[Federal Register Volume 63, Number 1 (Friday, January 2, 1998)]
[Proposed Rules]
[Pages 35-39]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33986]
[[Page 35]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-109333-97]
RIN 1545-AV56
Qualified Long-Term Care Insurance Contracts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to
consumer protection with respect to qualified long-term care insurance
contracts and relating to events that will be considered material
changes with respect to long-term care insurance contracts issued prior
to January 1, 1997. Changes to the applicable law were made by the
Health Insurance Portability and Accountability Act of 1996. The
regulations affect issuers of long-term care insurance contracts and
individuals entitled to receive payments under these contracts. The
regulations are necessary to provide these taxpayers with guidance
needed to comply with these changes.
DATES: Written comments must be received by April 2, 1998. Outlines of
topics to be discussed at the public hearing scheduled for May 13,
1998, must be received by April 2, 1998.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-109333-97), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-109333-97), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers may also submit comments
electronically via the Internet by selecting the ``Tax Regs'' option on
the IRS Home Page, or by submitting comments directly to the IRS
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Katherine
A. Hossofsky, (202) 622-3477; concerning submissions and the hearing,
LaNita VanDyke, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) to provide rules under section 7702B of the
Internal Revenue Code of 1986 (the ``Code''). Section 7702B was added
by sections 321 and 325 of the Health Insurance Portability and
Accountability Act of 1996 (Pub. L. 104-191, 110 Stat. 1936, 2054 and
110 Stat. at 2063) (``HIPAA''). Notice 97-31, 1997-21 I.R.B. 5 (May 6,
1997), provides interim guidance on certain provisions of section 7702B
and other provisions of the Code added or amended by HIPAA.
Explanation of Statutory Provisions
Section 7702B establishes the tax treatment for qualified long-term
care insurance contracts. Sections 7702B(a) (1) and (3) provide that a
qualified long-term care insurance contract is treated as an accident
and health insurance contract and that any employer plan providing
coverage under a qualified long-term care insurance contract is treated
as an accident or health plan with respect to that coverage.
Section 7702B(a)(2) provides that amounts (other than policyholder
dividends and premium dividends) received under a qualified long-term
care insurance contract are generally excludable from gross income as
amounts received for personal injuries and sickness.
Section 213(d)(1)(D) was amended by section 322 of HIPAA to provide
that eligible long-term care premiums as defined in section 213(d)(10)
are deductible medical expenses.
Under section 7702B(b)(1)(F), a qualified long-term care insurance
contract must meet the consumer protection provisions of section
7702B(g). In addition, section 4980C imposes an excise tax on issuers
of qualified long-term care insurance contracts that do not provide
further consumer protections.
Section 7702B of the Code applies to contracts issued after
December 31, 1996. Section 321(f)(2) of HIPAA treats a contract issued
before January 1, 1997, as a qualified long-term care insurance
contract under section 7702B(b) of the Code, and services provided or
reimbursed under such a contract as qualified long-term care services
under section 7702B(c) of the Code, provided the contract met the long-
term care requirements of the State in which the contract was sitused
at the time the contract was issued. Section 321(f)(2) of HIPAA also
provides that in the case of an individual covered on December 31,
1996, by a State long-term care plan under section 7702B(f) of the
Code, the terms of the plan on that date are treated as a contract
meeting the long-term care insurance requirements of that State.
Section 321(f)(4) of HIPAA provides that for purposes of applying
sections 101(f), 7702, and 7702A of the Code, neither the issuance of a
rider that is treated as a qualified long-term care insurance contract
nor the addition of any provision required to conform any other long-
term care rider to the requirements applicable to a qualified long-term
care insurance contract is treated as a modification or material change
of the contract.
Explanation of Provisions
The proposed regulations provide guidance concerning:
the consumer protection requirements that apply to qualified
long-term care insurance contracts under sections 7702B(g),
7702B(b)(1)(F), and 4980C of the Code; and
the grandfather provisions of section 321(f)(2) of HIPAA under
which pre-1997 contracts are treated as qualified long-term care
insurance contracts if certain conditions are met.
