SUBCHAPTER Y. STANDARDS FOR LONG-TERM CARE INSURANCE COVERAGE UNDER INDIVIDUAL AND GROUP POLICIES

The Commissioner of Insurance adopts amendments to §§3.3803 - 3.3805, 3.3810, 3.3819, 3.3821, 3.3829, 3.3831, 3.3832, 3.3837, 3.3839, and 3.3844 concerning standards for long-term care insurance coverage under individual and group policies. Sections 3.3803, 3.3804, 3.3829, 3.3831, and 3.3844 are adopted with changes to the proposed text as published in the November 9, 2001 issue of the Texas Register (26 TexReg 9019). Sections 3.3805, 3.3810, 3.3819, 3.3821, 3.3832, 3.3837, and 3.3839 are adopted without changes and will not be republished.

These amendments provide definitions and procedures necessary to implement House Bill 2482 enacted by the 77th Legislature, which added Texas Insurance Code Article 3.70-12, §5A. House Bill 2482 authorizes the department to adopt rules to stabilize long-term care insurance premium rates. The rules are necessary to ensure that: initial rates are adequate; any rate schedule increases after policy issuance are justified, adequate, and reasonable in relation to benefits provided policy/certificate holders; the policies/certificates contain appropriate terms; and policy/certificate holders affected by rate schedule increases are protected.

In accordance with the requirements of HB 2482, the rules are to be consistent with nationally recognized models relating to the stabilization of long-term care premium rates. The amendments make Subchapter Y consistent with the rating practices and consumer disclosure amendments of the Long-Term Care Insurance Model Regulations promulgated by the National Association of Insurance Commissioners (NAIC) in October 2000 (10/00 Model Regulations) and the corresponding provisions of the Long-Term Care Insurance Model Act promulgated by the NAIC in April 2000 (4/00 Model Act).

The following changes were made in response to comments and to correct typographical and clerical errors: A comma was removed from §§3.3803 and 3.3804(a) to clarify that the phrase "rider attached to" modifies both annuity contracts or certificates and life insurance policies or certificates. Paragraphs (2), (3), and (9) of §3.3829(b) were changed to clarify that if an insurer chooses not to use the disclosure form promulgated by the department, the insurer's form must present the disclosure information in the same order as that set forth in §3.3829(b)(2). The reference to subparagraph (B) in §3.3829(b)(2)(D)(ii) was replaced with a reference to subparagraph (C). The reference to paragraph (3) in §3.3831(b)(1)(B)(iv)(IV)(-b-) has been deleted. The word "Except" in §3.3844(d)(2) was deleted to clarify that the provisions of subsection (d)(2) apply to policies or certificates with attained age rating. The words "loss ratio" were deleted from §3.3844(d)(6) to clarify that the premiums referenced in paragraph (6) will be subject to all the requirements of §3.3831. In §3.3844(g)(1), the word "a" was added before the word "Substantial" in the phrase "Triggers for Substantial Premium Increase" to correct a typographical error.

The amendments to §3.3803 clarify the types of policies, certificates, and riders to which Subchapter Y applies. The amendments clarify that the subchapter applies to policies defined in Insurance Code Article 3.70-12, §2(4) and long-term care riders attached to life insurance policies or certificates or annuity contracts or certificates delivered or issued for delivery in this state. The amendments also clarify the types of policies to which the subchapter does not apply. The amendments to §3.3804 clarify that long-term care riders attached to life insurance policies or certificates or annuity contracts or certificates must comply with the provisions of Subchapter Y. They also add definitions for attained age rating, exceptional premium rate increases, level premium long-term care policy, long-term care benefit classifications, qualified actuary, and similar policy forms and expand the definition for group long-term care insurance and make a clarifying change to the definition of home health agency.

New subsection (b) to §3.3805 clarifies that life insurance policies or certificates or annuity contracts or certificates to which a long-term care rider is attached are subject to the statutes and regulations applicable to those policies, contracts or certificates; however, the long-term care rider attached to those forms is subject to Subchapter Y. New subsection (c) to §3.3810 specifies when the term "level premium" may be used.

The amendments to §3.3819 clarify that reserves for long-term care policies must be determined in accordance with Subchapter GG of Chapter 3. The amendment to §3.3821 clarifies that the section's provisions apply to group long-term care coverage under group policies described in Insurance Code Article 3.50, §1(6).

Amendments to §3.3829 provide for required rating disclosures in the policy and at the time of application; require the applicant to sign an acknowledgement that disclosure was provided; authorize the use of a standard form prescribed by the department or, if the prescribed form is not used, require the insurer to file the form with the department; require notice of premium rate schedule increases and identify the timing of such notice; and amend the title of the section for consistency with the amendments to the section.

