[Congressional Record Volume 141, Number 65 (Friday, April 7, 1995)]
[Extensions of Remarks]
[Pages E846-E848]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


   LONG-TERM CARE INSURANCE TAX TREATMENT AND CONSUMER PROTECTION ACT

                                 ______


                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                         Thursday, April 6, 1995
  Mr. STARK. Mr. Speaker, today I am introducing the Long-Term Care 
Insurance Tax Treatment and Consumer Protection Act of 1995. This bill 
establishes critically needed standards for long-term care insurance 
policies. It makes changes that will protect elderly consumers from the 
misleading practices that leave them without adequate insurance 
coverage for nursing home and home care.
  The bill establishes minimum standards that long-term care insurance 
policies must meet. The standards include requirements for standardized 
outlines of coverage and terminology that will enable consumers to make 
intelligent choices about which policy to purchase. The standards will 
prevent discrimination in regard to certain disabling conditions. They 
assure that benefits will be delivered in the full range of settings 
available for the care of the elderly.
  The Ways and Means Committee recently passed H.R. 1215. That bill 
includes provisions that allow individuals to include long-term care 
insurance premiums as a part of their itemized expenses for medical 
care, to the extent that those expenses exceed 7.5 percent of adjusted 
gross income. In effect, H.R. 1215 encourages people to purchase long-
term care insurance by permitting favorable tax treatment of the 
premiums. My bill contains the same long-term care insurance provisions 
as in H.R. 1215, but with an important difference: my bill contains the 
standards that are needed to prevent consumer abuse.
  Abuses of consumers in the long-term care insurance market are 
severe--so severe that a past president of the National Association of 
Insurance Commissioners [NAIC] has said that the very viability of this 
product is in question. The NAIC has developed model standards that 
each State may adopt in order to regulate long-term care insurance. 
States vary widely, however, in their application of the standards. For 
example, Washington, DC enforces none of the recommended standards, 
while Connecticut has adopted 24 of the 28.
  This bill would require the States to certify that long-term care 
insurance policies being sold in the State meet the consumer protection 
standards. The premiums for policies that do not meet the standards 
could not be used as an itemized tax deduction. This structure would 
provide incentives to States to enforce consumer protection standards. 
It would also 
[[Page E847]] provide incentives to consumers to purchase long-term 
care insurance policies, not only because they could get a tax 
deduction but also because they would be assured that the policies are 
good products.
  When a consumer decides to purchase a policy, there is a dizzying 
array of policies and riders available. Benefits and terminology vary 
greatly. It is almost an impossible task for a consumer to make an 
effective choice of policy.
  This bill would require the insurance company to provide the consumer 
with an outline of coverage. The outline of coverage would be in a 
standard format, contain specific information and use standardized 
terminology. The outline of coverage would enable a consumer to compare 
plans and to choose the policy that best meets his or her needs.
  The outline of coverage would also assure that the consumer knows in 
advance the criteria for receiving benefits under the policy. Policies 
currently are so confusing, that it is often unclear when and where 
benefits can be used. A senior may think that, when she becomes unable 
to care for herself, she can get assistance with activities of daily 
living in her own home, and later find out that benefits are only 
available in a certified nursing home or when she needs skilled nursing 
care. By clearly defining the threshold conditions for receiving 
benefits, there will be no doubt about exactly what services an 
individual can receive and where they can be delivered.
  Currently, long-term care insurance policies often do not provide for 
an examination period. When a consumer is dissatisfied with a policy, 
there is no way to return it without forfeiting the premium already 
paid. This bill allows a 30-day examination period during which the 
policy can be returned for a full refund. If a person purchased long-
term care insurance through a health plan at work, the bill would 
assure that the
 person was given the opportunity to continue coverage when he or she 
leaves that job.