The standards in the proposed regulations are based on safe harbors
that were originally set forth in Notice 97-31. They reflect comments
made by consumer representatives, issuers of long-term care insurance,
independent sales agents, State regulators of long-term care insurance,
and others. The proposed regulations are intended to provide clear and
workable rules to assist those who want to ensure that a contract
issued before 1997 retains its status as a qualified long-term care
insurance contract.
Notice 97-31
Notice 97-31 was issued to provide interim standards for taxpayers
to use in interpreting the new long-term care provisions and to
facilitate operation of the insurance market by avoiding the need to
amend contracts. For example, Notice 97-31 includes interim guidance on
the determination of whether an individual is a ``chronically ill
individual,'' including safe harbor definitions of the terms
``substantial assistance,'' ``hands-on assistance,'' ``standby
assistance,'' ``severe cognitive impairment,'' and ``substantial
supervision.'' The standards contained in Notice 97-31 include interim
guidance on both the consumer protection provisions and the scope of
the statutory grandfather provisions that apply to long-term care
insurance contracts issued before 1997.
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Consumer Protection Requirements
Under sections 7702B(b)(1)(F), 7702B(g), and 4980C, qualified long-
term care insurance contracts and issuers of those contracts are
required to satisfy certain provisions of the model act and model
regulation promulgated by the National Association of Insurance
Commissioners (NAIC) for long-term care insurance as of January 1993.
The requirements relate to guaranteed renewability, unintentional
lapse, disclosure, prohibitions against post-claims underwriting,
inflation protection, and prohibitions against pre-existing conditions
exclusions and probationary periods. Section 4980C imposes an excise
tax on an issuer of a qualified long-term care insurance contract if,
after 1996, the issuer fails to satisfy certain requirements, including
requirements relating to application forms, reporting, marketing,
appropriateness of recommended purchase, standard format outline of
coverage, delivery of a shopper's guide, right to return, outline of
coverage, and incontestability. Most of these requirements are based on
the NAIC model act and regulation.
The proposed regulations reflect the standards that were set forth
in Notice 97-31. For example, the consumer protection requirements will
be considered satisfied if a contract complies with State law in a
State that has adopted the related NAIC model or a more stringent
version of the model.
Pre-1997 Long-Term Care Insurance Contracts
Section 321(f)(2) of HIPAA provides that a contract issued before
January 1, 1997, is treated as a qualified long-term care insurance
contract if the contract met the ``long-term care insurance
requirements of the State'' in which the contract was sitused at the
time it was issued. Under the proposed regulations, the date on which a
long-term care insurance contract other than a group long-term care
insurance contract is issued is generally the date assigned to the
contract by the insurance company. In no event is the issue date
earlier than the date on which the policyholder submitted a signed
application for coverage to the insurance company. In addition, if the
period between the date of application and the date on which the long-
term care insurance contract actually becomes effective is
substantially longer than under the insurance company's usual business
practice, then the issue date is the date the contract becomes
effective. For purposes of applying the grandfather rule of section
321(f)(2) to a group long-term care insurance contract, the issue date
of the contract is the date the group contract was issued. As a result,
coverage for an individual who joins a grandfathered group long-term
care insurance contract on or after January 1, 1997, is accorded the
same treatment under section 321(f)(2) as is accorded coverage for
those who joined the group before that date.
For purposes of applying section 321(f)(2) of HIPAA to long-term
care insurance contracts issued before January 1, 1997, a material
change in the contract generally is considered the issuance of a new
contract. Notice 97-31 provides that a material change includes any
change in the terms of the contract altering the amount or timing of
any item payable by the policyholder (or certificate holder), the
insured, or the insurance company. Notice 97-31 also provides that the
exercise of an option or right granted to a policyholder under a
qualified long-term care insurance contract as in effect on December
31, 1996, does not constitute a material change.\1\
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\1\ The definition of material change in Notice 97-31 is
narrower than the definition of material change for purposes of
other sections of the Code. For example, the exercise of an option
in a life insurance contract results in the loss of grandfathering
under section 7702 if the option only guarantees terms that are
likely to be available when the option is exercised.