The amendments to §3.3831 clarify applicability of loss ratio standards and identify the type of information an insurer must provide to the department in connection with an initial premium rate filing and when the information must be provided. The amendments also describe the requirements for premium rate increases, including the information insurers must provide to the department prior to the provision of notice to the insured; the method by which premium rate schedule increases must be determined; and the information that the insurer must file with the department annually for the three years following implementation of the increase. The amendments contain additional requirements for insurers if the revised premium rate schedule is greater than 200% of the initial premium rate schedule. The amendments also provide that the department may require an insurer to take certain action if the insurer's actual experience following a rate increase does not match projections.

The amendments to §3.3831 also identify additional information that insurers are required to file with the department for policies or certificates that are eligible for contingent benefit upon lapse. For certain types of rate increase filings, the amendments require the department to determine if significant adverse lapsation has occurred or is anticipated and to determine if a rate spiral exists. If a rate spiral exists, the department may require the insurer to take certain action. The amendments also authorize the department to take additional action upon a determination that an insurer has exhibited a persistent practice of filing inadequate initial premium rates. The amendments clarify that specific provisions of the subsection do not apply to certain types of group insurance.

The amendment to §3.3832(b)(12) replaces the former telephone number for the Texas Department of Aging with the current telephone number. The amendments to §3.3832(b)(15) require disclosure of contingent lapse benefit upon rejection of a nonforfeiture offer, and make necessary clerical changes. The amendment to §3.3837(a) adds paragraph (5), which clarifies when insurers are to file the annual rate filing required by Insurance Code Article 3.70-12, §4(b). The amendment to §3.3839(a) adds paragraph (6), which requires that the terms "non-cancellable" and "level premium" be used only to describe policies and certificates that conform to §3.3810.

The amendments to §3.3844 clarify that the section applies to contingent benefits as well as to nonforfeiture benefits, and also require an insurer, on or after July 1, 2002, to provide contingent benefits upon lapse to policyholders and certificate holders who decline to purchase policies that contain nonforfeiture benefits. The amendments also require that if a group policyholder decides to offer nonforfeiture benefits to the certificate holder, the certificate must provide either the nonforfeiture benefit or the contingent benefit upon lapse. The amendments clarify when the contingent benefit upon lapse becomes effective and provide that it is subject to the requirements of §3.3831. In addition, the amendments to §3.3844 delete the definition for attained age rating because that definition now is contained in §3.3804. The amendments clarify when the contingent benefit upon lapse is triggered and what the insurer is required to do when the benefit is triggered, and provide a method an insurer that purchased or otherwise assumed long-term care policies from another insurer must utilize to determine whether contingent nonforfeiture upon lapse provisions are triggered.

GENERAL: One commenter expressed support for the proposed amendments as drafted, noting that the amendments track the most recent amendments to NAIC Long-Term Care Insurance Model Regulation. The commenter requested that if adoption of the rule is delayed beyond January 1, 2002, the effective dates in various sections of the rule be amended accordingly. Most other commenters supported the proposed amendments with some changes.

AGENCY RESPONSE: The department appreciates the commenters' support. As the rules were adopted prior to January 1, 2002, no change to the dates has been made.

GENERAL: A commenter stated that TDI omitted the penalty section of the NAIC Long-Term Care Insurance Model Act. The commenter indicated an understanding that this was done because Texas law provides for penalties for violating insurance laws that are at least as stringent as those in the model act. The commenter recommended that a description of the administrative penalties set forth in the Texas Insurance Code be included in the rule.

AGENCY RESPONSE: The department acknowledges the commenter's understanding that Texas law provides penalties at least as stringent as the NAIC Long-Term Care Insurance Model Act and the model regulation. The department does not believe it is necessary to describe the penalties in this rule as they are set forth in the Texas Insurance Code and both insurers and agents are subject to them.

§3.3804(a): A commenter stated that §3.3804(a) is unclear and asked if the phrase "rider attached to" applies to annuity contracts or certificates or only to life insurance policies or certificates.

AGENCY RESPONSE: The phrase "rider attached to" modifies both annuity contracts or certificates and life insurance policies or certificates. To clarify this issue, the department has removed the comma between the words "certificate" and "or annuity contract," so that it reads, "a rider attached to a life insurance policy or certificate or annuity contract or certificate." A similar change has been made to §3.3803.

§3.3829(b)(2)(C): A commenter stated that the language in §3.3829(b)(2)(C) implies that there is more than one "schedule" at any time, which is not the case.

AGENCY RESPONSE: The department disagrees that a change is necessary. There may be situations when an insurer would issue more than one schedule, such as when an applicant is applying for joint coverage.

§3.3829(b)(2)(D)(ii): A commenter suggested that the reference in §3.3829(b)(2)(D)(ii) to subparagraph (B) should be replaced with a reference to subparagraph (C).

AGENCY RESPONSE: The department agrees and has changed the clause accordingly.

