Section 3.455. Long-term care, nursing home and home health care policies; loss ratios; rating practices; continuation and conversion, reserves.

 

(1)   Findings.

(a) The commissioner finds that long-term care policies and life insurance-long-term care coverage are offered and marketed to a population which is particularly susceptible to pressure sales tactics and misleading or fraudulent sales activities. These products are also complex and difficult for most purchasers to analyze and understand.

(b) The purchase of any of these products is an important and significant decision because of the cost and the significance of these insurance products in planning and providing for long-term care. This section and s. Ins 3.46 are adopted to provide adequate protection for Wisconsin insureds and the public.

(2)   Applicability.

(a) This section does not apply to an accelerated benefit coverage of a life insurance policy, endorsement or rider as described under s. Ins 3.46 (2) .

(b) This section, except for subs. (6) and (8) , does not apply to individual long-term care policy or life insurance-long-term care coverage, to a group long-term care policy or life insurance-long-term care coverage or a certificate under the group policy, or to a renewal policy or coverage or certificate, if:

1. The individual long-term care policy or life insurance-long-term care coverage was issued prior to June 1, 1991;

2. The group policy is issued prior to June 1, 1991 and all certificates under the policy are issued prior to June 1, 1991; or

3. The group policy is issued prior to June 1, 1991 and the policy is exempt from s. Ins 3.46 under s. Ins 3.46 (2) (b) .

(c) Section Ins 3.46 in effect prior to June 1, 1991 and subs. (6) and (8) apply to those policies, coverages or certificates which qualify for exemption under par. (b) .

(3)   Definitions. In this section:

(a) "Basis for continuation of coverage" means a policy provision that maintains coverage under the existing group policy when the coverage would otherwise terminate and that is subject only to the continued timely payment of premium when due. Group policies that restrict provision of benefits and services to, or contain incentives to use certain providers or facilities may provide continuation benefits that are substantially equivalent to the benefits of the existing group policy. The commissioner shall make a determination as to the substantial equivalency of benefits, and in doing so, shall take into consideration the differences between managed care and non-managed care plan, including but not limited to, provider system arrangements, service availability, benefit levels and administrative complexity.

(b) "Basis for conversion of coverage" means a policy provision that an individual whose coverage under the group policy would otherwise terminate or has been terminated for any reason, including discontinuance of the group policy in its entirety or with respect to an insured class, and who has been continuously insured under the group policy, and any group policy that it replaced, for at least 3 months immediately prior to termination, shall be entitled to the issuance of a converted policy by the insurer under whose group policy he or she is covered, without evidence of insurability.

(c) "Converted policy" means an individual policy of long-term care insurance providing benefits identical to or benefits determined by the commissioner to be substantially equivalent to or in excess of those provided under the group policy from which conversion is made. Where the group policy form which conversion is made restricts provision of benefits and services to or contains incentives to use certain providers or facilities, the commissioner, in making a determination as to the substantial equivalency of the benefits, shall take into consideration the differences between managed-care and non-managed-care plans, including but not limited to, provider system arrangements, service availability, benefit levels and administrative complexity. The converted policy offered shall be on a form generally available in the state.

(d) "Exceptional increase" means an increase in premium by an insurer that the commissioner determines is justified under any of the following circumstances:

1. Changes in laws or rules applicable to long-term care coverage in this state.

2. Increased and unexpected utilization that affects the majority of insurers of similar products.

(e) "Guaranteed renewable" has the meaning given in s. Ins 3.46 (3) (f) .

(f) "Incidental" means that the value of the long-term care benefits provided is less than 10% of the total value of the benefits provided over the life of the policy measured as of the date of issue.

(g) "Life insurance-long-term care coverage" has the meaning given in s. Ins 3.46 (3) (j) .

(h) "Long-term care policy" has the meaning given in s. Ins 3.46 (3) (k) .

(i) "Managed-care plan" is a health care or assisted living arrangement designed to coordinate patient care or control costs through utilization review, case management or use of specific provider networks.

(j) "Qualified actuary" means a member in good standing of the American academy of actuaries.