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After Notice 97-31 was issued, commentators recommended that
certain common practices should not cause long-term care insurance
contracts issued before January 1, 1997, to lose their grandfathered
status. In response to these comments, the proposed regulations provide
additional exceptions to the general rule that a material change in a
long-term care insurance contract issued before January 1, 1997, will
be considered the issuance of a new contract.
The proposed regulations provide that the exercise of any
right provided to a policyholder (i.e., a right that can be exercised
without the issuer's consent and without other conditions, such as
underwriting) or the addition of any right that is required by State
law to be provided to the policyholder will not be treated as a
material change to a long-term care insurance contract.
In addition, the proposed regulations provide that the
following practices will not be treated as material changes for
purposes of section 7702B: (1) Any change in the mode of premium
payment, such as a change from paying premiums monthly to quarterly;
(2) any classwide increase or decrease in premiums for contracts that
have been issued on a guaranteed renewable basis; (3) a reduction in
premiums due to the purchase of a long-term care insurance policy by a
member of the policyholder's family; (4) any reduction in coverage
(with correspondingly lower premiums) made at the request of a
policyholder; (5) the addition, without an increase in premiums, of
alternative forms of benefits that may be selected by the policyholder;
(6) the purchase of a rider to increase benefits under a pre-1997
contract if the rider would constitute a qualified long-term care
insurance contract if it were a separate contract; \2\ (7) the deletion
of a rider or provision of a contract (called an HHS rider) that
prohibited coordination of benefits with Medicare; and (8) the
effectuation of a continuation or conversion of coverage right under a
group contract following an individual's ineligibility for continued
coverage under the group contract.
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\2\ Thus for example, the only coverage provided under the rider
must be coverage for qualified long-term care services and the
purchase must satisfy the consumer protection requirements of
section 7702B(g) of the Code. (This would not include protections
that apply only the first time a contract is purchased, i.e.,
subsections (g)(2)(A)(i)(III), (V), (VII) (other than section 6B of
the NAIC model regulation), and (X), (g)(3), and (g)(4) of section
7702B. Similarly, subsections (c)(1)(A)(i) and (c)(2) of section
4980C would apply only the first time a contract is purchased.)
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The proposed regulations include examples illustrating certain of
these standards. The exceptions to the general rule that a material
change results in the issuance of a new contract apply solely for
purposes of determining whether a pre-1997 insurance contract is
treated as a qualified long-term care insurance contract under section
7702B.\3\
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\3\ The exceptions depart from the definition of material change
that would apply for purposes of other sections of the Code,
including sections 7702, 7702A, 101(f), and 264. These exceptions
are consistent with the purpose of section 7702B, which has the
effect of expanding the tax benefits for certain long-term care
insurance contracts. By contrast, sections 7702, 7702A, 101(f), and
264, for example, limit the tax benefits associated with certain
insurance products and, unlike pre-1997 long-term care insurance
contracts, apply to contracts with a substantial investment
orientation.
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Comments are requested on these standards, including (1) whether
the material change rules in the proposed regulations should be limited
to pre-1997 long-term care insurance contracts that cannot have cash
surrender value; (2) whether there are any conditions under which the
expansion of coverage under a group long-term care insurance contract
in connection with a corporate merger, acquisition or similar
transaction should not constitute a material change; and (3) whether
the extension of a group long-term care contract to a collective
bargaining unit is a material change in all cases. For
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example, should the extension of a group long-term care contract to a
bargaining unit after 1997 be treated as a material change if the
bargaining agreement for the unit has not been renewed since before the
group contract was first adopted?