§3.3829(b)(8): A commenter recommended that insurers be required to use only the disclosure form promulgated by TDI as it would create uniformity for consumers who are trying to compare available plans; without such uniformity, the commenter notes, the disclosure requirements do not give consumers the tools they need to better understand what each company is offering and to make appropriate comparisons.

AGENCY RESPONSE: The department appreciates the commenter's concerns; however, due to the language in Section 9B(5)(b) of the NAIC Long-Term Care Insurance Model Regulation and §3.3829(b)(3), which allow insurers to provide additional explanatory information related to the rate increase, the department does not agree with requiring an insurer to use only the disclosure form promulgated by the department. In an effort to promote uniformity, the department has changed §3.3829(b)(2), (3) and (9) to require insurers to present disclosure information in the same order as set forth in §3.3829(b)(2). Additionally, §3.3829(b)(8) requires insurers who elect not to utilize the prescribed form to submit their disclosures to the department. The department's review will ensure compliance with the rule.

§3.3829(b)(9): A commenter suggested that §3.3829(b)(9) be amended to refer to only "the information required by paragraph (2)(C)," because the other aspects of paragraph (2) are either irrelevant ((2)(A) and (2)(E) which relate only to (2)(E) disclosure) or need to be more specific to the actual rate increase ((2)(B) and (2)(D)).

AGENCY RESPONSE: The department disagrees that the paragraph should refer only to the information required by paragraph (2)(C). While the department recognizes that some of the information required in the other provisions of paragraph (2) will already have been provided, the department believes that it is a benefit to consumers to be provided with full disclosure prior to the implementation of a premium rate schedule increase. In addition, the reference to the information required by paragraph (2) is similar to the NAIC Long-Term Care Insurance Model Regulation.

§3.3831(b)(1): A commenter stated that this section appears to require existing policy forms first issued prior to the effective date of the rules to satisfy the initial filings requirements of the section even though the insurer is not making any changes to its existing forms or premium rates. The commenter stated that the intent of the section was made clear by the NAIC in its Guidance Manual. The commenter also clarified that all policies sold after the effective date are subject to the premium rate increase requirements of the section.

AGENCY RESPONSE: The rule requires that all policies issued on or after July 1, 2002 comply with the requirements of the rule. This provision is consistent with the requirements of the NAIC Long-Term Care Insurance Model Regulation. HB 2482 and the amendments to the NAIC Long-Term Care Insurance Model Regulation were enacted to stabilize long-term care insurance premium rates by ensuring that initial rates are adequate and any rate schedule increases after policy issuance are justified, adequate, and reasonable in relation to benefits provided. If insurers are exempted from reviewing existing rates, such initial rates may be inadequate, prompting rate increases after policy issuance. This effect would be contrary to the intent of HB 2482 and the amendments to the NAIC Long-Term Care Insurance Model Regulation.

The department acknowledges the language contained in the NAIC Guidance Manual for Rating Aspects of the Long-Term Care Insurance Model Regulation (the "Guidance Manual") but recognizes that the Guidance Manual has not been finalized. The department will continue to monitor adoption of the Guidance Manual and any revisions to the NAIC Long-Term Care Insurance Model Act and model regulation for possible future rulemaking.

§3.3831(b)(1)(B)(iv)(IV)(-b-): A commenter noted that item (-b-) includes a reference to paragraph (3), which does not exist.

AGENCY RESPONSE: The department agrees and has removed the reference to paragraph (3).

§3.3831(b)(2): A commenter stated that the phrase "at any time" in §3.3831(b)(2) is inconsistent with §3.3831(2)(B).

AGENCY RESPONSE: The department believes the commenter intended to refer to §3.3831(b)(2)(B); however, there does not appear to be any inconsistency between the two provisions. The terminology "at any time" was used to stress the need for insurers to maintain documentation and to clarify that, at any time, the department may request an actuarial demonstration to substantiate any rate filing after the effective date of the rule and the insurer must be prepared to submit such documentation. For example, the department may request this documentation after the effective date of the rules in certain instances such as when an insurer acquires a block of business and submits a rate increase for that business or submits an actuarial certification as allowed by §3.3831(b)(1)(B) and subsequently submits a rate increase.

§3.3831(c): A commenter stated that in several places, §3.3831(c) allows insurers to provide different disclosures to certain group policyholders to meet the description in §3.3831(c)(2)(K). The commenter recommended that insurers be required to disclose to all individuals insured under long-term care policies, and not just the group policyholders. The commenter stated that according to subparagraph (K), if the employer is paying only 20% of the premium, the insurer does not have to provide the disclosure to the consumer. The commenter noted that the disclosures could have a significant impact on whether an employee chooses to purchase or retain a policy since the consumer would bear most of the cost of the premium increase.