  Right now insurance companies can cancel or refuse to renew a policy 
because the policyholder has developed an illness that the company 
thinks is too big a risk. This bill would prohibit companies from 
canceling a long-term care insurance policy unless the policyholder 
failed to pay the premiums, committed fraud, or did not disclose 
relevant information to the company.
  Another important feature that most policies now do not include is 
non-forfeiture benefits. Non-forfeiture benefits assure that, when a 
policy is dropped or canceled, the policyholder gets back at least a 
portion of the premiums paid. This is accomplished either through a 
refund of money or eligibility for services when they become needed. Up 
to 60 percent of policyholders drop their policies within 10 years of 
purchase. People who drop their coverage stand to lose significant 
amounts of money. They should not be penalized if they can no longer 
afford the policies as they get older.
  Policies are usually held for 10 to 20 years before the policyholder 
needs to use the benefits. Long-term care insurance is basically 
worthless unless it includes inflation protection. Inflation protection 
assures that most of the cost of care will continue to be covered after 
10 or 20 years. Without inflation protection or with inadequate 
inflation protection, a policy held for 10 to 20 years, pays only a 
small fraction of the cost of nursing home care.
  By purchasing inflation protection, a policyholder is also protected 
from having to buy additional coverage at a later date. Some policies 
currently do allow a person to buy additional coverage. When bought 
later, however, additional coverage is more expensive. This is because 
the person pays the then-current price based on his attained age. This 
bill would require the insurer to offer the purchaser the option to 
purchase inflation protection. In addition the insurer would have to 
provide the consumer with a comparison of the benefits over 20 years 
with and without inflation protection. The consumer then can make an 
informed decision about whether the coverage under the policy will be 
adequate many years in the future.
  One of the ways in which insurance companies are able to avoid paying 
benefits to policyholders is to put restrictions on the diagnoses that 
will be covered. The protections in this bill would prevent 
discrimination against people with Alzheimer's disease and other 
disabling conditions. A policy could not use different criteria to 
receive benefits and could not pay different amounts of benefits for 
people with those disabling conditions.
  When a consumer has a policy that provides benefits for home care, he 
or she expects to be able to get assistance with things like bathing 
and dressing. Yet some policies that cover home care will cover only 
the services of a registered nurse in the person's home. This practice 
defeats the purpose of providing coverage for home care. Many people 
can remain in their own homes for a much longer period of time and 
avoid more costly nursing home care, if they receive needed assistance 
with activities of daily living. That does not necessarily mean, 
however, that they need a nurse to provide skilled care. This bill 
requires that policies covering home care include those services that 
are most beneficial to people in their own homes. It also allows 
services to be delivered in all types of residential facilities, such 
as assisted living facilities, rather than just in skilled nursing 
facilities.
  Last year, the Ways and Means Committee came to a bipartisan 
consensus on standards for long-term care insurance. Those consensus 
standards are embodied in this bill. In testimony on January 20, 1995 
before the health subcommittee, 8 of the 14 witnesses testified as to 
the need for standards to protect consumers. Groups as diverse as the 
Health Insurance Association of America, the Partnership States of 
California, New York, and Connecticut, the Coalition on Long-term Care 
Financing and Consumers Union all firmly support appropriate consumer 
protection.
  Long-term care insurance has been promoted in this Congress as a way 
to reduce the rising costs of nursing home care under Medicare and 
Medicaid. For the 10 percent to 15 percent of seniors who can afford to 
buy this insurance, it is likely to provide some modest cost savings 
several years in the future. More importantly, it is our responsibility 
to assure that the consumer abuses that have occurred in the past do 
not continue. I urge my colleagues to join me in support of this bill.
  A summary of the bill follows:
                               in general

       The bill would provide that long-term care insurance 
     contracts that meet the requirements of the bill received the 
     tax treatment set forth in the bill. Similarly, the bill 
     would provide a safe harbor with respect to the deductibility 
     of certain expenses for long-term care services. Expenses for 
     premiums and services that satisfy the requirements of the 
     bill would be deductible as medical expenses.


              qualified long-term care insurance contracts

       In order to receive the tax treatment set forth in the 
     bill, a long-term care insurance contract would have to meet 
     certain requirements. A qualified long-term care insurance 
     contract would be defined as one that meets the following 
     requirements: the only insurance protection provided under 
     such contract is coverage of qualified long-term care 
     services; if Medicare is the primary payer, the contract does 
     not cover expenses that are reimbursable under Medicare; the 
     contract is guaranteed renewable; the contract has no cash 
     surrender value; all refunds of premiums (other than on 
     surrender or cancellation of the contract), any dividends, or 
     similar amounts are applied toward future reduction in 
     premiums or to increase future benefits; and the contract has 
     been certified under the State regulatory program that has 
     been approved by the Secretary of Health and Human Services.


                   qualified long-term care services

       The bill would define qualified long-term care services as 
     necessary diagnostic, preventive, therapeutic, curing, 
     treating, mitigating, rehabilitative, and maintenance or 
     personal care services that are required by a chronically ill 
     individual, pursuant to a plan of care prescribed by a 
     licensed health care practitioner.
       A chronically ill individual would be defined as one who is 
     unable to perform at least 2 activities of daily living for a 
     period of at least 90 days due to a loss of functional 
     capacity or due to cognitive impairment or having a similar 
     level of disability (as determined by the Secretary of the 
     Treasury in consultation with the Secretary of Health and 
     Human Services).
       The activities of daily living would be defined as eating, 
     toileting, transferring, bathing, dressing, and continence.