Comments also are requested on what the effective date of the final
regulations should be. It is intended that the regulations will not be
effective until after the end of a specified period following adoption
of the final regulations. Taxpayers may rely on these proposed
regulations for guidance pending the issuance of final regulations. If,
and to the extent, future guidance is more restrictive than the
guidance in these proposed regulations, the future guidance will be
applied without retroactive effect. In addition, until further notice,
taxpayers may continue to rely on Notice 97-31.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS (a signed original and eight (8) copies). All comments will
be available for public inspection and copying.
A public hearing has been scheduled for May 13, 1998, at 10 a.m.,
in room 2615, Internal Revenue Building, 1111 Constitution Avenue NW,
Washington, DC. Because of access restrictions, visitors will not be
admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by April 2, 1998 and submit an outline of the
topics to be discussed and the time to be devoted to each topic by
April 2, 1998.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Katherine A.
Hossofsky, Office of Assistant Chief Counsel (Financial Institutions &
Products). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Sections 1.7702B-1 through 1.7702B-2 are added to read as
follows:
Sec. 1.7702B-1 Consumer protection provisions.
(a) In general. Under sections 7702B(b)(1)(F), 7702B(g), and 4980C,
qualified long-term care insurance contracts and issuers of those
contracts are required to satisfy certain provisions of the Long-Term
Care Insurance Model Act (Model Act) and Long-Term Care Insurance Model
Regulation (Model Regulation) promulgated by the National Association
of Insurance Commissioners (NAIC), as adopted as of January 1993. The
requirements for qualified long-term care insurance contracts under
sections 7702B(b)(1)(F) and 7702B(g) relate to guaranteed renewal or
noncancellability, prohibitions on limitations and exclusions,
extension of benefits, continuation or conversion of coverage,
discontinuance and replacement of policies, unintentional lapse,
disclosure, prohibitions against post-claims underwriting, minimum
standards, inflation protection, prohibitions against pre-existing
conditions exclusions and probationary periods, and prior
hospitalization. The requirements for qualified long-term care
insurance contracts under section 4980C relate to application forms and
replacement coverage, reporting requirements, filing requirements for
marketing, standards for marketing, appropriateness of recommended
purchase, standard format outline of coverage, delivery of a shopper's
guide, right to return, outline of coverage, certificates under group
plans, policy summary, monthly reports on accelerated death benefits,
and incontestability period.
(b) Coordination with State requirements--(1) Contracts issued in a
State that imposes more stringent requirements. If a State imposes a
requirement that is more stringent than the analogous requirement
imposed by section 7702B(g) or 4980C, then, under section 4980C(f),
compliance with the more stringent requirement of State law is
considered compliance with the parallel requirement of section 7702B(g)
or 4980C. The principles of paragraph (b)(3) of this section apply to
any case in which a State imposes a requirement that is more stringent
than the analogous requirement imposed by section 7702B(g) or 4980C (as
described in this paragraph (b)(1)), but in which there has been a
failure to comply with that State requirement.
(2) Contracts issued in a State that has adopted the model
provisions. If a State imposes a requirement that is the same as the
parallel requirement imposed by section 7702B(g) or 4980C, compliance
with that requirement of State law is considered compliance with the
parallel requirement of section 7702B(g) or 4980C, and failure to
comply with that requirement of State law is considered failure to
comply with the parallel requirement of section 7702B(g) or 4980C.
(3) Contracts issued in a State that has not adopted the model
provisions or more stringent requirements. If a State has not adopted
the Model Act, the Model Regulation, or a requirement that is the same
as or more stringent than the analogous requirement imposed by section
7702B(g) or 4980C, then the language, caption, format, and content
requirements imposed by sections 7702B(g) and 4980C with respect to
contracts, applications, outlines of coverage, policy summaries, and
notices will be considered satisfied for a contract subject to the law
of that State if the language, caption, format, and content are
substantially similar to those required under the parallel provision of
the Model Act or Model Regulation. Only nonsubstantive deviations are
permitted in order for language, caption, format, and content to be
considered substantially similar to the requirements of the Model Act
or Model Regulation.