AGENCY RESPONSE: The department believes the commenter has misinterpreted this subsection. While §3.3831(c)(2)(C) and (D) require the insurer to provide to group policyholders described in §3.3831(c)(2)(K) updated and lifetime projections, it does not exempt the insurer from the disclosure of premium rate increases that must be given to all policyholders or certificate holders pursuant to §3.3829(b)(9).

§3.3832(b)(15)(A): A commenter suggested that Figure No. 2 of §3.3832(b)(15)(A) should be revised to clarify the maximum daily benefit. Because two examples are provided, the commenter noted, the figure should clarify that the amount per day cannot exceed the amount for the policy prior to exercise of the nonforfeiture option.

AGENCY RESPONSE: The department disagrees that the figure should be changed. The figure is provided as an example and not a requirement. Consequently, insurers have the option of providing their own numerical examples.

§3.3837(a)(5): A commenter stated that it and the department previously established that the LTC Experience Exhibit (Forms A, B, and if necessary C), would meet the documentation requirement of Insurance Code Article 3.70-12, §4(b).

AGENCY RESPONSE: The department acknowledges that if an insurer files with the department the LTC Experience Exhibit A, B, and C, such would meet the requirements of the loss ratio documentation required by Article 3.70-12, §4. To meet the other requirements of this law, an insurer must file its rates and rating schedules; however, if the insurer has not changed rates since the previous annual report, the insurer may file a certification to that effect.

§3.3844: A commenter stated that the department did not include a provision of the NAIC Long-Term Care Insurance Model Regulation related to nonforfeiture benefits that should have been included. Specifically, the commenter requested that a statement be included in §3.3833(a) that clarifies that the nonforfeiture requirements of the long-term care rules do not apply to life insurance policies or riders containing accelerated long-term care benefits.

AGENCY RESPONSE: The department disagrees that such a statement is necessary. A life insurance policy or rider containing accelerated long-term care benefits is not considered long-term care coverage. Those policies or riders would only be required to comply with laws applicable to life insurance coverage and accelerated death benefits. Section 3.3805(b) clarifies that the life insurance policy or certificate or annuity contract or certificate, which could include any rider providing accelerated benefits for long-term care, is subject to all statutes and regulations applicable to such policy or certificate. Only a long-term care rider, not a rider providing accelerated death benefits, attached to a life insurance policy is subject to this subchapter.

§3.3844(a): Because there is no requirement to offer contingent benefits upon lapse if the applicant accepts the nonforfeiture offer, a commenter suggested that the phrase "and Contingent Benefits Upon Lapse" be deleted from the caption to §3.3844(a) and that the subsection be split into two paragraphs.

AGENCY RESPONSE: The department disagrees with the recommended changes. The department believes that the language in the subsection is sufficiently clear and that the suggested changes are unnecessary.

§3.3844(d)(2): A commenter suggested that the word "Except" in §3.3844(d)(2) be deleted.

AGENCY RESPONSE: The department agrees and has made the recommended change.

§3.3844(d)(6): A commenter recommended that the phrase "loss ratio standards and other requirements" replace the phrase "loss ratio requirements" in §3.3844(d)(6) to clarify that some policies will be subject to a 60% loss ratio while others will be subject to the combined loss ratio test for rate increases.

AGENCY RESPONSE: The department did not incorporate the language suggested by the commenter, but has changed the section to clarify that premiums charged for policies or certificates containing nonforfeiture benefits or contingent benefits upon lapse will be subject to all of the requirements of §3.3831.

§3.3844(g)(1): A commenter noted that an "a" was missing before the word "Substantial" in §3.3844(g)(1).

AGENCY RESPONSE: The department agrees and has made the recommended change.

For: American Council of Life Insurers.

For, with changes: Health Insurance Association of America; Golden Rule Insurance Company; Consumers Union; and the Office of Public Insurance Counsel.

The amendments to Subchapter Y are adopted under Insurance Code Article 3.70-12 and §36.001. Article 3.70-12 provides that the department may adopt rules that are necessary and proper to implement the article. Under Section 7 of that article, any rules adopted by the commissioner regarding long-term care insurance shall include requirements no less favorable than the minimum standards for long-term care insurance adopted in any model laws or regulations relating to minimum standards for benefits for long-term care insurance and in accordance with all applicable federal law. New Article 3.70-12, §5A, enacted pursuant to House Bill 2482, authorizes the commissioner to adopt rules that are consistent with nationally recognized models relating to the stabilization of long-term care insurance premium rates and consumer disclosures. It further authorizes the commissioner to adopt rules that contribute to the uniformity of state laws and that protect consumers. Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance as authorized by statute.

§3.3803. Applicability and Scope. In accordance with Insurance Code Article 3.70-12, this subchapter applies to all long-term care insurance policies as that term is defined in §2(4) of the article, and riders attached to life insurance policies or certificates or annuity contracts or certificates delivered or issued for delivery in this state except:

(1) certificates delivered or issued for delivery in this state under a single employer or labor union group policy that is delivered or issued for delivery outside this state; or

(2) a policy which is not designed, advertised, marketed, or offered as long-term care or nursing home insurance.