       exclusion for benefits and for employer provided coverage

       The bill would provide that benefits paid under a qualified 
     long-term care insurance contract are excludable from gross 
     income to the extent that benefits do not exceed $200 per day 
     (indexed for inflation after 1996).
       An employer's contributions for qualified long-term care 
     insurance would be excludable from gross income.
       The bill would not permit qualified long-term care 
     insurance to be provided through a cafeteria plan or flexible 
     spending arrangement.
       The bill would provide that distributions from individual 
     retirement arrangements and 401K plans are excludable from 
     gross income to the extent that they are used to pay premiums 
     on qualified long-term care insurance contracts.


             federal standards for long-term care insurance

                            Standard formats

       Each long-term care insurance policy would be required to 
     contain an outline of coverage under the policy, using a 
     uniform format and standard terminology, that accurately 
     reflects the contents of the policy, reflecting specific 
     elements. The format and standard terminology would be 
     defined by the Secretary of Health and Human Services, in 
     consultation with the National Association of Insurance 
     Commissioners.
       [[Page E848]] The outline of coverage would be required to 
     include: a description of the benefits covered; the principal 
     exclusions from and limitations on coverage; the conditions, 
     if any, upon which the insured can obtain upgraded benefits; 
     the threshold conditions for entitlement to receive benefits;
      a statement of the circumstances in which a policy may be 
     terminated and the refund or non-forfeiture benefits, if 
     any, applicable to each circumstance including death, 
     nonpayment of premiums, non-renewal by the insured, any 
     other circumstance; a statement of the total annual 
     premium and the portion of premium attributable to each 
     covered benefit; any reservation of the insurer of a right 
     to change premiums any limits on annual premium increases; 
     any expected premium increases associated with automatic 
     or optional benefit increases, including inflation 
     protection; circumstances under which the payment of 
     premium would be waived; information on average costs and 
     variation in such costs for nursing facility care and 
     other covered benefits; comparison of benefits over 20 
     years for policies with and without inflation protection; 
     a declaration as to whether the amount of benefits will 
     increase over time and, if so, the type and amount of any 
     limitations on, and any premium increases for, such 
     benefit increases.

                           Benefit standards

       Benefits under long-term care insurance policies could not 
     be conditioned upon any of the following: the need for 
     another type of service, such as prior hospitalization or a 
     higher level of care; a particular medical diagnosis; 
     compliance by the providers with conditions not required by 
     Federal or State law; the provision of such service by a 
     provider or in a setting providing a higher level of care 
     than required by an insured individual.
       A long-term care insurance policy that provides benefits 
     for home care or community-based services: may not limit 
     benefits to services provided by registered nurses or 
     licensed practical nurses; may not limit benefits to services 
     furnished by persons or entities participating in programs 
     under title XVIII and XIX of the Social Security Act; must 
     provide, at minimum, benefits for personal assistance with 
     activities of daily living, home health care, adult day care 
     and respite care.
  A long-term care insurance policy that provides benefits for nursing 
facility services must provide benefits for services in all types of 
nursing facilities licensed by the State and may provide benefits for 
care in other residential facilities.
  A long-term care insurance policy may not discriminate in the 
treatment of Alzheimer's disease or any other dementia of organic 
origin, any organic or inorganic mental illness, mental retardation or 
any other cognitive or mental impairment, or HIV infection or AIDS from 
the treatment of any other medical condition, for purposes of 
determining whether the threshold conditions for the receipt of 
benefits have been met, or the amount of benefits under the policy.

                          Inflation protection

  A long-term care insurance policy would be required to offer the 
consumer the option to purchase inflation protection. The inflation 
benefits shall not be less than 5 percent per year of the full value of 
benefits for the previous year or such other rate of increase as the 
Secretary may determine adequate to offset increases in the costs of 
long-term care services covered under the policy.

                        Non-forfeiture benefits

  A long-term care insurance policy would have to include a non-
forfeiture benefit after being in effect for a specified period.

                            Right to cancel

  A long-term care policy would have to provide that the insured has 40 
days to cancel and obtain a full refund of any premium paid.

                           Guaranteed renewal

       In order to be certified, a long-term care policy could not 
     be canceled or refused to be renewed (or replaced with a 
     substantial equivalent) except for non-payment of premium or 
     for fraud or non-disclosure on the part of the insured.

          Continuation and conversion rights of group policies

  A group long-term care insurance policy would be required to provide 
the opportunity to continue coverage when the policy would otherwise 
terminate.

   Approval of State Long-Term Care Insurance Certification Programs

       The Secretary of Health and Human Services would be 
     required to review and approve State long-term care insurance 
     certification programs meeting the following requirements: 
     The State certification program would be required to assure 
     compliance with the standards for long term-care insurance 
     policies as specified in this bill. State programs would be 
     required to provide administrative procedures under which an 
     insured individual may seek reconsideration of any denial or 
     partial payment of a claim.
     

                          ____________________