[[Page 38]]
Sec. 1.7702B-2 Special rules for pre-1997 long-term care insurance
contracts.
(a) Scope. The definitions and special provisions of this section
apply solely for purposes of determining whether an insurance contract
(other than a qualified long-term care insurance contract described in
section 7702B(b) and any regulations issued thereunder) is treated as a
qualified long-term care insurance contract for purposes of the
Internal Revenue Code.
(b) Pre-1997 long-term care insurance contracts.--(1) In general. A
pre-1997 long-term care insurance contract is treated as a qualified
long-term care insurance contract, regardless of whether the contract
satisfies section 7702B(b) and any regulations issued thereunder.
(2) Pre-1997 long-term care insurance contract defined. A pre-1997
long-term care insurance contract is any insurance contract with an
issue date before January 1, 1997, that met the long-term care
insurance requirements of the State in which the contract was sitused
on the issue date. For this purpose, the long-term care insurance
requirements of the State are the State laws (including statutory and
administrative law) that are intended to regulate insurance coverage
that constitutes ``long-term care insurance'' (as defined in section 4
of the National Association of Insurance Commissioners (NAIC) Long-Term
Care Insurance Model Act, as in effect on August 21, 1996), regardless
of the terminology used by the State in describing the insurance
coverage.
(3) Issue date of a contract. (i) In general. The issue date of a
contract is the issue date assigned to the contract by the insurance
company, but in no event is the issue date earlier than the date the
policyholder submitted a signed application for coverage to the
insurance company. However, if the period between the date the signed
application is submitted to the insurance company and the date coverage
under the contract actually becomes effective is substantially longer
than under the insurance company's usual business practice, then the
issue date is the date coverage under the contract becomes effective
(if this is later than the issue date assigned to the contract by the
insurance company). A policyholder's right to return a contract within
a ``free-look'' period following delivery for a full refund of any
premiums paid is not taken into account in determining the contract's
issue date.
(ii) Special rule for group contracts. The issue date of a group
contract (including any certificate issued thereunder) is the date on
which coverage under the group contract becomes effective.
(iii) Exchange of contract or material change in a contract treated
as a new issuance. For purposes of this paragraph (b)(3)--
(A) A contract issued in exchange for an existing contract after
December 31, 1996, is considered a contract issued after that date;
(B) Any material change (as defined in paragraph (b)(4) of this
section) in a contract is treated as the issuance of a new contract
with an issue date no earlier than the date the material change goes
into effect; and
(C) If a material change occurs with regard to one or more, but
fewer than all, of the certificates evidencing coverage under a group
contract, then the insurance coverage under the changed certificates is
treated as coverage under a newly issued group contract (and the
insurance coverage provided by any unchanged certificate continues to
be treated as coverage under the original group contract).
(4) Material change. (i) In general. For purposes of paragraph
(b)(3) of this section, except as provided in paragraph (b)(4)(ii) of
this section, a material change means--
(A) A change in the terms of a contract that alters the amount or
timing of an item payable by the policyholder (or certificate holder),
the insured, or the insurance company;
(B) A substitution of the insured under an individual contract; or
(C) A change (other than an immaterial change) in the eligibility
for membership in the group covered under a group contract.