§3.3804. Definitions.

(a) Except as otherwise provided by law or this subchapter, no long-term care insurance policy, certificate, group hospital service corporation subscriber contract, rider attached to a life insurance policy or certificate or annuity contract or certificate may be delivered or issued for delivery in this state, unless it complies with, and contains definitions in conformance with, this subchapter.

(b) The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Activities of daily living--Bathing, continence, dressing, eating, toileting and transferring, as those terms are defined in this subsection.

(2) Acute condition--The individual´s medical condition is medically unstable. Such an individual requires frequent monitoring by medical professionals, such as physicians and registered nurses, in order to maintain his or her health status.

(3) Adult Day Care--A social and health-related services program provided during the day in a community group setting, for the purpose of supporting frail, impaired elderly, or other disabled adults who can benefit from care in a group setting outside the home.

(4) Adult Day Care Facility--Provider of Adult Day Care services, operated pursuant to the provisions of the Human Resources Code, Chapter 103 (concerning licensing and quality of care requirements in the provision of adult day care).

(5) Applicant--The person who seeks to contract for benefits or services, in the instance of an individual long-term care insurance policy; or the proposed certificate holder or enrollee, in the instance of a group long-term care insurance policy.

(6) Attained age rating--A schedule of premiums starting from the issue date which increases with age at least one percent per year prior to age 50, and at least three percent per year beyond age 50.

(7) Bathing--Washing oneself by sponge bath or in either a tub or shower, including the task of getting into or out of the tub or shower.

(8) Care--Terms referring to care, such as "home health care," "intermediate care," "maintenance or personal care," "skilled nursing care," and other services, shall be defined in relation to the level of skill required, the nature of the care, and the setting in which the care must be delivered.

(9) Certificate--Any certificate issued under a group long-term care insurance policy, which certificate has been delivered or issued for delivery in this state. For purposes of these sections, the term:

(A) Also includes any evidence of coverage issued pursuant to a group health maintenance organization contract for long-term care health coverage.

(B) Does not include certificates that are delivered or issued for delivery in this state under a single employer or labor union group policy that is delivered or issued for delivery outside this state.

(10) Continence--The ability to maintain control of bowel and bladder function; or, when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag).

(11) Dressing--Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs.

(12) Eating--Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously.

(13) Exceptional premium rate increases--Increases filed by an insurer as exceptional and for which the department determines the need for the premium rate increase is justified:

(A) due to changes in laws or regulations applicable to long-term care coverage in this state; or

(B) due to increased and unexpected utilization that affects the majority of insurers of similar long term care products.

(14) Group long-term care insurance--A long-term care insurance policy or certificate of group long-term care insurance which is delivered or issued for delivery in this state, and issued to an eligible group as defined by the Insurance Code Article 3.51-6, §1(a), or a long-term care rider issued to an eligible group as defined by Insurance Code Article 3.50 §1.

(15) Home health agency--A business which provides home health service and is licensed by the Texas Department of Health.

(16) Home health care services--Medical or nonmedical services provided to ill, disabled or infirm persons in their residences. Such services may include homemaker services, assistance with activities of daily living, respite care services, case management services, and maintenance or personal care services.

(17) Level premium long-term care policy--A non-cancellable long-term care policy.

(18) Long-term care benefit classifications--Institutional long-term care benefits only, non-institutional long-term care benefits only, or comprehensive long-term care benefits.

(19) Long-term care insurance contract--Any insurance policy, group certificate, rider to such policy or certificate, or evidence of coverage issued by a health maintenance organization subject to the Texas Health Maintenance Organization Act (Texas Insurance Code, Chapter 20A) which is advertised, marketed, offered, or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense-incurred, indemnity, prepaid, per diem or other basis, and which provides insurance protection only for one or more necessary or medically necessary services of the following types, administered in a setting other than an acute care unit of a hospital: diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative, maintenance or personal care. The term "long-term care insurance contract" shall not include any insurance policy, group certificate, subscriber contract, or evidence of coverage which is offered primarily to provide basic Medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage. The term includes a policy or rider, other than a group or individual annuity or life insurance policy that provides for payment of benefits based on the impairment of cognitive ability or the loss of functional capacity.

(20) Maintenance or Personal Care Services--Any care the primary purpose of which is the provision of needed assistance under §3.3818 of this title (relating to Standards for Eligibility for Benefits), including the protection from threats to health and safety due to impairment of cognitive ability.

(21) Medicare--"The Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as Then Constituted or Later Amended," or "Title I, Part I of Public Law 89-97, as Enacted by the Eighty-Ninth Congress of the United States of America and popularly known as the Health Insurance for the Aged Act, as then constituted and any later amendments or substitutes thereof," or words of similar import.

