Examining the State of the Long-Term Care Insurance Hybrid Market

Join us June 30 for a discussion about the current state of the LTCi hybrid market and its future. Cheri McCourt, assistant general counsel at Northwestern Mutual, will join partners Sandy Jones and Nolan Tully to share their insights on LTCi hybrid issues including:

  • A market shift towards brisk sales of hybrid products and away from stand-alone LTCi
  • Key features of LTCi hybrid products and related legal/regulatory considerations
  • The future of the LTCi hybrid market, including:
  • Can products be designed to reach the middle market?
  • Can this product fill the LTC funding gap or even reduce population-wide reliance on Medicaid for LTC?
  • Are there products or features that could enhance the usefulness of hybrid products by, for instance, introducing wellness incentives for policyholders?
  • Litigation risks to riders/hybrids connected with sales and product confusion

To learn more and to register click here.

Overpayments in LTCi

Overpayments in the long-term care insurance industry become more prevalent with each passing year, in concert with the increase of claims paid. Each year, insurers pay out hundreds of thousands of dollars on LTCi policies that are not owed. This not only results in financial loss, but also leads to over-inflated reserves. The problem persists because it is increasingly difficult for companies making the payments to obtain timely information and to identify issues. Many recipients of overpayments spend what they have been paid and have little else to recoup, while others have since died, and their estates/heirs/next of kin can be impossible to locate or deal with.  If companies do not recognize this quickly, the recoupment process can be more complex.

Overpayments occur for a variety of reasons. The most common is simple mistake, miscalculation or clerical error. More complicated scenarios occur when evidence shows that an insured who has been receiving benefits should not have, for a variety of reasons. This latter occurrence, which may or may not include implications of wrongdoing or fraud, creates a complicating factor that may require a remedy at law if the recipient(s) is unwilling to re-pay the company when asked. We have recently seen a trend in overpayments where insureds have passed away, and their spouse/next of kin (or even caregiver) will request/receive benefits not owed.

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Recent Developments in LTC Rate Increase Litigation

A relatively consistent flow of premium rate increase litiga­tion has been filed against long-term care (LTC) carriers over the past several years. Following the plaintiffs’ bar having early success in a limited number of LTC rate increase class actions in the early 2000s, the tide turned definitively in favor of carriers in what we think of as the first generation of such litigation, where the plaintiffs’ bar focused primarily on an alleged duty to disclose possible rate increases and challenging the language of the contract itself. Despite the industry’s over­all success, premium rate increase litigation has attracted an increased level of sophistication from the plaintiffs’ bar, which shifted to more creative theories based on extra-contractual rep­resentations (e.g., marketing materials) in what we view as the second generation of premium rate increase litigation. While the industry remains mostly successful in warding off rate in­crease litigation, a new trend may be developing as recent cases focus on more nuanced contractual limitations and rate increase implementation issues.

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Responding and Managing the Impact of COVID-19

Assured Allies and Faegre Drinker have partnered to develop a playbook for the long-term care insurance industry. Responding and Managing the Impact of COVID-19 offers insights, guidance and ideas to manage the short- and medium-term impacts of the COVID-19 global pandemic and provides potential avenues for long-term care insurers to explore in the post-COVID-19 world that could change long-term care insurance forever.

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LTC Rate Increases: Exploring Alternatives

As issues surrounding the cost of long-term care for Americans becomes the focus of the industry, premium rate increases have historically been necessary to maintain the financial integrity of most blocks of stand-alone long-term care insurance (LTCI) business. In conjunction with those rate increases, insurers have offered (and regulators have approved) an evolving menu of rate increase mitigation options for policyholders who do not wish to or otherwise cannot afford to pay the increased rate. Recently, we have seen new and innovative alternatives proposed by industry participants. There is a growing recognition that insureds should be educated about the nature of their existing coverage and presented with a variety of options in the alternative to paying the approved rate increase amount. In the past few months alone, insurers are offering, and regulators are approving (and sometimes even requesting), an even wider variety of options, such as modifying existing coverage, reducing available benefit, or  taking a reduced paid-up policy, policy buyouts and even “hybrid” policy buyouts.

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Tax-Qualified Language: Litigation Risks Stemming from Common Policy Language

Many long-term-care (LTC) insurance policies in the market are “Tax-Qualified,” or “TQ,” meaning that they meet the federal standards for favorable tax treatment specified by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (or were grandfathered in to that definition). This is an attractive option for most insureds because under TQ policies, certain LTC insurance benefits qualify for favorable federal income tax treatment — if the policy pays only benefits that reimburse the insured for qualified LTC costs, the insured will not owe federal income tax on those benefits. Likewise, premiums are tax-deductible up to a maximum limit that increases with age. These benefits are not provided by policies that are “Non-Tax-Qualified,” or “NTQ.”

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