(k) "Similar policy forms" means all of the long-term care, nursing home and home health care insurance policies and certificates offered by an insurer that fall within one of the following categories:

1. Institutional long-term care, nursing home benefits only.

2. Non-institutional long-term care, home health care benefits only.

3. Comprehensive long-term care, nursing home and home health care benefits.

(4)   Application of the insurance code to long-term care, nursing home and home health care group policies. A group or blanket long-term care policy or certificate may be exempt, under s. 600.01 (1) (b) 3. , Stats., from chs. 600 to 646 , Stats., and rules adopted under those statutes only if:

(a) The policy is issued for delivery and delivered in another state;

(b) The policy is subject to regulatory requirements substantially similar to those provided under chs. 600 to 646 , Stats., and the rules;

(c) The policy is otherwise exempt under s. 600.01 (1) (b) 3. , Stats.;

(d) The policy and sufficient information to enable the office to determine compliance with pars. (a) to (c) is filed with the office; and

(e) The office makes a written determination that the policy complies with pars. (a) to (c) and that the policy is not contrary to the public interest, before the policy or certificates under the policy are marketed or solicited in this state.

(5)   Loss ratio requirements.

(a) Insurers shall set and maintain rates and benefits for long-term care policies so that the loss ratio is at least:

1. 65%, for individual policies.

2. 65%, for group policies which issue coverage as the result of solicitation of individuals through the mail or the mass media, including, but not limited to, print or broadcast advertising.

3. 75%, for group policies other than those subject to subd. 2.

(b) For the purpose of this subsection a loss ratio shall be calculated on the basis of the ratio of the present value of the expected benefits to the present value of the expected premium over the entire period of coverage. An insurer shall consider and evaluate the following:

1. Statistical credibility of incurred claims experience and earned premium over the entire period of coverage;

2. The entire period for which rates have been computed to provide coverage;

3. Experienced and projected trends;

4. Concentration of experience within early policy duration;

5. Expected claim fluctuation;

6. Experience refunds, adjustments or dividends;

7. Renewability features;

8. Interest; and

9. Product features such as elimination periods, deductibles and maximum limits.

10. All appropriate expense factors.

11. Experimental nature of the coverage.

12. Policy reserves.

13. Mix of business by risk classification.

(c) An insurer shall submit its calculations of the loss ratio for a long-term care policy at the same time it submits a long-term care policy form and at any time that it makes a filing for rates under a long-term care policy.

(d) The provisions of this subsection apply only to policies issued prior to January 1, 2002.

(6)   Annual loss ratio report. An insurer shall annually, not later than April 1, file a report with the office in the form prescribed by the commissioner regarding its loss ratios and loss experience under long-term care policies. The report shall be certified to by a qualified actuary.

(7)   Long-term care, nursing home and home health care policies, continuation and conversion requirements.

(a) A group policy, as defined by s. 632.897 (1) (c) , Stats., which is a long-term care policy shall provide terminated insureds the right to continue under the group policy as required under s. 632.897 , Stats.

(b) An individual long-term care policy that provides coverage for a spouse shall permit the spouse to obtain individual coverage as required under s. 632.897 (9) , Stats., upon divorce or annulment.

(c) For the purpose of s. 632.897 , Stats., an insurer provides reasonably similar individual coverage to a person converting from a long-term care policy only if the insurer offers an individual policy that is identical to or in excess of the benefits provided under the terminated coverage.

(d) In addition to offering the individual conversion policy as required under par. (c) , an insurer may also offer the person the alternative of an individual conversion policy that complies with all of the following:

1. Is not underwritten.

2. Complies with this section and s. Ins 3.46 .

3. Provides coverage of care in an institutional setting, if the original policy provided coverage in an institutional setting.

4. Provides coverage of care in a community-based setting, if the original policy provided coverage in a community-based setting.

(e) Written application for the converted policy shall be made and the first premium due, if any, shall be paid as directed to the insurer within 30 days after notice of termination of group coverage. The converted policy shall be issued effective on the day following the termination of coverage under the group policy, and shall be guaranteed renewable annually.

(f) Unless the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured's age at inception of coverage under the group policy from which conversion is made. Where the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured's age at inception of coverage under the group policy replaced except when the premium was a composite premium. If the premium for the policy from which conversion is made was a composite premium then at conversion the premium shall be based upon attained age at the time of conversion.