(22) Mental or Nervous Disorder--A neurosis, psychoneurosis, psychopathy, psychosis, or mental or emotional disease or disorder of any kind.

(23) Policy--Any policy, contract, subscriber agreement, rider, or endorsement, delivered or issued for delivery in this state by an insurer, fraternal benefit society, nonprofit group hospital service corporation, or health maintenance organization subject to the Texas Health Maintenance Organization Act (Texas Insurance Code, Chapter 20A).

(24) Preexisting Condition--A condition for which medical advice was given or treatment was recommended by, or received from, a physician within six months before the effective date of coverage.

(25) Qualified actuary--An actuary who is a member of either the Society of Actuaries or the American Academy of Actuaries.

(26) Qualified long-term care insurance contract--A long-term care insurance contract meeting the requirements as contained in Internal Revenue Code of 1986, §7702B(b).

(27) Qualified long-term care services--As the term is defined in Internal Revenue Code of 1986, §7702B(c).

(28) Similar policy forms--All of the long-term care insurance policies and certificates issued by an insurer in the same long-term care benefit classification as the policy form being considered. Those certificates issued or delivered pursuant to one or more employers or labor union organizations, or to a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organizations, are not considered similar to certificates or policies otherwise issued as long-term care insurance, but are similar to other comparable certificates with the same long-term care benefit classifications.

(29) Toileting--Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene.

(30) Transferring--Sufficient mobility to move into or out of a bed, chair or wheelchair or to move from place to place, either via walking, a wheelchair or other means.

§3.3805. Standards in Policies.

(a) Except as otherwise provided by law or this subchapter, no long-term care insurance policy or certificate or group hospital service corporation subscriber contract, delivered or issued for delivery in this state, may contain provisions respecting the matters set forth in §§3.3812 (relating to Policy Standards for Provider), 3.3815 (relating to Standards for Home Health and Adult Day Care Benefits), and 3.3818 (relating to Standards for Eligibility for Benefits) of this title.

(b) A life insurance policy or certificate or annuity contract or certificate to which a long-term care rider is attached is subject to all statutes and regulations applicable to such life policy or certificate or annuity contract or certificate; however, a long-term care rider attached to such policy, certificate or contract is subject to this subchapter.

§3.3810. Policy or Certificate Standards for Noncancellability.

(a) The term "noncancellability" may be used only when the policyholder has the right to continue the long-term care insurance in force by the timely payment of premiums during which period the insurer has no right to make any change in any provision of the insurance or in the premium rate. The policyholder retains the right to cancel the long-term care insurance contract with the required notice of cancellation, as outlined in the contract. Upon such cancellation by the policyholder, the insurer must return any unearned premium to the policyholder.

(b) A group long-term policy may not be described as a noncancellable policy unless the insurer and policyholder have agreed by policy contract provision that the policy cannot be terminated by either the insurer or the policyholder until there are no certificates remaining thereunder. The term "noncancellable" may apply to a group certificate of coverage if and only if the certificate form provides that:

(1) In accordance with the provisions of §3.3828 of this title (relating to Continuation or Conversion; Discontinuance and Replacement):

(A) a conversion policy will be issued with substantially equivalent benefits upon termination of coverage under the group policy for any reason, including termination of the group policy; or

(B) the certificate may be continued in force under the group policy when the certificate holder is no longer a member of the group, pursuant to a written agreement between the certificate holder and the policyholder regarding such continuation, and that a conversion policy with substantially equivalent benefits must be provided in the event of policy termination; and

(2) Provisions of the policy, including rates, may not be changed unilaterally.

(c) The term "level premium" may only be used to describe long-term care coverage that is non-cancellable.

§3.3819. Requirement for Reserve. Reserves for long-term care benefits provided pursuant to the terms and conditions of policies or certificates which are subject to the provisions of this subchapter shall be determined in accordance with Subchapter GG of this chapter (relating to Minimum Reserve Standards for Individual and Group Accident and Health Insurance).

§3.3821. Limits on Group Long-term Care Insurance. No group long-term care insurance coverage may be offered to a resident of this state under a group policy issued in another state to a group described in the Insurance Code, Article 3.51-6, §1(a)(6) and Article 3.50 §1(6), unless the Texas Department of Insurance has made a determination that the group long-term care insurance requirements adopted by the State of Texas have been met, and the certificate for group long-term insurance coverage has been properly filed and approved by the department.

§3.3829. Required Disclosures.

(a) Required Disclosure of Policy Provisions.

(1) Long-term care insurance policies and certificates shall contain a renewability provision as required by §3.3822 of this title (relating to Minimum Standard for Renewability of Long-term Care Coverage). Such provision shall be appropriately captioned, shall appear on the first page of the policy, and shall clearly state the duration, where limited, of renewability and the duration of the coverage for which the policy is issued and for which it may be renewed.