(ii) Exceptions. For purposes of this paragraph (b)(4), the
following changes are not treated as a material change:
(A) A policyholder's exercise of any right provided under the terms
of the contract as in effect on December 31, 1996, or a right required
by applicable State law to be provided to the policyholder;
(B) A change in the mode of premium payment (for example, a change
from monthly to quarterly premiums);
(C) In the case of a policy that is guaranteed renewable or
noncancellable, a classwide increase or decrease in premiums;
(D) A reduction in premiums due to the purchase of a long-term care
insurance contract by a family member of the policyholder;
(E) A reduction in coverage (with a corresponding reduction in
premiums) made at the request of a policyholder;
(F) The addition, without an increase in premiums, of alternative
forms of benefits that may be selected by the policyholder;
(G) The addition of a rider (including any similarly identifiable
amendment) to a pre-1997 long-term care insurance contract in any case
in which the rider, if issued as a separate contract of insurance,
would itself be a qualified long-term care insurance contract under
section 7702B and any regulations issued thereunder (including the
consumer protection provisions in section 7702B(g) to the extent
applicable to the addition of a rider);
(H) The deletion of a rider or provision of a contract (often
referred to as an HHS rider) that prohibited coordination of benefits
with Medicare; and
(I) The effectuation of a continuation or conversion of coverage
right provided under a group contract following an individual's
ineligibility for continued coverage under the group contract.
(5) Examples. The following examples illustrate the principles of
this paragraph (b):
Example 1. (i) On December 3, 1996, A, an individual, submits a
signed application to an insurance company to purchase a nursing
home contract that meets the long-term care insurance requirements
of the State in which the contract is sitused. The insurance company
decides on December 20, 1996, that it will issue the contract, and
assigns December 20, 1996, as the issue date for the contract. Under
the terms of the contract, A's insurance coverage becomes effective
on January 1, 1997. The company delivers the contract to A on
January 3, 1997. A has the right to return the contract within 15
days following delivery for a refund of all premiums paid.
(ii) Under paragraph (b)(3)(i) of this section, the issue date
of the contract is December 20, 1996. Thus, the contract is a pre-
1997 long-term care insurance contract that is treated as a
qualified long-term care insurance contract.
Example 2. (i) The facts are the same as in Example 1, except
that the insurance coverage under the contract does not become
effective until March 1, 1997. Under the insurance company's usual
business practice, the period between the date of the application
and the date the contract becomes effective is 30 days or less.
(ii) Under paragraph (b)(3)(i) of this section, the issue date
of the contract is March 1, 1997. Thus, the contract is not a pre-
1997 long-term care insurance contract, and, accordingly, the
contract must meet the requirements of section 7702B(b) and any
regulations issued thereunder to be a qualified long-term care
insurance contract.
Example 3. (i) B, an individual, is the policyholder under a
long-term care insurance contract purchased in 1995. On June 15,
2000, the insurance coverage and premiums under the contract are
increased by agreement between B and the insurance company.
[[Page 39]]
(ii) Under paragraph (b)(4)(i)(A) of this section, a change in
the terms of a contract that alters the amount or timing of an item
payable by the policyholder or the insurance company is a material
change in the contract. Thus, B's coverage is treated as coverage
under a contract issued on June 15, 2000, and, accordingly, the
contract must meet the requirements of section 7702B(b) and any
regulations issued thereunder in order to be a qualified long-term
care insurance contract.
Example 4. (i) C, an individual, is the policyholder under a
long-term care insurance contract purchased in 1994. At that time
and through December 31, 1996, the contract met the long-term care
insurance requirements of the State in which the contract was
sitused. In 1996, the policy was amended to add a provision
requiring the policyholder to be offered the right to increase
dollar limits for inflation every three years (without the
policyholder being required to pass a physical or satisfy any other
underwriting requirements). During 2002, C elects to increase the
amount of insurance coverage (with a resulting premium increase)
pursuant to the inflation protection provision.
(ii) Under paragraph (b)(4)(ii)(A) of this section, an increase
in the amount of insurance coverage at the election of the
policyholder (without the insurance company's consent and without
underwriting or other limitations on the policyholder's rights)
pursuant to a pre-1997 inflation protection provision does not
constitute a material change in the contract. Thus, C's contract
continues to be a pre-1997 long-term care insurance contract that is
treated as a qualified long-term care insurance contract.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 97-33986 Filed 12-31-97; 8:45 am]
BILLING CODE 4830-01-U