(g) The offer of continuation of coverage or issuance of a converted policy shall comply with s. 632.897 , Stats., except when either of the following occurs:

1. Termination of group coverage resulted from an individual's failure to make any required payment of premium or contribution when due.

2. The terminating coverage is replaced not later than 31 days after termination by group coverage effective on the day following the termination of coverage providing benefits identical to or in excess of those provided by the terminating coverage and the premium for which is calculated in a manner consistent with the requirements of par. (f) .

(h) Notwithstanding any other provision of this section, a converted policy issued to an individual who at the time of conversion is covered by another long-term care insurance policy that provides benefits on the basis of incurred expenses, may contain a provision that results in a reduction of benefits payable if the benefits provided under the additional coverage, together with the full benefits provided by the converted policy, would result in payment of more than 100% of incurred expenses. The provision shall only be included in the converted policy if the converted policy also provides for a premium decrease or refund that reflects the reduction in benefits payable.

(i) A converted policy may provide that the benefits payable under the converted policy, together with the benefits payable under the group policy from which conversion is made, may not exceed those that would have been payable had the individual's coverage under the group policy remained in force and effect.

(j) Notwithstanding any other provision of this section, an insured individual whose eligibility for group long-term care coverage is based upon his or her relationship to another person shall be entitled to continuation of coverage under the group policy upon termination of the qualifying relationship by death or dissolution of marriage.

(8)   Reserve standards for long-term care, nursing home and home health care policies and life insurance-long-term care coverage.

(a)

1. Policy reserves for life insurance-long-term care coverage shall be determined in accordance with s. 623.06 (2) (g) , Stats. Claim reserves must also be established if a life insurance-long-term care coverage is in claim status.

2. Reserves for coverage subject to this paragraph should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefits.

3. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:

a. Definition of insured events,

b. Covered long-term care facilities,

c. Existence of home convalescence care coverage,

d. Definition of facilities,

e. Existence or absence of barriers to eligibility,

f. Premium waiver provision,

g. Renewability,

h. Ability to raise premiums,

i. Marketing method,

j. Underwriting procedures,

k. Claims adjustment procedures,

L. Waiting period,

m. Maximum benefit,

n. Availability of eligible facilities,

o. Margins in claim costs,

p. Optional nature of benefit,

q. Delay in eligibility for benefit,

r. Inflation protection provisions, and

s. Guaranteed insurability option.

4. Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American academy of actuaries.

(b) Reserves for long-term care policies shall be determined in accordance with s. Ins 3.17 (8) (b) using tables established for reserve purposes by a qualified actuary meeting the requirements of s. Ins 6.12 and acceptable to the commissioner.

(9)   L ONG-TERM CARE RATE INCREASE STANDARDS .

(a) The initial premium rate schedule provided an insured covered by a long-term care policy may not increase during the initial 3 years in which the policy is in force.

(b) Except as provided in par. (d) , any increase in the premium rate schedule provided an insured after the initial 3-year period is subject to the following:

1. Any premium rate increase after the initial 3-year period is guaranteed for at least 2 years after its effective date;

2. For those insureds age 75 or above and whose long term care policy(s) has been in force for at least 10 years, no rate increase shall exceed 10%;

3. If an insurer of any long-term care policy increases rates for a policy by more than 50% in any 3-year period, the insurer shall discontinue issuing all long-term care policies in this state for a period of 2 years from the effective date of such rate increase.

a. If an insurer issues both individual and group long-term care policies, the insurer shall discontinue issuing the type of coverage (individual and/or group) for which rates were increased more than 50% in a 3-year period.

b. All rate filings subject to this requirement shall include a past history of all previous rate increases and a certification of the maximum rate increase over the last thirty-five months including the current rate increase as a percent of the premium in the first month of the 35 month period.

c. This provision shall also apply to any replacing insurer which purchases or otherwise assumes a block of long-term care policies from a prior insurer. For purposes of this provision, any rate increases of the prior insurer shall apply to the replacing insurer.

4. The premium charged to an insured may not increase due to either:

a. The increasing age of the insured at ages beyond 65; or

b. The duration the insured has been covered under the policy.

