment is not realized. All three parties to a quality bona fide transaction have the right thing happen for all concerned. The NAIC Personal worksheet and Suitability forms here underscore their importance. Policyholders pay premiums for many years, 15 years or more, before they access benefits and have clams that require benefit payments. Unlike regular health insurance, LTCi pre-funds an event that, for the most part, occurs once and later in a person’s life. Rate stability is one of the most important regulatory issues in long term care insurance. Companies must have a rate structure that assures the future rates to be fair for both consumer and company alike. Large rate increases can often prevent customers form keeping their coverage, No state has enlarged on the NAIC rate provisions like California. NAIC has promulgated model regulations for rate stability. While the NAIC Model places certain restrictions on rate increases, the provisions of SB 898 have extended these to include additional requirements and sanctions when insurers exceed specific benchmark amounts.

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Submission of New Business Premiums The premium rate schedules for all individual and group long-term care insurance policies issued in this state must be filed with and receive the prior approval of the commissioner before the policy may be offered, sold, issued, or delivered to a resident of California (Section 10236.11 of the CIC) Rate Revisions filed On or After January 1, 2010 CA regulations Ilimit premium increases for these policies. All rate revisions must be filed on or after January 1, 2010. Required premium rate schedules and new policy forms to be filed with the commissioner by January 1, of each year, for all group long-term care policies to be sold on or after January 1, 2010, and for all previously approved individual long-term care policies to be sold on or after January 1, 2011, unless the deadline is extended by the commissioner. (Section 10236.1 of the CIC) Rate Increase Subject to CDI Approval All rate increases are subject to CDI approval. (Sections 10236.13 through 10236.15 of the CIC) What Rates are Stabilized Every individual long-term care insurance policy must contain a provision that it is either guaranteed renewable or non-cancellable. Group long-term policies and certificates are also to be guaranteed renewable or noncancelable, as well. Contingent Non-Forfeiture In California, if you were to receive a substantial premium increase, you have the right to stop paying premiums and have your policy converted to paid-up status. Your paid-up policy would have a maximum benefit at least equal to the amount of premiums you had paid over your lifetime. Agent Responsibilities Rate Guide Availability of a Consumer Rate Guide CIC §10234.6 & CIC §10236.11 –10236.15 So that they can make an informed choice now, the rate guide provides current and historical knowledge to the consumer. So that the mystery can be cleared up so they have a better handle on the future relative to their potential future costs and how they might deal with that eventuality, it allows them to have a grasp on the future. Because of the frequent and common concerns voiced by purchasers of long-term care insurance, it is an important issue for agents. How consumers will be able to afford their coverage when they get older, when they stop working and when they have limited income for the rest of their lives. This is combined with the eventuality that rates will go up for the same coverage, as well as the reality that they will have to increase their benefit coverage levels and premium over the years to offset the inflationary costs of care and coverages. Unlike regular health insurance, LTCI pre-funds an event that, for the most part, occurs once and later in life. Policyholders typically pay premiums for 15 years or more, before accessing

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benefits. Rate stability is one of the most important regulatory issues in long term care insurance (LTCi). Since many people are on fixed incomes when they need care, a large rate increase can often compromise their ability to retain coverage, laying waste to years of premium payments. Because of this extreme importance, We review the process and regulations here to give you some insight into the regulations that companies face in being in sync with the parameters set forth by the California DOI. CDI/HICAP Shall Annually Prepare a Consumer Rate Guide for LTC Insurance “The commissioner will, by June 1 of each year, jointly design the format and content of a consumer rate guide for long-term care insurance with a working group that includes representatives of the Health Insurance Counseling and Advocacy Program, the insurance industry, and insurance agents. The commissioner shall annually prepare the consumer rate guide for long-term care insurance that shall include, but not be limited to, the following information: Explain Different Kinds of LTC Insurance and Coverages Available to Consumers “A comparison of the different types of long-term care insurance and coverages available to California consumers.” Premium History of Each Insurer The consumer rate includes a premium history of each insurer that writes long-term care policies for all the types of long-term care insurance and coverages issued by the insurer in each state. The consumer rate guide to be prepared by the commissioner consists of two parts: a history of the rates for all policies issued in the United States on or after January 1, 1990, and a comparison of the policies, benefits, and sample premiums for all policies currently being issued for delivery in California. The department collects, and each insurer provides to the department, all of the following information for each long-term care policy, including all policies, whether issued by the insurer or purchased or acquired from another insurer, issued in the United States on or after January 1, 1990 for the rate history portion of the rate guide required by this section,:

Company name. Policy type. Policy form identification. Dates sold. Date acquired (if applicable) Premium rate increases requested. Premium rate increases approved. Dates of premium rate increase approvals. Any other information requested by the department.

For the policy comparison portion of the rate guide required by this section, whether issued by the insurer or purchased or acquired from another insurer, the department collects, and each

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insurer provides to the department, the information needed to complete the following form, along with any other information requested by the department, for each long-term care policy currently issued for delivery in California, including all policies. The department will include in that section of the form for that policy a statement explaining that a policy fitting that criteria is not offered by the insurer and that the consumer may seek, from an agent, sample premium information for the insurer's policy that most closely resembles the policy in the sample if an insurer does not offer a policy for sale that fits the criteria set forth in the sample premium portion of the policy comparison section of the rate guide. The department uses the format set forth in this section for the policy comparison portion of the rate guide, unless the working group convened pursuant to subdivision (a) designs an alternative format and agrees that it should be used instead. In compiling the policy comparison portion of the rate guide, the department separates the group policies from the individual policies available for sale so that group policies for all insurers appear together in the guide and individual policies for all insurers appear together in the guide. The policy comparison portion of the rate guide contains a cross-reference for each policy form listed indicating the page in the rate guide where rate information on the policy form can be found. Insurers provide the information required no later than July 31 of each year, commencing in 2000. Published Each Year Effective 12/1/2000 The consumer rate guide is published no later than December 1st of each year commencing in 2000. Modes of Distributions for Rate Guide CIC §10234.6(d) The consumer rate guide is distributed using all of the following methods: HICAP (1/800-434-0222)

Through Health Insurance Counseling and Advocacy Program (HICAP) offices. (1/800-434-0222)

CDI toll-free number (1/800-927-HELP (4357)

By telephone using the department's consumer toll-free telephone number. (1/800-927-HELP (4357)

CDI Internet Web Site (www.insurance.ca.gov)

On the department's Internet web site. (www.insurance.ca.gov) Long-Term Care Insurance Personal Worksheet

A notice in the Long-Term Care Insurance Personal Worksheet required by Section 10234.95.

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“Notwithstanding any other provision of law, the data submitted by insurers to the department pursuant to this section are public records, and is open to inspection by members of the public. However, a trade secret, is not subject to this subdivision.” CIC §10234.6 Report in Consultation With LTC Task Force CIC §10234.7 “The commissioner's annual report to the Legislature, is compiled in consultation with a task force designated by the commissioner for this purpose, which includes insurance industry representatives, other individuals deemed appropriate by the commissioner, and one or more representatives from each of the following:

The Health Insurance Counseling and Advocacy Program. The California Health Policy and Data Advisory Commission.

The commissioner has the responsibility, in consultation with the task force, to develop analytic methods and to select indicators for evaluation of the impact of long-term care insurance on the public share of costs for long-term care.” CIC §10234.7 Carrier Rate History on the Personal Worksheet Insurers who market long-term care products must include in the premium section of the "Long-Term Care Insurance Personal Worksheet" a statement which reads: "A rate guide is available that compares the policies sold by different insurers, the benefits provided in those policies, sample premiums, and the history of rate increases, if any, for those policies. You can obtain a copy of this rate guide by calling the Department of Insurance's consumer toll-free number (1-800-927-HELP), by calling the Health Insurance Counseling and Advocacy Program (HICAP) toll-free number (1-800-434-0222), or by accessing the Department of Insurance's Internet website at www.insurance.ca.gov." When they sell a long-term care insurance policy, agents are required to leave a number of documents with clients. They should get a copy of a "Personal Worksheet". It helps them understand issues related to purchasing long-term care insurance. It shows the name, address, and local phone number of the HICAP office nearest them. To each person who applies for a long-term care insurance policy, companies and agents are required to give a copy of the long-term care insurance guide, "Taking Care of Tomorrow". It covers many issues related to long-term care, as well as long-term care insurance. California Life and Health Insurance Guarantee Association The California Life and Health Insurance Guarantee Association (CLHIGA) operates under Sections §1067.02(a)(1) and 1067.02(b)(1) of the California Insurance Code. CLHIGA provides a mechanism for the payment of covered (as defined by the Insurance Code and specific case law) property, casualty, and workers' compensation insurance claims of insolvent insurance companies.

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It is the mission of the association to pay claims on a timely basis with no excessive delays and to help relieve the financial burden placed on claimants when insurance companies fail. Long-term care policies have been only been around the early 80s. Many of the policies are just starting to become exposed to claims as insureds age to their senior years. Little history is known about how a company failure might affect LTC policyholders. A danger with long-term-care policies is that if an insurer goes under, it’s difficult to predict what will happen to LTC policies with that insurer. People often buy LTC policies many years before they may be used. The California CLHIGA provides a backstop for California LTC consumers. It covers long-term care insurance benefits up to $200,000, increased by the change in health care cost component of the consumer price index from January 1, 1991 to the date the insurer becomes insolvent. Additional Items as they Develop All LTC Policies Must Comply with CIC Chapter 2.6 In order for benefits to be in a position to match the services and facilities needed by individuals, LTC policies in California are required to provide benefits for the complete spectrum of potential long-term care needs that span the continuum. We discussed this previously more in depth in the “Services and Providers of Care” section. It should be known by agents that no policy may be advertised, marketed, or offered as long-term care or nursing home insurance unless it complies with this chapter. Chapter 2.6 of the CIC §10233.7 Licensing Requirements of all LTC facilities For instance, Assisted Living facilities are state-licensed facilities that provide a range of services, but they are not skilled nursing facilities. The distinction is important because agents must understand the places where a particular policy will pay benefits, and where it will not. Agents should know what the differences are between these Board and Care and Assisted Living types of facilities and a residential care facility? Section 10232.92 of the CIC 39 State-Licensed Providers Skilled nursing facilities, Intermediate care nursing facilities, and Nursing Home/Residential Facility, in California, are long-term care providers that are eligible to be state-licensed.