(2) Except for riders or endorsements by which the insurer effectuates a request made in writing by the policyholder under a long-term care insurance policy and/or certificate, all riders or endorsements added to a long-term care insurance policy and/or certificate after the date of issue or at reinstatement or renewal, which reduce or eliminate benefits or coverage in the policy and/or certificate, shall require a signed acceptance by the policyholder. After the date of policy issue, any rider or endorsement which increases benefits or coverage with a concomitant increase in premium during the policy term must be agreed to in writing signed by the policyholder, except if the increased benefits or coverage are required by law. Where a separate additional premium is charged for benefits in connection with riders or endorsements, such premium charge shall be set forth in the policy, certificate, rider, or endorsement.

(3) A long-term care insurance policy and certificate which provides for the payment of benefits on standards described as usual and customary, reasonable and customary, or words of similar import, shall include a definition of such terms and an explanation of such terms in its accompanying outline of coverage.

(4) If a long-term care insurance policy or certificate contains any limitations with respect to preexisting conditions, such limitations shall appear as a separate paragraph of the policy or certificate and shall be labeled as "Preexisting Condition Limitations."

(5) Long-term care insurance applicants shall have the right to return the policy or certificate within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason. Long-term care insurance policies and certificates shall have a notice prominently printed on the first page or attached thereto stating in substance that the applicant shall have the right to return the policy or certificate within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason.

(6) A long-term care insurance policy or certificate containing any limitations or conditions for eligibility other than those prohibited in the Insurance Code, Article 3.70-12, or §3.3824 of this title (relating to Preexisting Conditions Provisions) shall set forth a description of such limitations or conditions in a separate paragraph of the policy and certificate and shall label each paragraph "Limitations or Conditions on Eligibility for Benefits."

(7) Long-term care insurance policies and certificates shall appropriately caption and describe the nonforfeiture benefit provision, if elected.

(8) Long-term care insurance policies and certificates shall contain a claim denial provision which shall be appropriately captioned. Such provision shall clearly state that if a claim is denied, the insurer shall make available all information directly relating to such denial within 60 days of the date of a written request by the policyholder or certificate holder, unless such disclosure is prohibited under state or federal law.

(9) A long-term care insurance policy and certificate which includes benefit provisions under §3.3818(b) of this title (relating to Standards for Eligibility for Benefits) shall disclose, within a common location and in equal prominence, a description of all benefit levels payable for the coverage described in §3.3818(b). Criteria utilized to determine eligibility for benefits shall be disclosed in all long-term care insurance policies and certificates, in the manner prescribed by §3.3818.

(10) If the insurer intends for a long-term care insurance policy or certificate to be a qualified long-term care insurance contract as defined by the Internal Revenue Code of 1986, §7702B(b), the policy or certificate shall include disclosure language substantially similar to the following. "This policy is intended to be a qualified long-term care contract as defined by the Internal Revenue Code of 1986, §7702B(b)."

(11) If the insurer does not intend for the policy to be a qualified long-term care insurance contract as defined by the Internal Revenue Code of 1986, §7702B(b), the policy or certificate shall include disclosure language substantially similar to the following. "This policy is not intended to be a qualified long-term care insurance contract. This long-term care insurance policy does not qualify the insured for the favorable tax treatment provided for in the Internal Revenue Code of 1986, §7702B."

(12) A long-term care policy or certificate which provides for increases in rates shall include a provision disclosing that notice of an upcoming premium rate increase will be provided no later than the 45th day preceding the date of the implementation of the rate increase.

(b) Required disclosure of rating practices.

(1) Other than non-cancellable policies, the required disclosures of rating practices, as set forth in paragraph (2) of this subsection, shall apply to any long-term care policy or certificate delivered or issued for delivery in this state on or after July 1, 2002, except for certificates issued under a group long-term care policy delivered or issued for delivery in this state and issued to one or more employers or labor organizations, or to a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organizations that was in effect on January 1, 2002, in which case this subsection shall apply on the policy anniversary following January 1, 2003.

(2) Insurers shall provide the following information in the same order as set forth in this paragraph to the applicant at the time of application or enrollment or, if the method of application does not allow for delivery at that time, the information shall be provided at the time of delivery of the policy or certificate:

(A) a statement that the policy may be subject to rate increases in the future;

(B) an explanation of potential future premium rate revisions, including an explanation of contingent benefit upon lapse, and the policyholder's or certificate holder's option in the event of a premium rate revision;

(C) the premium rate or rate schedules applicable to the applicant that will be in effect until a request is made for an increase;

(D) a general explanation for applying premium rate or rate schedule adjustments that shall include:

(i) a description of when premium rate or rate schedule adjustments will become effective (e.g., next anniversary date, next billing date, etc.); and

(ii) the right to a revised premium rate or rate schedule as provided in subparagraph (C) of this subsection if the premium rate or rate schedule is changed;

(E) Information regarding each premium rate increase on this policy form or similar policy forms over the past 10 years for this state or any other state that, at a minimum, identifies:

(i) the policy forms for which premium rates have been increased;

(ii) the calendar years when the form was available for purchase; and

(iii) the amount or percent of each increase. The percentage may be expressed as a percentage of the premium rate prior to the increase, and also may be expressed as minimum and maximum percentages if the rate increase is variable by rating characteristics.

