New York long-term care regulation: exclusions, suitability, renewability, disclosure, prohibited practices, and replacement (Reg 62)

Why New York regulates long-term care so closely

Long-term care (LTC) insurance is bought decades before it is used, by buyers who often cannot judge the fine print, and it is expensive to keep. New York's response is a layer of consumer rules: the Insurance Law (chiefly § 1117, plus § 3229 for Partnership plans) and the Department of Financial Services' long-term care standards in Regulation 62 (11 NYCRR Part 52). The exam groups these rules into six themes: exclusions, suitability, renewability, disclosure, prohibited practices and replacement.

Exclusions: what a policy may and may not leave out

An LTC policy may exclude only a short, standard list of causes, such as:

• pre-existing conditions, for a limited time only;
• mental or nervous disorders, but never Alzheimer's disease or other organic brain disorders, which must be covered;
• alcoholism and drug addiction;
• war or act of war, and participation in a felony, riot or insurrection;
• attempted suicide or intentionally self-inflicted injury;
• care already paid for by Medicare or another government program (other than Medicaid) or by workers' compensation.

The pre-existing condition limit is short. Under standard LTC rules, a policy cannot exclude a pre-existing condition for more than six months after the effective date. For Partnership for Long Term Care plans the Insurance Law states it directly: the superintendent may not approve a plan whose pre-existing exclusion exceeds six months.

Suitability: is this policy right for this buyer?

LTC sales carry a suitability duty. The insurer must have standards, and the producer must apply them, for judging whether the purchase fits the applicant. The usual factors are:

• the applicant's ability to pay, now and if premiums rise;
• their goals and the care they expect to need;
• the value, benefits and costs of coverage they already have.

The applicant completes a personal worksheet covering income, savings and how premium increases would be handled. If the answers suggest the policy may not be suitable, the insurer must tell the applicant before going forward.

Renewability: the insurer cannot walk away

New York LTC policies are guaranteed renewable. The insurer must renew as long as premiums are paid. It cannot cancel or refuse to renew because the insured grows older or their health declines. Premiums are not guaranteed: they can rise for a whole class of policyholders, but only with the superintendent's approval or modification.

New York makes rate increases unusually public. When an insurer files to change rates, DFS must post notice on its website within 14 days and accept public comment for 30 days. Its decision must also be posted, and the insurer must notify policyholders at least 90 days before an approved increase takes effect.

Disclosure: what the buyer must see before signing

Under § 1117(b)(6), before the policy is executed or any premium is paid, whichever comes first, the insurer must give a disclosure statement covering:

• maximum daily and lifetime benefits for home care and nursing home care;
• the percentage of coverage and how the "reasonable charge" is figured;
• inflation protection options and their added premium;
• average New York nursing home costs, when the Department of Health has published them, with a graphic showing the effect of inflation protection;
• the right, at age 65, to name a third party to receive lapse and cancellation notices;
• a warning that premiums may rise with DFS approval, plus ten years of past rate increases;
• whether any rate-guarantee period applies, any premium refund on cancellation, and the options for handling increases.

The applicant signs to acknowledge receipt. Standard LTC rules also require an outline of coverage, a Shopper's Guide (DFS links the NAIC guide) and a 30-day free look for a full premium refund.

Prohibited practices

The banned practices include:

• requiring a prior hospital stay before nursing home or home care benefits are paid;
• requiring a higher level of care (such as skilled nursing) before paying for a lower level (custodial care);
• twisting, high-pressure tactics and cold-lead advertising that hides that an insurance agent will make contact;
• claiming a policy qualifies for New York LTC tax benefits unless the superintendent has approved it or it is a federally tax-qualified group contract delivered outside New York. A policy that does not qualify must say so, and a violation is treated as misrepresentation.

Plan materials must not be misleading and must fully and clearly state benefits and limitations.

Replacement

Replacing an existing LTC policy is allowed, but closely supervised:

• the application must ask whether the applicant has other LTC or health coverage and whether the new policy will replace it;
• the producer must list the health policies they have sold the applicant that are still in force, or that were sold in the past five years;
• a notice regarding replacement must be delivered;
• the new insurer must waive pre-existing condition and probationary periods to the extent the insured already satisfied them under the old policy.

A replacement must be in the buyer's interest. A replacement that serves the producer rather than the client, such as one made mainly to earn a new commission, is likely unsuitable. It is also twisting if the producer uses a misrepresentation or an incomplete comparison to persuade the buyer to replace.