To know what facilities are eligible and those that must be licensed, the certification requirements, and their relationship to coverages and benefits specified in the long-term care insurance policy that they sell, it is the responsibility of agents and insurers. Unless the state has also required a license for that provider, policies cannot require the use of a state-licensed provider. The policy can't require that a home health care agency be licensed unless the state has licensed home health care agencies. Important to be aware of are the definitions in policies that refer to covering different types of assisted living arrangements and care. The numerous types of care available have differing licensing requirements. The payment of benefits from policies that speak to specific licensed facilities can affect the potential for benefts to be paid. The agent must be aware of those definitions and conditions for benefit payment in policies that they are selling as well as in

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policies that they are replacing. It is imperative that the client has equal to better coverage in all areas when they replace one policy with another. Differences Between These Types of Facilities and a Residential Care Facility Board and Care vs. Assisted Living What are the differences between these types of facilities and a residential care facility? Board and Care charges and the benefits available to pay these carved out costs may be different than those that pay for any and all charges for care received while in an assisted living facility. The distinctions between policies and how broad or narrow their scope of payments for the costs of room, board, and care given is essential in people having the coverage and benefits available when they are needed. CIC §10232.92

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Chapter 6 California Department of Insurance Authority

Introduction and Topic Objectives It’s one thing to have regulations that spell out what can be done and what cannot be done. It’s another to back up those requirements and regulations with some teeth – significant fines with the additional possibility of suspension and/or revocation of one’s license to be able to continue to do business in California – for both agent and insurer. Consumers can also have an added measure of confidence in their long-term care insurance purchasing when they know that their representative and company are held liable financially and punitively should they no act in their best interest and violate the law. The fines are substantial for the first infraction and get larger for each subsequent infraction beyond the first. The Insurance Commissioner will determine fines. They are levied against any broker, agent or other entity that engages in the business of insurance. Agent's must understand the regulations and abide by them. If not, there are penalties for violators. Insurers and agents have the responsibility for following the federal and state codes, rules and regulations. Benefited by the regulations that keep all in line with quality insurance operations at all levels include long term promises being kept for clients by the company, the longevity of the agent in maintaining the trust and confidence of those they serve, and the stability of the long-term care arena. For maintaining quality and consistency in providing consumers with counseling in evaluating their needs and providing solutions to those needs, regulating and monitoring agents activities in the long-term marketplace is essential. Holding agents and companies accountable for doing the right thing for their customers and clients benefits everyone including the consumer, the agent, and the insurance company.

Administration and Enforcement

CIC §10234 - 10234.7 Authority to Bring Actions, Assess Penalties CIC §10234.2 Authority to Assess Penalties “The commissioner has administrative authority to assess the penalties for violation of any provisions in this chapter against insurers, brokers, agents, and other entities which have been determined by the commissioner to be engaged in the business of insurance.”

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Authorizes Private Right of Action; Orders Reasonable Attorney Fees to Prevailing Party “The court can also award reasonable attorney's fees and costs to a prevailing plaintiff who establishes a violation of this area of the California Code. A court may also assess the penalties for violations of the regulations.” CIC §10234.2 Authorizes Actions by District Attorneys, Attorney General, City Attorneys “Actions for injunctive relief, penalties prescribed in this article, damages, restitution, and all other remedies in law or equity, may be brought in superior court by the Attorney General, a district attorney, or city attorney on behalf of the people of the State of California for violation of any provision in this chapter. CIC §10234.2 Orders Reasonable Attorney Fees and Costs to Prevailing Party The court can award reasonable attorney's fees and costs to a prevailing plaintiff who establishes a violation of this chapter of the Code.” CIC §10234.2 Commissioner Regulatory Authority CIC §10234 “The commissioner will from time to time, as conditions warrant, adopt reasonable regulations, and amendments and additions as are necessary to administer this chapter.” CIC §10234 Penalties CIC §10234.3 Penalties Paid to the Insurance Fund Where do the fines that agents and insurers pay for violations of the Code assessed by the Commissioner go? They are paid into to the Insurance Fund. In California, this fund is the pool of money underlying the California Guarantee Fund. Owners of long-term care policies issued by companies licensed in California may be fully or partially protected by the California Guarantee Fund in the event of the failure of their insurer. “Many wonder where the money goes that are charged to violators. The penalties that are discuss in the previous sections above are paid to the Insurance Fund.” CIC §10234. Agent “Any broker, agent, or other entity determined by the commissioner to engage in the business of insurance, other than an insurer, who violates this chapter is liable for an administrative penalty of not less than two hundred fifty dollars ($250) for each first violation. The penalty for committing a subsequent or a knowing violation of this chapter shall be not less than one thousand dollars ($1,000) and not more than twenty-five thousand dollars ($25,000) for each violation. The penalty for inappropriate replacement of long-term care coverage shall be not more than five thousand dollars ($5,000) for each violation.” CIC 10234.4

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$250 Agent’s First Violation Brokers, agents, or other entities determined by the commissioner to engage in the business of insurance (not the insurer in this case), who violate the Code regulations are liable for an administrative penalty of not less than two hundred fifty dollars ($250) for each first violation. $1,000 Agent’s Subsequent or Knowing Violation The penalty for committing a subsequent violation or a knowing violation will be penalized for not less than one thousand dollars ($1,000) $5,000 for Inappropriate Replacement The penalty for inappropriate replacement of long-term care coverage shall be not more than five thousand dollars ($5,000) for each violation. $25,000 Maximum per Violation Not more than twenty-five thousand dollars ($25,000) for each violation. CIC §10234.3 Insurer Any insurer that violates this chapter is liable for an administrative penalty of not less than five thousand dollars ($5,000) for each first violation. The penalty for committing a subsequent or knowing violation shall be not less than ten thousand dollars ($10,000) for each violation. The penalty for violating this chapter in a manner indicating a general business practice shall reflect the magnitude of the violation against the public interest and shall be not less than ten thousand dollars ($10,000) and not more than five hundred thousand dollars ($500,000). Penalties shall be paid to the Insurance Fund. CIC 10234.4 $5,000, Insurer’s First Violation Any insurer that violates the code is liable for an administrative penalty of not less than five thousand dollars ($5,000) for each first violation. $10,000, Insurer’s Subsequent or Knowing Violation The penalty for committing a subsequent violation or knowing violation will be not less than ten thousand dollars ($10,000) for each violation. $10,000 to $500,000 for Insurer’s General Business Practice “The penalty for violating this chapter in a manner indicating will reflect the magnitude of the violation against the public interest and shall be not less than ten thousand dollars ($10,000) and not more than five hundred thousand dollars ($500,000).” CIC §10234.3

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Other Remedies - Non-Penalty Remedies CIC §10234.4 “In addition to the assessment of penalties and other applicable remedies, the commissioner may take the following actions if the commissioner determines that a violation of this chapter, or a regulation has occurred: Suspend/Revoke Agent’s License “Suspend or revoke the license of any broker, agent, or other producer licensed by the department.” Suspend Insurer’s Certificate of Authority “Suspend an insurer's certificate of authority to transact disability insurance.” Order to Cease Marketing or Cease Other Activity “Order any broker, agent, insurer, or other entity determined by the commissioner to be engaged in the business of insurance, to cease marketing in California a particular policy form of long-term care insurance, to cease marketing any long-term care insurance, or to take such actions as are necessary to comply with this chapter.” CIC §10234.4 Notice and Hearing CIC §10234.5 CDI Retains Rights for Administrative Procedures Act Hearing “Brokers, agents, insurers, or other entities which are charged with a violation of this chapter are afforded due process through proper notice and public hearing, if they request it, before a penalty may be assessed or other remedy imposed by the commissioner.” CIC §10234.5 Requirement for Written Notice to Respondent “Written notice, served by registered mail, will include:

A summary of the facts establishing reasonable cause that a violation has occurred.

Citation of the code section or other standard allegedly violated. A statement of the commissioner's intent to assess a penalty including the

amount of the penalty, or to seek another remedy. A statement of the respondent's right to elect any of the following: To accept assessment of the penalty or other remedy as stated in the notice. To respond to the charge in writing, after which the commissioner may issue a

final order or set a hearing. To request, within 10 days of receipt of the notice, a public hearing. “

Administrative Law Bureau Hearing Within 30 Days

“If requested in a timely manner by the respondent or ordered by the commissioner, a public hearing before the Administrative Law Bureau of the department must be held within 30 days after the notice is served.

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Within 20 days after the hearing, the administrative law judge will issue findings of fact and a proposed order. The commissioner will issue his or her final order or the proposed order shall become the final order of the commissioner within 30 working days after the hearing unless reconsideration is granted for good cause by the administrative law judge. If the notice issued to the respondent assessed a penalty of one hundred thousand dollars ($100,000) or more and the respondent has timely requested, the hearing shall be conducted and the commissioner will have all the powers granted therein.” CIC §10234.5 Contents of Final Order “The final order of the commissioner may contain one or more of the remedies set forth in this article. The amount of any penalty assessed need not be limited to the amount stated in the notice to the respondent. In addition to the penalties set forth in this section and any other penalties provided by law, the commissioner may suspend an insurer's certificate of authority or assess a penalty if the commissioner finds, after notice and hearing, that the insurer has violated this chapter or regulations adopted or that the insurer has knowingly permitted any person or entity to do so. “CIC §10234.5 Lapse & Replacement Data CIC §10234.86 Insurers Must Calculate Data for Each Agent and Maintain Records “Every insurer must maintain records for each agent of that agent's amount of replacement sales” CIC §10234.86 Replacement Sales Relative to Annual Total Sales “Every insurer must maintain records for each agent of that agent's amount of replacement sales as a percent of the agent's total annual sales.” CIC §10234.86 Lapses Relative to Total Annual Sales “Every insurer must maintain records for each agent of that agent's amount of replacement sales as a percent of the agent's total annual sales and the amount of lapses of long-term care insurance policies sold by the agent as a percent of the agent's total annual sales.” CIC §10234.86 June 30th Report: Agents with Greatest Lapse & Replacement Rate “Every insurer must report annually by June 30, the 10 percent of its agents in the state with the greatest percentage of lapses and replacements.” CIC §10234.86 June 30th Report: Percentage of Lapsed Policies “Every insurer must report annually by June 30, the number of lapsed policies as a percent of its total annual sales in the state, as a percent of its total number of policies in force in the state,

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and as a total number of each policy form in the state, as of the end of the preceding calendar year.“ CIC §10234.86 June 30th Report: Percentage of Replacement Policies “Every insurer must report annually by June 30, the number of replacement policies sold as a percent of its total annual sales in the state and as a percent of its total number of policies in force in the state as of the end of the preceding calendar year.” CIC §10234.86 “Reported replacement and lapse rates do not alone constitute a violation of insurance laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.” CIC §10234.86