(c) Long-term care policies which provide for inflation protection shall be subject to the restrictions contained in pars. (a) and (b) . However, the purchase of additional coverage may not be considered a premium rate increase for purposes of determining compliance with par. (b) at the time additional coverage is purchased. The premium charged for the purchase of additional coverage shall be subject to par. (b) for any subsequent premium rate increases.

(d) The commissioner may institute future rulemaking proceedings to amend the provisions in par. (b) in appropriate circumstances, including the following:

1. Applicable state or federal law is enacted which materially affects the insured risk.

2. Unforeseen changes occur in long-term care delivery, insured morbidity or insured mortality.

3. Judicial interpretations or rulings are rendered regarding policy benefits or benefit triggers resulting in unforeseen claim liabilities.

(e) Except as provided in par. (f) the provisions of this subsection apply only to long-term care insurance policies and certificates issued from August 1, 1996 to December 31, 2001.

(f) The provisions of this subsection do not apply to any group long-term care insurance policy or certificate issued to any labor organization or to any trust or trustee of a fund established by any employer or labor organization for members or former members if the group policy was in force prior to August 1, 1996.

(9m)   Premium rate schedule increases, requesting and determining exceptional rate increases.

(a) An insurer shall provide notice of a pending premium rate schedule increase, including an exceptional increase, to the commissioner at least 60 days prior to the notice to the policyholders and shall include all of the following:

1. The required disclosure of rating practices to consumers notice as described under s. Ins 3.46 (9) (b) .

2. A certification by a qualified actuary that the premium rate filing is in compliance with the provisions of this subsection and if the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated.

3. An actuarial memorandum justifying the rate schedule change request that includes all of the following:

a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale, including all of the following:

i. Annual values for the 5 years preceding and the 3 years following the valuation date shall be provided separately.

ii. Projections including the development of the lifetime loss ratio, unless the rate increase is an exceptional increase.

iii. Projections demonstrating compliance with par. (b) .

b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse.

c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the insurer have been relied on by the actuary.

d. A statement that policy design, underwriting and claims adjudication practice have been taken into consideration.

e. If it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, the insurer shall file composite rates reflecting projections of new certificates.

4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commissioner.

5. Sufficient information for review of the premium rate schedule increase by the commissioner.

6. For exceptional increases, the projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase. If the commissioner determines that offsets may exist, the insurer shall use appropriate net projected experience.

7. The commissioner may request a review by an independent actuary or a professional actuarial body of the basis for a request that an increase be considered an exceptional increase.

(b) All premium rate schedule increases shall be determined in accordance with all of the following requirements:

1. The commissioner, in determining that the necessary basis for an exceptional increase exists, shall also determine any potential offsets to higher claims costs.

2. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits.

3. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

a. The accumulated value of the initial earned premium times 58%.

b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis.

c. The present value of future projected initial earned premiums times 58%.

d. Eighty-five percent of the present value of future projected premiums not in this subd. 3. c. on an earned basis.

4. If a policy form has both exceptional and other increases, the values in subd. 3. b. and d. shall also include 70% for exceptional rate increase amount.

5. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in s. Ins 3.17 . The actuary shall disclose, as part of the actuarial memorandum, the use of any appropriate averages.

(c) For each rate increase that is implemented, the insurer shall file for review by the commissioner updated projections as defined in par. (a) 3. a. annually for the next 3 years and include a comparison of actual results to projected values. The commissioner may extend the period to greater than 3 years if actual results are not consistent with projected values from prior projections.

(d) If any premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, lifetime projections, as defined in par. (a) 3. a. , shall be filed for review by the commissioner every 5 years following the end of the required period in par. (c) .

(e) If the commissioner has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in par. (b) , the commissioner may require the insurer to make premium rate schedule adjustments or take other measures to reduce the difference between the projected and actual experience. In determining whether the actual experience adequately matches the projected experience, consideration should be given to par. (a) 3. e. , if applicable.

(f) If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file all of the following:

1. A plan, subject to commissioner approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both, or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commissioner may impose the condition in par. (g) .

2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to par. (b) had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in par. (b) 3. a. and c.

(g)

1. For a rate increase filing that meets the following criteria, the commissioner shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated when all of the following conditions occur:

a. The rate increase is not the first rate increase requested for the specific policy form or forms.

b. The rate increase is not an exceptional increase.

c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.

