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NAIC MODEL LEGISLATION

Because of its widespread adoption by the states, it is appropriate to discuss the NAIC model legislation regarding long-term care. The legislation consists of a model act that is designed to be incorporated into a state�s insurance law and model regulations that are designed to be adopted for use in implementing the law. This discussion is based on the latest version of the model legislation, which, as mentioned earlier, seems to be amended almost annually. Even though most states have adopted the NAIC legislation, some states may not have adopted the latest version. However, the importance of the model legislation should not be overlooked. With most insurers writing coverage in more than one state, it is likely that the latest provisions have been adopted by one or more states where an insurer�s coverage is sold. Because most insurance companies sell essentially the same long-term care product everywhere they do business, the NAIC guidelines are often, in effect, being adhered to in states that have not adopted the legislation.

Before proceeding with a summary of the major provisions of the NAIC model legislation, it is important to make two points. First, the model legislation establishes guidelines. Insurance companies still have significant latitude in many aspects of product design. Second, many older policies are still in existence that were written prior to the adoption of the model legislation or under one of its earlier versions.

The model legislation applies to any insurance policy or rider that is advertised, marketed, offered, or designed to provide coverage for not less than 12 consecutive months for each covered person in a setting other than an acute care unit of a hospital for one or more of the following: necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal services. The 12-month period has been the source of considerable controversy because it, in effect, allows policies to provide benefits for periods as short as one year. Many critics of long-term care insurance argue that coverage should not be allowed unless benefits are provided for at least 2 or 3 years. Statistics would seem to support their views. Approximately 40 percent of all persons who enter nursing homes after age 65 have stays in excess of one year. This figure drops to about 15 percent for stays of 3 years or longer.

The model legislation focuses on two major areas�policy provisions and marketing. Highlights of the criteria for policy provisions include the following:

 

� preexisting conditions

� mental or nervous disorders (but this does not permit the exclusion of Alzheimer�s disease)

� alcoholism and drug addiction

� illness, treatment, or medical condition arising out of war, participation in a felony, service in the armed forces, suicide, and aviation if a person is a non-fare-paying passenger

� treatment in a government facility and services available under medicare and other social insurance programs

 

Provisions of the model legislation that pertain to marketing include the following:

 

 

The NAIC continues to discuss additional changes to the model legislation. Probably the most significant proposal is to require long-term care policies to have nonforfeiture values. However, the proposal would have these values in the form of extended benefits rather than cash. To prevent unnecessary policy replacement, there are also proposals to limit first-year commissions to no more than twice the amount of one year�s renewal commission. One additional proposal would, if adopted, mandate the upgrading of old policies when newly improved policies are introduced.

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