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Unit 7

The California Partnership for Long-Term Care

A Program of the State Department of Health Care Services Lifetime Asset Protection Becomes Affordable for Consumers with Moderate Incomes

Introduction (In addition to the information in this Chapter, please see also an Introduction to the Partnership at http://www.dhcs.ca.gov/services/ltc/pages/cpltc.aspx) Initial LTC partnership training requires producers to first complete 16 hours of state-approved LTC training. Eight hours must be fulfilled in a state-approved classroom, and 8 hours of a state-approved LTC self-study course. Ongoing LTC partnership training requires completion of 8 hours of state-approved LTCP training in every 2-year license term in a state-approved classroom. In September 1994, California implemented a major new program to help people with moderate incomes and assets purchase high quality long-term care (LTC) insurance. This program, known as the California Partnership for Long-Term Care (CPLTC or Partnership), is a partnership between the State of California and select insurance companies that offer policies containing special consumer protections. This program also provides education to consumers and special support to insurance agents in an effort to help individuals realize their potential risk of needing LTC, and how high quality LTC insurance provides a viable option for funding these costs. A program of the California Department of Health Services (DHS), The California Partnership for Long-Term Care (the Partnership), is an innovative partnership between the State of California and a select number of private insurance companies, the California Public Employees Retirement System (CALPERS) plus consumers,. Cal Pers Long Term care Insurance is for current or retired state employees. It is offered through a the California Partnership for Long Term Care and all policies must be approved and meet certain requirements set by the DHS. Insurance companies participating in the Partnership program. Only agents who have received special training and certification are able to sell a Partnership policy and to advise as to whether the Partnership program works for clients. Consumers should be sure to confirm that their agent has this special certification to sell Partnership policies. Partnership policies have other important features that are not required in other long-term care insurance policies. Each Partnership-approved policy also includes insurance benefits to cover

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the care one may need and automatic inflation protection to ensure that the benefits keep pace with the rising cost of care. Agents should be aware that they and their clients can learn more about these policies and the companies that are approved to sell them. Californians can call the Partnership for free brochures at 800-CARE445 (800-227-3445). There is also an expanded discussion of this subject area in the “Attachment” section at back of this course manual (Attachment 2) How Does This Partnership Work? While the Partnership policy is attractive to wealthier purchasers who tend to buy lifetime coverage, its special asset protection feature is important to people who can only afford policies of shorter duration. The asset protection feature of this program is its guarantee that the State and Federal Government will provide a financial back stop should the LTC benefits provided by a Partnership policy be insufficient to meet the needs of the purchaser. Individuals who buy Partnership policies are entitled to keep additional assets equal to the amount their policy pays out, should they ever need to apply for Medi-Cal for health or LTC benefits. In the absence of such protection, single individuals can only retain $2,000 in non-exempt assets in order to qualify for Medi-Cal benefits. This special asset protection helps assure consumers who can only afford premiums for a one or two-year policy, that should they exhaust their policy benefits they won’t have to become impoverished before they can receive Medi-Cal benefits. Individuals who purchase Non-Partnership policies and use up their policy benefits must “spend down” their assets to poverty level in order to receive Medi-Cal assistance. This special asset protection provision, only available in Partnership policies, provides one dollar of asset protection for each dollar paid out in Partnership policy benefits. This $-for-$ protection allows for a variety of product designs ranging from one year to lifetime coverage. California Long Term Care Partnership policies offer everyone high quality benefits and $-for-$ asset protection against the costs of LTC, including consumers who can afford lifetime coverage. Its advantage, however, is its ability to provide asset protection for people with moderate incomes thus eliminating the fear they might end up in poverty because their LTC costs used up their policy benefits. The purchase of "high quality protection,” which includes such provisions as automatic built-in inflation protection, adequate daily per diem, a “monthly” rather than a “daily” cap on home and community-based benefits, care management, etc., is a major objective in the design of the Partnership product. Middle-income individuals with LTC insurance policies without these protections are at serious risk of depleting their policy benefits, becoming impoverished, and having to turn to Medi-Cal to pay their ongoing LTC costs, in spite of having purchased LTC insurance. The impoverishment protection offered by Partnership policies provides an especially good option for the elderly, who are often less able to afford longer duration high quality policies of four years or more. Here are a few examples on how the Partnership’s special asset protection feature works:

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TABLE 1 California Partnership for Long-Term Care

Assets LTC Insurance Payouts

Medi-Cal Spend Down Requirement

Person A $50,000 $50,000 $0 Person B $200,000 $200,000 $0 Person C $1,000,000 $500,000 $500,000 Person D $200,000 $0 $200,000

In Table 1: Person A is an unmarried man with $50,000 of savings that would have to be “spent down” to $2,000 to qualify for Medi-Cal. Without LTC insurance, this person could quickly wipe out his savings should LTC be required. Person A, however, purchased a Partnership plan that would pay out $50,000 of benefits, the average costs of a nursing home in his community for a year. Person A uses up all $50,000 of insurance benefits and still needs nursing home care. In applying for Medi-Cal, Person A shows the eligibility worker a form issued by his insurance company indicating a total of $50,000 of Partnership insurance benefits were paid out. Medi-Cal will allow Person A to keep $50,000 in additional savings and still qualify for Medi-Cal. Person A is in a nursing home for a year and a half after applying for Medi-Cal, during which time Medi-Cal paid out $40,000 worth of claims for LTC and other medical costs. At the time of Person A’s death, Medi-Cal begins action to collect from his estate. However, once again, Medi-Cal recognizes that Person A received $50,000 of Partnership insurance benefits, which protected an equal amount of his estate against Medi-Cal estate collection. Person A is able to pass on $50,000 in inheritance to his heirs. Person B has $200,000 of savings and chose to purchase a Partnership policy that would pay out $200,000 worth of benefits, about 4 years of today’s nursing home costs in Person B’s community. Unfortunately, Person B ended up receiving services in her home for a year before spending the last 7 years of her life in a nursing home. The policy benefits of $200,000 were used up after about 4 years. When she applied for Medi-Cal she was able to keep an additional $200,000 of savings, and this amount was protected from Medi-Cal recovery in her estate at the time of her death. The money was used to provide for her granddaughter’s college education. Person C anticipated having assets of $1,000,000 by the time she might need LTC, but chose to protect only a portion of her assets by purchasing a Partnership policy that would pay out $200,000 in benefits. Person C did not need her policy benefits for about 20 years after she purchased the policy. Because of the automatic inflation protection built into the Partnership policy, both the value of the Partnership benefits and the amount of asset protection had grown to $500,000 by the time she went into a nursing home, where she remained for four years before her policy was exhausted. Person C was allowed to keep $500,000 of additional assets at the time she qualified for Medi-Cal. In addition, at the time she passed away Medi-Cal exempted from recovery $500,000 of her estate. Person D represents an individual who either did not purchase LTC insurance or bought a non-Partnership policy. Person D ended up needing to apply for Medi-Cal to pay his ongoing nursing home costs. However, he was required to “spend down” his non-exempt assets to only $2,000 before becoming eligible for Medi-Cal. His home was considered “exempt” property and was

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disregarded for the purpose of qualifying for Medi-Cal. When he died Medi-Cal placed a lien against his home, in order to recover the value of the Medi-Cal claims paid during the time he was in the nursing home. To really appreciate the above examples, it is important to understand the basics of how Medi-Cal eligibility and estate recovery works. Under current law, $2,000 of assets is disregarded as “exempt property” in determining a single person’s eligibility for Medi-Cal. The Medi-Cal applicant’s residence can also be disregarded, as well as one car and a limited number of other assets. Additional assets can be retained if an individual is in a nursing home and his or her spouse is living in the community. The asset protection provided by the Partnership is in addition to any other assets Medi-Cal allows a person to keep and still qualify for Medi-Cal. What Other Policy Provisions are Unique to Partnership Products? While the Partnership policy offers excellent protection for everyone, it is specifically designed for individuals with moderate incomes who are unlikely to be able to afford significant rate increases, or out-of- pocket expenses at the time they need LTC benefits. The following provisions are, therefore, included in all Partnership policies: 1) Required inflation protection is set at 5 percent compounded annually. Persons 70 years of age or older have a choice between a 5 percent compound or a 5 percent simple annual inflation adjustment. This inflation protection not only helps minimize out of pocket expenses due to inflation, but also proportionately increases the level of asset protection. 2) Policies cannot be sold that provide less than 70 percent of the average daily nursing home costs in the State. For example, in 2009, the average daily private pay rate (ADPPR) for nursing facility care is $220. However, while the 2009 ADPPR for nursing facility care is $220, the minimum daily benefit for Partnership policies that can be sold in California is $150 with a $105 (70 percent) Residential Care and Assisted Living Benefit 3) The home and community-based care benefit in the Partnership Comprehensive policy is capped as a “monthly” rather than a “daily” benefit. As an example, a policyholder buys a Comprehensive Policy with a home and community-based care benefit of $55 a day. A person needing home care seldom uses a fixed amount per day. With a “monthly” cap, the policyholder has a $1,650 bucket of money to be used for home care ($55 X 30 days in the month). This provides a flexible way for the policyholder to combine the availability of informal care with formal care, and reduce or avoid out of pocket expenses while maximizing the policy benefits. 4) Care Management/Care Coordination, independent of the insurance company, provides all policyholders with the benefit of having a qualified licensed health care professional evaluate their need for care, and, with the policy holders input, develop a plan of care which lists informal and formal services necessary to help them maintain as much independence in the most efficient way possible. All treatment plans must include a non-inclusive list of providers in the community appropriate to provide the necessary care. Policyholders can also choose to have the care manager/care coordinator help them access the care and monitor the appropriateness of that care. This benefit helps maximize the value of the policy benefits, as well as provide assistance to an individual and most often a family during a time of crisis. Care Management Provider Agencies providing services to Partnership policyholders must be approved by the Partnership to assure they have staff with the appropriate experience and credentials, as well as methods to assure the quality of their services. The State of California has no regulatory oversight of care management organizations other than those that provide services to