2. If significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commissioner may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commissioner may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with one or more reasonably comparable products being offered by the insurer or its affiliates.

3. The offer described in subd. 2. shall be subject to the approval of the commissioner, be based on actuarially sound principles, but not be based on attained age, and shall provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.

4. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. If a rate increase on the policy form, the rate increase shall be limited to the maximum rate increase determined based on the combined experience or the maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%, whichever is less.

(h) If the commissioner determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care, nursing home, and home health care insurance, the commissioner may, in addition to the provisions of par. (g) , either prohibit the insurer from filing and marketing comparable coverage for a period of up to 5 years, or prohibit the insurer from offering all other similar coverages and require the insurer to limit marketing of new applications to the products subject to recent premium rate schedule increases.

(i) Paragraphs (a) through (h) shall not apply to policies for which the benefits provided by the policy are incidental.

(j) Except as provided in pars. (k) and (L) the provisions of this subsection apply to any long-term care, nursing home or home health care policy or certificate issued in this state on or after January 1, 2002.

(k) For group long-term care insurance certificates issued to employer-sponsored groups or labor organizations in this state and in force on or after January 1, 2002 the provisions of this subsection shall apply on the first policy anniversary occurring at least 12 months after January 1, 2002.

(L) In lieu of filing the projections required by pars. (c) and (d) with the commissioner, an insurer may file projections with the employer if that employer has at least 5,000 eligible employees of whom at least 250 are covered under the policy or the employer pays at least 20% of the annual group premium in the year preceding the increase.

(10)   Initial filing requirements.

(a) This subsection applies to any long-term care, nursing home and home health care policy issued in this state on or after January 1, 2002.

(b) An insurer shall file all of the following with the commissioner at least 30 days before making a long-term care insurance policy available for sale:

1. A copy of the disclosure documents as required by s. Ins 3.46 (9) .

2. An actuarial certification consisting of all the following:

a. A statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated.

b. A statement that the policy design and coverage provided have been reviewed and taken into consideration.

c. A statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration.

d. A complete description of the basis for contract reserves that are anticipated to be held under the form.

e. Sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held.

f. A statement that the assumptions used for reserves contain reasonable margins for adverse experience.

g. A statement that the net valuation premium for renewal years does not increase except for attained-age rating where permitted.

h. A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses; or if such a statement cannot be made, a complete description of the situations where this does not occur. An aggregate distribution of anticipated issues may be used as long as the underlying gross premiums maintain a reasonably consistent relationship. If the gross premiums for certain age groups appear to be inconsistent with this requirement, the commissioner may request a demonstration under subd. 3. based on a standard age distribution.

i. A statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms also available from the insurer except for reasonable differences attributable to benefit or a comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences.

3. The commissioner may request an actuarial demonstration that benefits are reasonable in relation to premiums. The actuarial demonstration shall include either premium and claim experience on similar policy forms, adjusted for any premium or benefit differences, relevant and credible data from other studies, or both.

4. If the commissioner asks for additional information under this provision, the period in par. (b) does not include the period during which the insurer is preparing the requested information.

Cr. Register, April, 1991, No. 424 , eff. 6-1-91; cr. (9), Register, July, 1996, No. 487 , eff. 8-1-96; CR 00-188 : cr. (3) (c) to (g), (5) (b) 10. to 13., (d), (9m) and (10), am. (9) (e), r. and recr. (9) (f), Register July 2001, No. 547 eff. 1-1-02; EmR0817 : emerg. r. and recr. (3), am. (7) (b) to (d), cr. (7) (e) to (j), eff. 6-3-08; CR 08-032 : r. and recr. (3), am. (7) (b) to (d), cr. (7) (e) to (j) Register October 2008 No. 634 , eff. 11-1-08; correction in (2) (b) 3. made under s. 13.92 (4) (b) 7. , Stats., Register October 2008 No. 634 .

Note

CR 08-032 first applies to policies or certificates issued on or after January 1, 2009 or on the first renewal date on or after January 1, 2009, but no later than January 1, 2010 for collectively bargained policies or certificates. Microsoft Windows NT 6.1.7601 Service Pack 1