Consumer protection standards
Q. What is the connection between consumer protection standards and tax treatment of long-term care plans?
A. To qualify for favorable tax treatment, a long-term care policy sold after 1996 must contain the consumer protection standards in HIPAA. Also, insurance companies must follow certain administrative and marketing practices or face significant fines. Generally speaking, policies sold prior to January 1, 1997, automatically will be eligible for favorable tax treatment. Lastly, nothing in the new law prevents states from imposing more stringent consumer protection standards.
Q. What kinds of consumer protections must insurance companies employ to meet HIPAA standards?
A. There are several. Consumers must receive a "Shopper's Guide" and a description of the policy's benefits and limitations (i.e., Outline of Coverage) early in the sales process. The Outline of Coverage allows consumers to compare policies from different companies. Companies must report annually the number of claims denied and information on policy replacement sales and policy terminations. Sales practices such as "twisting" - knowingly making misleading or incomplete comparisons of policies - are prohibited, as are high-pressure sales tactics.
Q. Do the HIPAA standards address limits on benefits and exclusions from coverage?
A. Yes. According to HIPAA, no policy can be sold as a long-term care insurance policy if it limits or excludes coverage by type of treatment, medical condition, or accident. However, there are several exceptions to this rule. For example, policies may limit or exclude coverage for preexisting conditions or diseases, mental or nervous disorders (but not Alzheimer's), or alcoholism or drug addiction. A policy cannot, however, exclude coverage for preexisting conditions for more than six months after the effective date of coverage.
Q. What will prevent a company from canceling my policy when I need it?
A. The law prohibits a company from canceling a policy except for nonpayment of premiums. Policies cannot be canceled because of age or deterioration of mental or physical health. In fact, if a policyholder is late paying a premium, the policy can be reinstated up to five months later if the reason for nonpayment is shown to be cognitive impairment.
Q. Will these standards help people who, for whatever reason, lose their group coverage?
A. They will. People covered by a group policy will be allowed to continue their coverage when they leave their employer, so long as they pay their premiums in a timely fashion. Further, an individual who has been covered under a group plan for at least six months may convert to an individual policy if and when the group plan is discontinued. The individual may do so without providing evidence of insurability.