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Partnership policyholders. 5) Prior to 2002 the Department of Insurance (DOI) policy approval process only included the review of policy premiums and actuarial memorandums for Partnership policies. Subsequently, the DOI reviews all policies’ premiums and actuarial memorandums. There are requirements that any request for Partnership rate increases are based on the entire pool of Partnership purchasers, and be subject to a rate cap. Partnership regulations provide for the DOI to disapprove a Partnership policy filing by a company with a history of rate increases. 6) Provisions related to protecting the policyholder against possible lapse were championed by the Partnership, and are now required in all policies being marketed in California. 7) All Partnership policies have the benefit of a stringent review by expert staff at the Department of Health Care Services (DHCS). In addition, a review is completed on all policies by the DOI to help assure provisions are accurately described in a way that is most understandable by the consumer. 8) In September 2008, California Senate Bill 483 (Chapter 379, Statutes of 2007-2008), was signed by the Governor to implement 2006 changes to federal law. Those federal changes limit the amount of equity individuals can have in their principal residence and receive medical assistance for home and facility care services under the Medi-Cal program. In SB 483, California exercised its option to increase the equity limit from the federal minimum of $500,000 to $750,000. SB 483 goes even further by providing complete protection from the equity limit to Partnership policy holders who use benefits under their policies. These new requirements will only be applicable after regulations have been adopted to implement SB 483. The Department of Health Care Services is in the process of preparing regulations as required by SB 483. What Else is Unique? 1) The DHCS requires agents to take specific continuing education (CE) training to be authorized to market Partnership policies. The training consists of an initial 8 hours of classroom only CE on the Partnership, and thereafter an additional 8 hours of classroom only CE on the Partnership every two-year license approval period. Regulations provide that agents who fail to comply with this CE requirement shall not sell Partnership policies, and companies are required to enforce this requirement or jeopardize their relationship with the CPLTC. Also, Partnership course instructors must pass an exam before they are allowed to teach. 2) The DHCS provides services to help agents expand their understanding of the Partnership product, the importance of these quality consumer protections, and ways they can better serve their clients. These services include agent seminars, educational material, agent flyers and newsletters, a web-based interactive tool agents utilize to educate their clients about planning for LTC, and a comprehensive Website (www.dhs.ca.gov/cpltc). 3) DHCS collaborates with its issuer partners in finding ways to reach out to Californians with information that will help them become aware of the risks of needing LTC, the benefits of LTC insurance, and the availability of the Partnership policy. Some of the current consumer education and outreach efforts include a consumer website (www.dhs.ca.gov/cpltc), consumer education videos, educational pamphlets, Public Service Announcements on radio and television, participation on radio and television talk shows and other media events, print advertising, publication of articles in magazines and newspapers, participation in health forums, and presentations to consumer groups.

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What Types of Coverage Offered Two types of Partnership policies are available: a “Nursing Facility and Residential Care Facility Only” Policy and a “Comprehensive” Policy. The comprehensive policy covers care in a nursing home and residential care facility, as well as the full range of home and community-based care services. Benefits and Limitations All Partnership policies are Tax Qualified which means changes in the tax code now allow taxpayers to deduct some of the costs associated with LTC insurance. While Partnership policies, like all private LTC insurance policies, are transportable throughout the United States, if a policyholder exhausts the policy benefits or otherwise needs to apply for Medicaid benefits for LTC, he or she will have to return to California in order to take advantage of the special Medi-Cal asset protection. Partnership policies are only available to California residents. Source: California Partnership for Long Term Care. A program of the California State Department of Health Care Services.

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Unit 8 Alternatives for Long Term Care Insurance

Introduction and Topic Objectives Our seniors and their families pay out significant amounts of money for their long-term care and nursing home expenses. It is generally the largest cost they face the older they become. Most have difficulty in covering those costs. Elders and families are often driven to explore all kinds of alternatives in order to cope with the financial requirements associated with getting older and having increased health and financial needs. Long Term Care Insurance can assist in providing the money needed to pay for care provided that is eligible for benefits from the policies. There are lots of reasons why individuals may not be able to buy or qualify for their own LTC insurance policy.

Alternatives to Long Term Care Service Medicare is just not enough in most cases as custodial care needs are the most expensive and are not covered by Medicare. Average costs can be as much as $50,000 to $75,000 a year in California and many other states, or more. In the cities, the costs can be even more significant than in non-urban areas. There often is just not enough money available. Alternatives can be found in the exploration of various alternatives for housing and levels of care including those in the home with informal care by family and friends. Alternatives can be found in the financial arena beyond LTC insurance.

Financial Life Insurance with Long Term Care Benefits Long-term care benefits are occasionally sold as an additional rider to a life insurance policy. Provisions available or included that speak in part to the need for dollars for long-term care cost should they be needed in the future after the policy is purchased primarily for dollars at death have been developed and are included in some life insurance policies. A living benefit or advanced death rider on a life policy’s death benefit means that the amount of the subsequent policy’s death benefit generally is reduced by the amount of any payments that are paid out in advance of death. There are many varied ways that benefits are determined and paid out. Some variations include specific waiting periods, limited benefit pay-outs, varying pay-out periods, and specific amounts available for long-term care. As there is no particular standard followed industry-wide on this issue, agents should be aware of the many different approaches. (Source: Taking Care of Tomorrow, California Department of Aging) Accelerated Benefits from Life Insurance Policies For a two to ten percent increase in premium, the insurance will pay a portion of the death benefit to the policyholder periodically until the benefit is depleted or a specific maximum is reached. Many companies offer “accelerated” benefits in their policies. These may be an attached rider or a part of the policy itself. The balance of the benefits will go to the named beneficiaries if the policyowner dies before the maximum benefit is paid out.

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Sometimes a limit is placed on how much can be collected Accelerated benefits or riders, may not take effect immediately with the onset of illness. Some insurers require hospitalization or a nursing home stay as a condition prior to the collecting of any accelerated benefits. Because there might be tax consequences and possible benefit consequences or eligibility issues for receiving Medicare, Medi-Cal, Social Security, Supplemental Security Income, etc., consumers, must be advised about this. It must be included in disclosure statements, as well. The disclosure statement must contain a statement that receipt of accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor. This option allows one to ask their insurance company to pay a reduced amount of value on their insurance policy before their death, if they are diagnosed with a terminal illness or have a major organ transplant. The proceeds may be used for any purpose, not just long-term care if certain criteria must be met. If their current life insurance does not have this rider, they may wish to contact their insurance company to see if their policy can be modified (Source: Taking Care of Tomorrow, California Department of Aging). LTC riders do to have common components. They may include such things as elimination periods, benefit periods of three years or more, benefits triggered by impaired activities necessary to caring for themselves, and benefits for all levels of care, including custodial. They can vary greatly. Some riders may cover home health care to some degree. Savings/Private Investment Personal Resources: When care is provided by family members and friends at home, other costs such as those for skilled care, equipment, transportation, and other costs not paid by Medicare are paid from the patient's personal income or savings. Most people pay long-term care expenses from their own income and resources. People who use up their assets paying for long-term care are "spending down" and may become eligible for Medi-Cal as a result. Home Equity Conversion The Home Equity Conversion Mortgage (HECM) or also called Reverse Annuity Mortgage is the oldest and most popular reverse mortgage product. Available since 1989 to homeowners 62 or older, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. Eligible home types include single-family homes, manufactured homes built after June 1976, condominiums, and town homes. The size of a HECM varies with: (1) the borrower’s age; (2) the value of the home; and (3) current interest rates. The location of your home also affects the loan size. The maximum size of a HECM depends on the FHA one’s limit, which varies from area to area and is usually adjusted annually. The loan limit for a particular area may be found at HUD’s Web site. FHA provides free software to lenders to help compute the applicable loan amount for each borrower. Borrowers can choose to receive the proceeds from a HECM as (1) a lump sum payment, (2) fixed monthly payments, (3) a line of credit, or (4) a combination of these. The fee charged to a borrower for a HECM is limited. The origination fee cannot exceed $2,000 or 2 percent of the maximum claim amount (the FHA loan limit), whichever is greater. The entire amount of the origination fee may be financed as part of the mortgage, and certain other closing costs. FHA Mortgagee Letter 00-10 spells out the size of the origination fee that may be charged to borrowers and what the fee cap covers. HECM borrowers must also pay an FHA insurance premium, equal to 2% of the loan amount up-front, plus an annual premium thereafter

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equal to 0.5% of the loan amount. Typically the only cost that a borrower must pay for upfront out of pocket is for an appraisal fee. The remaining closing costs and fees generally can be financed as part of the reverse mortgage. The interest rate charged on a HECM adjusts either monthly or annually, depending on which option the borrower chooses. However, these adjustments don't alter the monthly payments that borrowers can receive (if they have chosen the monthly payment option). Instead, the adjustment affects the total interest that is charged on the loan, which is added to the loan balance while the loan is outstanding and is paid when the loan becomes due. A borrower is not required to make any mortgage payments to the lender during the life of the HECM. The HECM becomes repayable, in full, when the sole remaining borrower dies or no longer occupies the home as his or her principal residence (e.g., through a sale of the home or a permanent move out of the home). The repayment obligation is equal to the sum of the total funds received by the borrower, interest, and any closing costs and other charges financed as part of the loan. The borrower or borrower's heirs/estate may pay off the loan and keep the home. If not, the lender is repaid when the home is sold. If the sales proceeds exceed the amount owed, excess proceeds go to the borrower or borrower's heirs/estate. If the proceeds are less than the amount owed, FHA absorbs the shortfall and makes an insurance claim payment to the lender. There are also a variety of types of home equity loans. Some require full-time residency, repayment schedules, and conditions for loan continuance, renting, etc. These are ways to raise the cash needed for care and are options for consideration based on the needs and situations of individuals. A qualified agent with great knowledge in this area, an accountant, banker, attorney, etc. should be consulted when looking at reverse mortgages and other forms of home equity loans as all or part of one’s needs. Annuities Variable annuities sometimes offer other optional features, which also have extra charges. One common feature, the guaranteed minimum income benefit, guarantees a particular minimum level of annuity payments, even if you do not have enough money in your account (perhaps because of investment losses) to support that level of payments. Other features may include long-term care insurance, which pays for home health care or nursing home care if an individual becomes seriously ill. Annuities include two types of contracts, immediate and deferred. Immediate Annuities These provide for typically monthly periodic payments one chooses to be paid monthly that is correlated to a specified event after a lump sum deposit to the insurance company. They can receive periodic monthly payment toward the cost of their care if a person is placed in a nursing home. Deferred Annuities An income stream is paid out to annuity owners when a specific event such as retirement arrives and they want to have payments begin. They accumulate tax free. Deferred annuities are much like a savings account and can be used similar to personal assets. There are acquisition costs associated with buying an annuity and may not be the best way to pre-fund for

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long-term care. An accountant and/or financial planner should be consulted before buying an annuity for long-term care (Source: Taking Care of Tomorrow, California Department of Aging). Long-Term Care Immediate Annuity A long-term care immediate annuity is a single premium annuity that can provide a larger monthly payment than a regular annuity due to underwriting of the annuitant’s life expectancy. A single premium will guarantee a monthly income stream for life and can pay for nursing home, assisted living facility, home health care or other needs. A study was conducted recently to investigate the potential benefits of combining an immediate income annuity with long-term care disability insurance. Particular emphasis was placed on the role of underwriting in determining the price and size of the potential market for annuities and private long-term-care insurance sold separately, compared with the price and potential size of the market for a combined income and disability annuity. Simulated premiums for a combined insurance policy are 3 to 5% lower than total simulated premiums for stand-alone annuity and disability insurance policies purchased separately. The potential market for the combined policy would increase to 98 percent of 65-year-olds compared to only 77% under current long-term care insurance underwriting practices. If the individuals purchasing a combined insurance policy are like all those eligible at age 65, they could expect to receive 18.0 years of annuity payments and 1.4 years of disability payments. The study showed that combining an immediate income annuity with long-term care disability insurance at retirement (e.g., age 65) could reduce adverse selection and, therefore, the cost of both types of coverage. It also could increase the size of the market for private long-term care insurance. When the implications were examined of the positive correlation of mortality and disability for the benefits of combining an immediate income annuity with long-term care disability coverage at retirement ages. Specifically, it appears that combining the two products could reduce the cost of both coverages and make them available to more persons by reducing adverse selection in the income annuity and removing the need for medical underwriting for the disability coverage. Viatical Life and Medical Settlements Viatical settlement is the purchase of a life insurance policy from a terminally ill person (viator) for a reduction of the face value of the policy. The purchase price is based on the life expectancy of the viator - the shorter the life expectancy, the greater the offer for the policy. California law requires that anyone entering into or soliciting a viatical settlement be licensed by the Insurance Commissioner. This licensure requirement applies to: (1) purchasers of the policy, (2) those who are assigned an ownership interest in the policy, including a collateral ownership interest; (3) brokers who assist the terminally ill in securing the best offer for their policy, (4) brokers who secure investors or purchasers for the policy; and (5) and those who purchase the policy after it has been purchased from the policyholder. Generally speaking, the difference between a viatical settlement and a life or senior settlement is that a viatical settlement involves the sale of a policy from a person with a life-threatening or catastrophic illness or condition. Although the words “life-threatening” and “catastrophic” have not yet been defined by regulations, it seems clear that a person who has been diagnosed with a terminal illness by a medical doctor would have a life-threatening illness or condition, and thus would be considered a viator if they were to sell their life insurance policy. Currently, other settlements are not regulated by the Insurance Department.

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If one has a terminal life-threatening illness, some companies will offer to “buy” their life policyholder’s existing life insurance policy at a discount. They must be licensed with the California DOI. If one is seriously considering a viatical agreement, an agent should advise them to contact their insurance company to see if the medical information is kept confidential and if there may be tax/benefit consequences from entering into such a settlement (Source: Taking Care of Tomorrow, California Department of Aging). Medicare When the patient meets all the Medicare requirements for daily skilled care, Medicare may pay for skilled care in a nursing home for a very short period of time – but no longer than 100 days –when the patient meets all the Medicare requirements for daily skilled care. While people do get personal care services at the same time, Medicare will not pay unless there is also a need for daily skilled services that only a nurse or therapist can provide. Medicare may pay for some personal care services at home but again, only if you also need skilled care on a daily basis that only a licensed person can provide.

See the Medicare benefits book available from Social Security office or call the Social Security Administration at 800-772-1213.

Medi-Cal Medicaid outside California, but Medi-Cal in California, pays for necessary health care that is not covered by Medicare, but only if one meets federal and state poverty guidelines. A person can get the most current information about Medi-Cal from their local county Department of Social Services, Legal Services Program, or an elder law attorney. Medicare and Medi-Cal (DHS Form 7077)

State of California

Health and Human Services Agency Department of Health Care Services

NOTICE REGARDING STANDARDS FOR MEDI-CAL ELIGIBILITY If you or your spouse is in or is entering a nursing facility, read this important message! You or your spouse do not have to use all your resources, such as savings, before Medi-Cal might help pay for all or some of the costs of a nursing facility. You should be aware of the following to take advantage of these provisions of the law: Unmarried Resident An unmarried resident is financially eligible for Medi-Cal benefits if he or she has less than $2,000 in available resources. A home is an exempt resource and is not considered against the resource limit, as long as the resident states on the Medi-Cal application that he or she intends to return home. Clothes, household furnishings, irrevocable burial plans, burial plots, and an automobile are examples of other exempt resources. If an unmarried resident is financially eligible for Medi-Cal reimbursement, he or she is allowed to keep from his or her monthly income a personal allowance of $35 plus the amount of health insurance premiums paid monthly. The remainder of the monthly income is paid to the nursing facility as a monthly deductible called the “Medi-Cal share-of-cost.”

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Married Resident If one spouse lives in a nursing facility, and the other spouse does not live in a nursing facility, the Medi-Cal program will pay some or all of the nursing facility costs as long as the couple together does not have more than $115,920 in available assets. The couple’s home will not be counted against this $115,920 as long as one spouse or a dependent relative, or both, lives in the home, or the spouse in the nursing facility states on the Medi-Cal application that the or she intends to return to the couple’s home to live. If a spouse is eligible for Medi-Cal payment of nursing facility costs, the spouse living at home is allowed to keep a monthly income of at least his or her individual monthly income or $2,898, whichever is greater. Of the couple’s remaining monthly income, the spouse in the nursing facility is allowed to keep a personal allowance of $35 plus the amount of health insurance premiums paid monthly. The remaining money, if any, generally must be paid to the nursing facility as the Medi-Cal share-of-cost. The Medi-Cal program will pay remaining nursing facility costs. Under certain circumstances, an at-home spouse can obtain an order from an administrative law judge that will allow the at-home spouse to retain additional resources or income. Such an order can allow the couple to retain more than $115,920 in available are sources if the income that could be generated by the retained resources would not cause the total monthly income available to the at-home spouse to exceed $2,898.Such an order also can allow the at-home spouse to retain more than $2,898 in monthly income, if the extra income is necessary “due to exceptional circumstances resulting in significant financial duress.” An at-home spouse also may obtain a court order to increase the amount of income and resources that he or she is allowed to retain, or to transfer property from the spouse in the nursing facility to the at-home spouse. You should contact a knowledgeable attorney for further information regarding court orders. The paragraphs above do not apply if both spouses live in a nursing facility and neither previously has been granted Medi-Cal eligibility. In this situation, the spouses may be able to hasten Medi-Cal eligibility by entering into an agreement that divides their community property. The advice of a knowledgeable attorney should be obtained prior to the signing of this type of agreement. Note: For married couples, the resource limit ($115,920 in 2013) and income limit ($2,898 in 2013) generally increase a slight amount on January 1 of every year. Transfer of Home for Both a Married and an Unmarried Resident A transfer of a property interest in a resident’s home will not cause ineligibility for Medi-Cal reimbursement if either of the following conditions is met: (a) At the time of transfer, the recipient of the property interest states in writing that the resident would have been allowed to return to the home at the time of the transfer, if the resident’s medical condition allowed him or her to leave the nursing facility. This provision shall only apply if the home has been considered an exempt resource because of the resident’s intent to return home. (b) The home is transferred to one of the following individuals:

(1) The resident’s spouse. (2) The resident’s minor or disabled child. (3) A sibling of the resident who has an equity interest in the home, and who resided in the resident’s home for at least one year immediately before the resident began living in institutions. (4) A son or daughter of the resident who resided in the resident’s home at least two years before the resident began living in institutions, and who provided care to the resident that permitted the resident to remain at home longer.

This is only a brief description of the Medi-Cal eligibility rules; for more detailed information, you should call your county welfare department. You will probably want to consult with the local branch of the state long-term care ombudsman, an attorney, or a legal services program for seniors in your area.

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I have read the above notice and have received a copy. ________________________________ __________________ Signature of person being admitted Date ________________________________ __________________ Signature of spouse Date ________________________________ __________________ Medi-Cal Medi-Cal is addressed only briefly here. For an extended look, see the California require attachment located in the attachment section of your course as “Attachment C”. Not to be Confined We should not to be confined to the concept that if a consumer does not buy LTCi, they will ultimately spend all their money and go on Medi-Cal. Medi-Cal eligibility, for long term care, is determined by the level of income of the family and assets owned. pays for long-term care for those with lower income and assets and the poor. If one meets federal and state poverty guidelines, it pays for necessary health care that is not covered by Medicare. In 2011, a single person over 65 would qualify for Medi-Cal if he/she had $2,000 or less in non-housing assets. A married spouse, living in the community, however, can keep up to $115,920 (2013) in non-housing assets and $2,898 (2013) in joint monthly income, when his or her spouse is in a nursing home and applies for Medi-Cal. These guidelines and the amount of assets and income a person can change annually. Recovery will not occur while there is a surviving spouse or dependent child. The state “recovers” the costs paid by Medi-Cal from a person's estate, including the house so, generally, in California, the value of a person's house is not counted as an asset when applying for Medi-Cal. Agents Should Be Aware The purchase of a long-term care policy will not necessarily ensure that someone will avoid Medi-Cal when they need long-term care. Agents should be aware of this and should make their clients aware of this fact. Whether that is to their advantage or not depends upon the particular circumstances. People who are unlikely to be able to afford premiums, are unable to absorb even a moderate premium increase, and do not have many assets outside the home are not appropriate purchasers of LTC insurance. The safety net of Medi-Cal may be their only option. Who Should/Should Not Purchase This section has addressed many of the alternate funding methods which can be used individually or in combination. If one does not buy a long-term care policy, they should not feel that they will have to spend down all their money and go on Medi-Cal or have to do this to qualify for Medi-Cal. If needed, people can provide for their care in many ways before they might need to rely on Medi-Cal. Wealthy people will not need Long term Care insurance nor will they need Medi-Cal.

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Those will little income and few assets will not be able to buy LTC insurance and will go on Medi-Cal when the need arises. Those in the middle with good incomes and some assets accumulated will be the ones to consider buying LTC insurance. Agents should not to be confined to the concept that if a consumer does not buy LTCi, they will ultimately spend all their money and go on Medi-Cal. People who do not have enough current income, do not have the prospects of having significant enough future income to absorb even a moderate premium increase, do not have very much assets outside their home, and do not have long-term care insurance may well be the right candidates for and should plan to rely on Medi-Cal. It may be unwise for many of these consumers to buy long-term care insurance and they should probably not purchase it. However, it is all based on their unique situation. Commercial Products Reverse Annuity Mortgages A Reverse Annuity Mortgage allows a bank to pay you for your equity in your home as long as you live. The Home Equity Conversion Mortgage (HECM) or also called Reverse Annuity Mortgage (RAM) is the oldest and most popular reverse mortgage product. Available since 1989 to homeowners 62 or older, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. Eligible home types include single-family homes, manufactured homes built after June 1976, condominiums, and town homes. The size of a HECM varies with: (1) the borrower’s age; (2) the value of the home; and (3) current interest rates. The location of your home also affects the loan size. The maximum size of a HECM depends on the FHA one’s limit, which varies from area to area and is usually adjusted annually. The 2013 loan limit for a particular area may be found at HUD’s Web site. FHA provides free software to lenders to help compute the applicable loan amount for each borrower. Borrowers can choose to receive the proceeds from a HECM as (1) a lump sum payment, (2) fixed monthly payments, (3) a line of credit, or (4) a combination of these. The fee charged to a borrower for a HECM is limited. The origination fee cannot exceed $2,000 or 2 percent of the maximum claim amount (the FHA loan limit), whichever is greater. The entire amount of the origination fee may be financed as part of the mortgage, and certain other closing costs. FHA Mortgagee Letter 00-10 spells out the size of the origination fee that may be charged to borrowers and what the fee cap covers. HECM borrowers must also pay an FHA insurance premium, equal to 2% of the loan amount up-front, plus an annual premium thereafter equal to 0.5% of the loan amount. Typically the only cost that a borrower must pay for upfront out of pocket is for an appraisal fee. The remaining closing costs and fees generally can be financed as part of the reverse mortgage. The interest rate charged on a HECM adjusts either monthly or annually, depending on which option the borrower chooses. However, these adjustments don't alter the monthly payments that borrowers can receive (if they have chosen the monthly payment option). Instead, the adjustment affects the total interest that is charged on the loan, which is added to the loan balance while the loan is outstanding and is paid when the loan becomes due. A borrower is not required to make any mortgage payments to the lender during the life of the HECM. The HECM becomes repayable, in full, when the sole remaining borrower dies or no longer occupies the home as his or her principal residence (e.g., through a sale of the home or a permanent move out of the home). The repayment obligation is equal to the sum of the total funds received by the

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borrower, interest, and any closing costs and other charges financed as part of the loan. The borrower or borrower's heirs/estate may pay off the loan and keep the home. If not, the lender is repaid when the home is sold. If the sales proceeds exceed the amount owed, excess proceeds go to the borrower or borrower's heirs/estate. If the proceeds are less than the amount owed, FHA absorbs the shortfall and makes an insurance claim payment to the lender. There are also a variety of types of home equity loans. Some require full-time residency, repayment schedules, and conditions for loan continuance, renting, etc. These are ways to raise the cash needed for care and are options for consideration based on the needs and situations of individuals. A qualified agent with great knowledge in this area, an accountant, banker, attorney, etc. should be consulted when looking at reverse mortgages and other forms of home equity loans as all or part of one’s needs. Reverse Mortgages A reverse mortgage is a special type of loan used by older Americans to convert the equity in their homes into cash. The money from a reverse mortgage can provide seniors with the financial security they need to fully enjoy their retirement years. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular first mortgage or home equity loan, a lender makes payments. While a reverse mortgage loan is outstanding, one continues to own the home and hold title to it. The money from a reverse mortgage can be used for anything: daily living expenses; home repairs and home modifications; medical bills and prescription drugs; pay-off of existing debts; continuing education; travel; long-term health care; prevention of foreclosure; and other needs. To qualify for a reverse mortgage one must be at least 62 and own a home. There are no income or medical requirements to qualify. One may be eligible for a reverse mortgage even if he or she still owes money on a first or second mortgage. In fact, many seniors get a reverse mortgage to pay off a first mortgage. One can choose how to receive the money from a reverse mortgage. The options are: all at once (lump sum); fixed monthly payments (for up to life); a line of credit; or a combination of these. The most popular option - chosen by more than 60 percent of borrowers - is the line of credit, which allows one to draw on the loan proceeds at any time. The size of the reverse mortgage that one can get depends on his or her age at the time he or she applies for the loan, the type of reverse mortgage chosen, the value of a home, current interest rates, and - sometimes - where the individual lives. In general, the older one is and the more valuable a home, the larger the reverse mortgage can be. The costs associated with getting a reverse mortgage include the origination fee, an appraisal fee, and other charges similar to those for regular mortgages. The money provided from a reverse mortgage is tax-free, and does not affect regular Social Security or Medicare benefits. However, the funds received from a reverse mortgage may affect eligibility for certain kinds of government assistance, such as Medicaid or state assistance programs, so one should check into this before getting a reverse mortgage. To do this you may wish to consult with local Area Agency on Aging (to locate, call 1-800-677-1116, or visit http://www.www.eldercare.gov), a reverse mortgage lender, or a tax attorney. It is generally used for providing long-term home care as some require that the mortgagee be full time in residence in the home. Reverse mortgages are the most commonly referred to in this area of using the equity in one’s home to provide funds for the costs associated with long-term care. Some require the reverse mortgage to be paid if they have to move out of the home to a nursing home and are going to be there an extended period of time. They were developed to help older people tap into the value of their homes without having to sell the home or get a

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second mortgage r equity loan against their home that requires a monthly repayment. A reverse mortgage allows one to remain in their home and receive payments for the equity much like a line of credit to be used when and as needed. The amount of money one receives depends on their age, the value of their home and the cost of the loan. Informal Care by Family or Friends When we are old and being taken of at home, occasional need for specialized, skilled assistance may be sought when needed. Both part and full time, unskilled care provided by family members on an informal basis may be the answer to the elder’s needs. This is an economical way, if possible, to provide care and assistance to an elder needing care. Elders and family both would prefer this as the method of assisting the elders. This works best if family members are still located in proximity to the parent. The parent needs to be willing to have the family care for them. They do not want to be a burden. Many want to feel independent. It is a difficult situation sometimes. Medicare Brief Overview of Medicare Only when the patient meets all the Medicare requirements for daily skilled care Medicare may it pay for skilled care in a nursing home for a very short period--but no longer than 100 days. One will have had to spend at least three days in the hospital for Medicare to pay for any days in a nursing facility for the condition requiring admittance into the nursing facility. LTC Provisions of Medicare Certain conditions must be met before Medicare will pay anything for a nursing home. Only skilled care will be covered when those conditions are met. Neither intermediate nor custodial care is ever covered by Medicare. The eligibility requirements include:

A doctor has prescribed the skilled nursing home care. Skilled care is required every day in the nursing home. Only skilled care is

covered, so if some days only intermediate or custodial care is required, Medicare would disallow the claim.

The individual must have been hospitalized for a minimum of three consecutive days prior to the nursing home admittance.

If these four conditions have been met adequately, Medicare Part A will pay for a semiprivate room (not private), rehabilitation therapy, the regular nursing staff in the nursing home (not private nursing), and medications administered in the nursing home. Part B of Medicare would cover the visits of a doctor, although the number of those visits are limited under Medicare's guidelines. Those who are enrolled in an HMO (Health Maintenance Organization) may have additional benefits. The contract must be checked to find out.

Admittance to the nursing home must occur within 30 days after discharge from the hospital for the same condition.

Medicare only pays the full costs for the first 20 days when Medicare pays for nursing facility care. One’s co-payment is $148 per day (2013) for the next 80 days, (based on the co-pay amount for Calendar Year 2011, which increases annually). Medicare supplement plans will pay this copayment, but will not pay for additional days in the nursing facility beyond what Medicare

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will pay. If skilled care is required Most Medicare HMOs will cover nursing facility care or care at home for 100 days. Levels of Care Requirements and Implications to LTC While receiving skilled care in a nursing facility, Medicare will not pay unless there is also a need for daily skilled services that only a nurse or therapist can provide. Medicare may pay for some personal care services at home only if you also need skilled care on a daily basis that only a licensed person can provide. Medicare will not cover assisted living, retirement complexes, continuing care communities, adult day care, Meals on Wheels, or other services. Only those facilities that meet Medicare's requirements will qualify. Long-term nursing home policies may cover many of the things, besides nursing home care, that Medicare denies. For example, assisted living is now commonly covered by nursing home policies, as long as certain requirements are met. For more details, the Social Security Administration, toll-free at 800-772-1213. Medicare Supplement Brief Overview and LTC Implications Per Medicare 2011, a “Medicare Supplement or Medigap policy is health insurance sold by private insurance companies to fill the “gaps” in Original Medicare Plan coverage. Medigap policies help pay some of the health care costs that the Original Medicare Plan doesn’t cover. If you are in the Original Medicare Plan and have a Medigap policy, then Medicare and your Medigap policy will pay both their shares of covered health care costs.” Medigap policies must all have specific benefits so you can compare them easily. A “standardized” Medigap policy can only be sold by Insurance companies. You may be able to choose up to 12 different standardized Medigap policies (Medigap Plans A through N). Medigap policies must follow Federal and State laws. These laws protect you. A Medigap policy must be clearly identified on the cover as “Medicare Supplement Insurance.” Each plan, A through N, has a different set of basic and extra benefits. It’s important to compare Medigap policies because costs can vary. The benefits in any Medigap Plan A through N are the same for any insurance company. Each insurance company decides which Medigap policies it wants to sell.

You must have Medicare Part A and Part B when you buy a Medigap policy. You have to pay the monthly Medicare Part B premium. You will have to pay a premium to the Medigap insurance company. You and your spouse must each buy separate Medigap policies. Your Medigap policy won’t cover any health care costs for your spouse. Few Medigap policies cover anything other than skilled care. they do not cover costs typically associated with long-term care. they provide benefits for medical care, they allow more assets to be retained with the individual

Taking No Action Maybe there will not be any need for long term care, if they are lucky. There is always the choice to do nothing. Many have to choose this option. There may be reasons that this is the best option in the end. There are state organizations and professionals that develop the plan of

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care for those who do not have the financial ability to pay for themselves. Many people do not have many assets other than their income before retirement and maybe only Social Security payments after retirement. Medi-CAL is one program that is available for poor people in California to help them with their care needs when no money is available to take care of costs on their own. The place and level of care might not be exactly what they would like to have, but they will be cared for nonetheless. Since assets, if any, that are available at the time of the need, it will have to be spent down to bare minimums any way. If the cost burden of LTC insurance premiums would be more than they could financially handle, doing nothing may actually be the most appropriate choice. Many believe that everyone should purchase long-term care insurance to protect them. What these people overlook is the financial feasibility and practicality of it. If a person does not have many assets and the premium costs would be a overly burdensome, it may be a more practical decision to choose to do nothing, see how it goes, and have it dealt with at the time care is needed. No Medical Eligibility - Pre-existing Health Condition Because it is the only course of action available to them due to their medical eligibility from pre-existing conditions preventing them from being approved for long-term care insurance sometimes an individual has to take “No Action”. Why?

Long-term care insurance is not guaranteed to be issued. Each person has to apply and be underwritten based on their prior and current medical

condition and history. They may have the money to pay the premiums now and into the future. They may have significant assets that they would prefer not be used for care costs. They have no choice as long-term care insurance may not be available for them.

Family Premiums Family members are generally the heirs to what mom and dad have accumulated financially over their lifetime. The children of an elder or of senior parents that will potentially be facing the need for long-term care, may find it financially feasible and/or financially advantageous to consider paying the premiums for a long-term care policy for their parents. With the benefits coming from a policy and not the assets of their parents, the deleterious effects of long term care costs on dwindling the family inheritance is not as great. Many siblings might find it an attractive option to pay the premiums themselves. They find that their incomes are substantial enough to pay all or a part of the premium. They stand a greater chance of inheriting what is left at death of their parents and in many cases this could be far greater that what they would have paid out in premiums for the policy. Referral to HICAP (The Health Insurance Counseling and Advocacy Program) Description The description of the program from their website would include that “the Health Insurance Counseling and Advocacy Program (HICAP) assists individuals and families with Medicare problems and other health insurance concerns. Over 600 trained and registered volunteer counselors provide objective information on Medicare, Medicare supplement insurance,

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managed care, long-term care planning and health insurance. Community education, individual counseling and some legal services are available in all 58 counties.” “HICAP counselors are available for appointments in a wide range of settings such as Area Agencies on Aging, senior centers, senior nutrition sites, libraries, hospitals and community centers. Counselors may also visit homebound individuals unable to come to a site.” “HICAP will help an individual file Medicare or other health insurance claims, understand his or her coverage and consumer rights, assist with managed care issues and long-term care planning, and evaluate his or her insurance or health care needs. HICAP serves current Medicare beneficiaries and those planning for future health and long term care needs. HICAP counseling is confidential and free of charge. If a California resident would like to set up an appointment in their local community or have questions, call their local HICAP at 1-800-434-0222.” Services and Programs “This current list of each program is not older than six months (This Refers to California Department of Aging (CDA) Web site, where current list is posted.) Adult Day Health Care (ADHC) - A day care program which provides health, therapeutic, and social services to serve the specialized needs of frail elderly as well as adults with functional impairments at risk of institutionalization. Alzheimer's Day Care Resource Centers (ADCRC) - Day care for persons with Alzheimer's disease (and other related dementias) who are often unable to be served by other programs. The centers provide respite as well as training and support for families and professional caregivers. Area Agencies on Aging - The Area Agencies on Aging coordinate a wide array of services to seniors and adults with disabilities at the community level and serve as a focal point for local aging concerns. Brown Bag Program - Volunteers collect and distribute surplus food to low-income seniors. California Long-Term Care Ombudsman Program - Professional staff and trained volunteers investigate and resolve complaints made by or on behalf of residents of long term care facilities. Foster Grandparent Program - Low-income senior volunteers work with children who have exceptional needs. Health Insurance Counseling and Advocacy Program (HICAP) - Provides both community education sessions open to the public and individualized one-to-one counseling on Medicare, managed care, and other private health insurance issues. Information & Assistance - Trained staff provide information as well as assistance and follow-up to link seniors and adults with functional impairments and their families with programs and services in their community. Legal Assistance - Community programs provide legal information, advice, and counseling, as well as administrative and judicial representation for seniors.

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Linkages - Case management services to elderly as well as adults with functional impairments, 18 years or older, at risk of institutionalization. Clients do not need to be eligible for Medi-Cal. Multipurpose Senior Services Program (MSSP) - Provides social and health case management to assist persons aged 65 and over, eligible for Medi-Cal and certifiable for skilled nursing care, to remain safely at home. Nutrition Services - Congregate Meals: local programs provide seniors with nutritious meals in a group setting; Home Delivered Meals: local programs prepare and deliver nutritious meals to homebound seniors. Respite Program - Provides temporary or periodic services for frail elderly or adults with functional impairments to relieve persons who are providing care, or recruiting and screening of providers and matching respite providers to clients. Senior Community Service Employment Program (SCSEP) - Provides part-time subsidized employment for low-income persons over age 55. Senior Companion Program - Low-income senior volunteers provide peer support to frail older persons in their local communities. StayWell Program - The StayWell Program is an outreach program dedicated to seniors, their families, caregivers and community organizations. The campaign covers a wide realm of topics promoting physical fitness, nutrition, available services, and helpful information.” California Area Agencies on Aging (AAA) Area Agencies on Aging - Listed by County Agents are required to know the name, address and telephone number of the local program in the area in which they are selling. The California Department of Aging contracts with and provides leadership and direction to Area Agencies on Aging (AAA) that coordinate a wide array of services to seniors and adults with disabilities at the community level and serve as the focal point for local aging concerns. You can locate an AAA in your area by calling 1-800-510-2020 or find your county phone number below:

Alameda (510) 567-8040 Alpine (209) 532-6272 Amador (209) 532-6272 Butte (530) 898-5961 Calaveras (209) 532-6272 Colusa (530) 898-5961 Contra Costa (925) 335-8700 Del Norte (707) 442-3763 El Dorado (530) 621-6150 Fresno (559) 488-3821 Glenn (530) 898-5961

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Humboldt (707) 442-3763 Imperial (760) 339-6283 Inyo (760) 873-6364 Kern (661) 868-1000 Kings (559) 737-4682 Lake (707) 462-1954 Lassen (530) 842-1687 Los Angeles (City) (213) 252-4000 Los Angeles (County) (213) 738-4004 Madera (559) 488-3821 Marin (415) 499-7396 Mariposa (209) 532-6272 Mendocino (707) 462-1954 Merced (209) 385-7550 Modoc (530) 842-1687 Mono (760) 873-6364 Monterey (831) 755-8490 Napa (707) 644-6612 Nevada (916) 486-1876 Orange (714) 567-7555 Placer (916) 486-1876 Plumas (530) 898-5961 Riverside (909) 697-4697 Sacramento (916) 486-1876 San Benito (831) 688-0400 San Bernardino (909) 891-3900 San Diego (858) 495-5885 San Francisco (415) 864-6051 San Joaquin (209) 468-2202 San Luis Obispo (805) 925-9554 San Mateo (650) 573-2700 Santa Barbara (805) 925-9554 Santa Clara (408) 296-8290 Santa Cruz (831) 688-0400 Shasta (530) 842-1687 Sierra (916) 486-1876 Siskiyou (530) 842-1687 Solano (707) 644-6612 Sonoma (707) 565-5950 Stanislaus (209) 558-8698 Sutter (916) 486-1876 Tehama (530) 898-5961 Trinity (530) 842-1687

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Tulare (559) 737-4682 Ventura (805) 477-7300 Yolo (916) 486-1876 Yuba (916) 486-1876

Alternative Living Settings/Arrangements Retirement Homes Not all services and levels of care are generally available in one place here. But, many varieties of these have more or less than one would want. People here are encouraged to find one that matches best what they want in variety, convenience and budgetary concerns. Retirement homes are self contained facilities where people who like this style of living with lots of community activities that match what they feel would be enjoyable, convenient, and within their budgets. Life Care Communities Generally, there is a sizable lump sum deposit required with a monthly fee as well. These are great for people who want everything they will need from retirement to death in one location. This allows them to not have to be moved from place to place as the age and need varying types of services and levels of care along the way. These communities have almost everything that a person or couple would want and need for their retirement life. There are many more of these private, many times very exclusive, communities that cater to those people who want to retire in a self-contained retirement environment with all the amenities and long-term capable centers which are located within the community. In the event a resident would need assisted living resources, they are right there on the campus. Should they need nursing and/or skilled care, that is there also. At the end of life, if hospice and other specialized services are needed, those are available, too. Family Care Family members generally can provide unskilled care and some receive specialized training to be able to provide care at more specialized level should the situation warrant. Here, children and relatives provide one’s care in their own home or in the elder’s home, depending on the situation. Many families still take care of their “own’, so to speak. While the cost consideration is aided by this type of care; the human, time, and emotional cost is, nevertheless, significant. Sometimes care is provided partially by the family with outside professionals and specialists filling in the rest. This is done for financial reasons as well as out of love and respect for the parents and the desire for them to be able to stay at home or close to their families. Fraternal, Religious, Union Organizations Like the Life Care Communities, also referred to as Continuing Care Communities, there are groups many times referred to as “fraternal” that try to provide for similar life care communities needs with a similar result. These are typically lifetime living and long-term care capable facilities operated and funded through religious entities, fraternal organizations, and certain large national unions. Because the down payment lump sum is generally significant, it is necessary look at all of the specifics of having lifetime care provided through this avenue. They

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provide for and concentrate on providing this care and those services to the members of the special group. As with the other communities care communities, it is important and necessary to investigate the particular facility itself, first hand.

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Chapter 9 Advertising Guidelines and Marketing Practices

The items listed below are discussed throughout this chapter and may also have been introduced or discussed throughout the course study.

Introduction and Topic Objectives

It should be clear at this time that the marketing of long-term care requires agent skills in many venues: Social Security, Medicare, Medi-Cal, physical and mental health assessment, public assistance, taxes, asset evaluation and more. Every insurer or entity marketing long-term care insurance must establish auditable procedures for verifying compliance Agents must comply with on-going changes in policies and the law. It is vital that he or she maintain the highest standards and fully understand obligations, so an agent is guiding clients in a decision that may be one of the most important they will ever make. The insurance producer has the duty of honesty, good faith and fair dealing. In addition, he must make sure to avoid any of the following which shall be construed as being an unfair practice, unfair methods of competition, or unfair and deceptive acts:

Misrepresenting the terms of an insurance policy; Rebating-giving something of value in order to induce someone to buy the policy; Defamation of any insurance company; Determining an existing policy coverage; Using unverified numbers in advertising financial standings. Making unfair or inaccurate comparisons; Advising or selling excessive insurance; Falsifying records for purposes of defrauding any company or person; Misrepresenting insurance company assets;

The thrust of all marketing efforts by agents and their companies in California should be to adopt standards that provide for fair and accurate comparisons of policies, tax benefits (if any) and avoid the selling of excessive coverage.

Advertisements Must Be Filed CIC §10234.9

“The public and consumers are owed our duty of honesty and fairness in how agents go about advertising and communicating LTC products and services. Every insurer providing long-term care coverage in California must provide a copy of any advertisement intended for use in California to the commissioner for review at least 30 days before dissemination. CIC §10234.9 “The advertisement must comply with all laws in California. In addition, the advertisement must be retained by the insurer for at least three years.” CIC §10234.9

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210Rules Governing Agent Advertising When Does an Agent Not Have to File with the CM? “Agents running their own ads saying that they sell LTC insurance must also submit these ads to their issuing companies for submission to the approval process. If run independently of an issuer, then these should also be filed with the state for approval as well.” CIC §10234.9 Can He/She Run an Ad Saying that They Sell LTCi? Yes, “if the ad is run independently of an issuer, then these should also be filed with the state for approval. The ad must be submitted to their issuing company for approval prior to the running of the ad.” CIC §10234.9 Can they send a letter to a client or prospect discussing the need for LTCi? Yes, but “the letter must be submitted to their company for approval prior to the running of the ad. If run independently of an issuer, then these should also be filed with the state for approval as well.” Agent Must Disclose Cold Lead Source “Consumers have the right to know how an agent got their name in the first place. An agent, broker, or other person who contacts a consumer as a result of receiving information generated by a cold lead device, must immediately disclose that fact to the consumer.” CIC §10234.9 “An Insurance Agent Will Contact You” If That is The Case “SB 1943 requires that “an advertisement designed to produce leads must prominently disclose that "an insurance agent will contact you" if that is the case. Consumers have the right to know if what they are doing will result in an agent contacting them. If they knew that up front, they might choose to respond in a different way.” CIC §10234.9 Use of Foreign Language Material “Companies using foreign language material must also have all of them approved, as well as the translated versions of previously English versions.” CIC §10234.9 Rules Governing Agent Designations “Every insurer of long-term care in California must submit to the commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions must be updated at least semiannually. The must provide the following training and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance must satisfactorily complete the training requirements that, for resident licensees, will count toward the licensee's continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth: For licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from

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211the date of original license issuance and thereafter eight hours of training prior to each license renewal. For licensees issued a license before January 1, 1992, eight hours of training prior to each license renewal. For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required will be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4. Licensees must complete the initial training requirements prior to being authorized to solicit individual consumers for the sale of long-term care insurance.” CIC 10234.93. Rules Regarding Internet Advertisements A person who is licensed in California as an insurance agent or broker, advertises insurance on the Internet, and transacts insurance in this state, must identify all of the following information on the Internet, regardless of whether the insurance agent or broker maintains his or her Internet presence or if the presence is maintained on his or her behalf:

• His or her name as it appears on his or her insurance license, and any fictitious name approved by the commissioner.

• The state of his or her domicile and principal place of business. • His or her license number.

A person is deemed to be transacting insurance when the person advertises on the Internet, regardless of whether the insurance agent or broker maintains his or her Internet presence or if it is maintained on his or her behalf, and does any of the following:

• Provides an insurance premium quote to a California resident. • Accepts an application for coverage from a California resident. • Communicates with a California resident regarding one or more terms of an

agreement to provide insurance or an insurance policy. (Section 1726 of the CIC)

Marketing Practices CIC §10234.93

Issues Affect Insurers, Agents and Consumers “The insurance producer has the duty of honesty, good faith and fair dealing. Agents must comply with on-going changes in policies and the law. An agent is guiding clients in a decision that may be one of the most important they will ever make so it is vital that he or she maintain the highest standards and fully understand obligations. In addition, he must make sure to avoid any of the following which shall be construed as being an unfair practice, unfair methods of competition, or unfair and deceptive acts.” CIC §10234.93 Agent Responsibilities “Every agent of long-term care in California must be mindful and do certain thing as they go about helping others to plan and purchase for their long-term care needs.” CIC §10234.93

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212No Excessive Insurance

“Insurance is expensive and consumers need to be assisted in buying the right amount. They should be helped to buy only what they need. Every agent of long-term care in California must establish marketing procedures to assure excessive insurance is not sold or issued.” CIC §10234.93 Fair and Accurate Comparisons “Consumers need to have the right amount of accurate information to make the best decisions for themselves and their families. Every agent of long-term care in California must establish marketing procedures to assure that any comparison of policies by them will be fair and accurate.” CIC §10234.93 Try to Determine Applicant’s Existing Coverage “Every agent of long-term care in California must inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance. Every agent of long-term care in California must provide a "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations." And, the agent should discuss the factors surrounding this fact.” CIC §10234.93

“Every agent of long-term care in California must establish auditable procedures for verifying compliance with this subdivision.” CIC §10234.93 Provide California Department of Aging Shoppers Guide Prior to Application “Every agent of long-term care in California must provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.” CIC §10234.93 Complete Required Continuing Education “Agents must complete eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of training prior to each license renewal, if they were issued a license after January 1, 1992.” CIC §10234.93 “Agents must complete eight hours of training prior to each license renewal if licensed before January 1, 1992.” CIC §10234.93 Insurer Responsibilities Insurers Must: Establish Marketing Procedures for Agents Insurers in California must establish marketing procedures for agents.

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213Insurers File List of LTC Agents, Updated Each Six Months Insurers are to submit to the commissioner a list of long-term care insurance agents, updated every six months. “Insurers must provide for nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4.” Provide Continuing Education “Insurers must provide the following training and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following training requirements that, for resident licensees, shall be part of, and not in addition to, the continuing education requirements in Section 1749.3: Insurers must provide for licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of training prior to each license renewal. Insurers must provide for licensees issued a license before January 1, 1992, eight hours of training prior to each license renewal.” Section 1749.3 Licensees: 8-hours/each-license term (Class content described. After 1-1-98, topics to include TQ vs. non-TQ, inflation protection and suitability standards) “Licensees shall complete the initial training requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance. The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. After January 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines.” CIC §10234.93 Establish Auditable Procedures “Every insurer of long-term care in California must establish auditable procedures for verifying compliance with this subdivision.” CIC §10234.93 Notice: This Policy May Not Cover All Costs “Display prominently on page one of the policy or certificate and the outline of coverage: "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations."” CIC §10234.93

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214Written Notice Identifying Local HICAP “Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222.” CIC §10234.93 Provide California Department of Aging Shoppers Guide Prior to Application “Insurers must provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.” CIC §10234.93 Added as Unfair Trade Practices In addition to other unfair trade practices referred to at the beginning of this chapter, including those identified in the code, the following acts and practices for agents as well as insurers are prohibited: Twisting

“Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer.” CIC §10234.93

High Pressure Tactics “Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.” CIC §10234.93

Cold Lead Advertising “Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.” CIC §10234.93

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INDEX Activities of daily living 65 Adult day care 21 Advantage, California LTC Partnership 187 Agencies on aging 22 Agent commissions, replacement 129 Annuities with long term care benefits 55 Appendix: LTCI Laws 233 Appendix: Medi-Cal 215 Appendix: Tax Treatment of LTCI 216 Benefit eligibility 62 Benefit triggers 65 Cal Pers Long Term Care 186 California LTC enforcement 180 California Partnership 147 California benefit triggers 104 California consumer protection 114 California consumer rate guide 161 California long term care legislation 62 California long term care training 144 California LTC marketing guidelines 164 California LTC Partnership, advantage 187 California LTC statutory provisions 103 California penalties 181 California TQ vs. NTQ 103 California, Outline of coverage 130 California, rate stabilization 171 Care provided in hospitals 9 Clinically speaking 8 Cognitive impairment 84 Continuing care retirement communities 20 Covered services definitions 67 Elimination periods 70 Evolutionary process of chronic care 8 Federal legislation 80 Five month reinstatement 117 Formal care 18 Free look clause 133 Grandfathered policies 63 Group certificate of coverage 128 Group long term care insurance 52 Guarantees 77 Health Insurance Portability Accountability 80 HICAP 47 HIPAA overview 80 Home care services 27 Home health care 27 Hospice services 13 Hybrid long term care policies 57

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239Illustrations 121 Inflation protection provision 142 Informal care 18 Licensed Health Care Practitioner 68 Life settlements 38 Living benefit rider 192 Long term care continuum 15 Long term care advertising 209 Long term care contracts, three types 76 Long term care insurance 51 Long term care insurance alternatives 192 Long term care marketing practices 211 Long term care personal worksheet 124 Long term care premium deductibility 87 Long term care risk factors 9 Long term care services and facilities 16 Long term care tax treatment 86 Long term care training, California 144 Long term care, paying for 44 LTC agent responsibilities 143 LTC facilities, locating 30 Mandated elements, home care 33 Material change 94 Maximum benefit payment, home care 61 Medi-Cal 41 Medi-cal eligibility 198 Medical necessity 66 Medicare advantage plans 46 Medicare and Medi-Cal 42 Medicare pays only 45 Medicare supplements 46 Non-tax qualified long term care 63 Nursing homes 18 Outline of Coverage 160 Paying for long term care 44 Plan of care 111 Policy lifetime maximum 72 Pooled benefits 69 Post claims underwriting 118 Preexisting condition 168 Premium credits, policy replacement 122 Prior hospital stay 119 Public long term care programs 14 Rate stabilization 171 Residential care facilities for elderly (RCFE) 19 Respite care 13 Restoration of benefits 75 Reverse annuity mortgage 199 Shoppers Guide 212 Skilled care 16 Skilled nursing care, levels 19

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240Skilled nursing facilities 19 Substantial assistance 86 Suitability standards 147 Taking Care of Tomorrow Booklet 160 Tax qualified long term care 64 Tax qualified LTC policies, suitable for 62 Tax qualified policy, more restrictive 62 Third party notification provision 117 TQ benefit triggers 82 Unlicensed providers and personal care 61 Unnecessary replacement 156 What is long term care 6