(3) Subsequent to the information required by paragraph (2) of this subsection, insurers may, in a manner that is not misleading, provide in addition to the information required in paragraph (2)(E) of this subsection, explanatory information related to the rate increases.

(4) Insurers may exclude from the disclosure required by paragraph (2)(E) of this subsection premium rate increases that only apply to blocks of business acquired from other nonaffiliated insurers or the long-term care policies acquired from other nonaffiliated insurers when those increases occurred prior to the acquisition.

(5) If an acquiring insurer files for a rate increase either on a long-term care policy form acquired from a nonaffiliated insurer, or on a block of policy forms acquired from a nonaffiliated insurer on or before January 1, 2002 or the end of the 24-month period after the date of the acquisition of the block or policies, the acquiring insurer may exclude that rate increase from the disclosure. However, the nonaffiliated selling insurer shall include the disclosure of that rate increase in accordance with paragraph (2)(E) of this subsection.

(6) If the acquiring insurer in paragraph (5) of this subsection files for a subsequent rate increase, even within the 24-month period, on the same policy form acquired from a nonaffiliated insurer or block of policy forms acquired from a nonaffiliated insurer referenced in paragraph (5), the acquiring insurer shall make all disclosures required by paragraphs (2)(E), (3), (4) and (5) of this subsection.

(7) An applicant shall sign an acknowledgement at the time of application that the insurer has made the disclosure(s) required under paragraph (2) of this subsection. If due to the method of application the applicant cannot sign an acknowledgement at the time of application, the applicant shall sign no later than at the time of delivery of the policy or certificate.

(8) An insurer may use such form as the department prescribes to comply with the requirements of this section. Persons may obtain the required form by making a request to the Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9107 or 333 Guadalupe, Austin, Texas 78701, or by accessing the department website at www.tdi.state.tx.us. Insurers who elect not to use the prescribed form shall file the disclosure form with the Life/Health Division of the department for review 60 days prior to use.

(9) An insurer shall provide notice of an upcoming premium rate schedule increase to all policyholders or certificate holders, as applicable, at least 45 days prior to the implementation of the premium rate schedule increase by the insurer. The notice shall include the information required by paragraph (2) of this subsection in the same order as set forth in paragraph (2) when the rate increase is implemented.

§3.3831. Standards and Rates.

(a) Loss ratio standards. Except as noted in subsections (b) and (c) of this section, this subsection shall apply to all long-term care insurance policies and certificates.

(1) Benefits provided under long-term care insurance policies and certificates shall be deemed reasonable in relation to premiums charged if the expected loss ratio is at least 60%, calculated in a manner which provides for adequate reserving of the long-term care insurance risk. In evaluating the expected loss ratio, due consideration shall be given to all relevant factors, including:

(A) statistical credibility of incurred claims experience and earned premiums;

(B) the period for which rates are computed to provide coverage;

(C) experienced and projected trends;

(D) concentration of experience within early policy duration;

(E) expected claim fluctuation;

(F) experience refunds, adjustments, or dividends;

(G) renewability features;

(H) all appropriate expense factors;

(I) interest;

(J) experimental nature of the coverage;

(K) policy reserves;

(L) mix of business by risk classification; and

(M) product features such as long elimination periods, high deductibles, and high maximum limits.

(2) Prior to the use of any long-term care policy or certificate form in this state, every insurer shall submit to the commissioner an actuarial memorandum for each such policy which includes claim experience data and assumptions made thereon to sufficiently explain how the rates for such policy form are calculated. The actuarial memorandum submitted shall at least provide information which includes premium rate tables and/or schedules for each risk class and any fees, assessments, dues, or other considerations that will be included in the premium.

(b) Initial premium rate filing.

(1) Sixty days prior to the use of any long-term care policy or certificate to be issued in this state on or after July 1, 2002, an insurer shall submit the following information to the department:

(A) a copy of the disclosure form required by §3.3829(b) of this subchapter (relating to Required Disclosures);

(B) an actuarial memorandum or certification which includes at least the following:

(i) a statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated;

(ii) a statement that the policy design and coverage provided have been reviewed and taken into consideration;

(iii) a statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration;

(iv) a complete description of the basis for contract reserves that are anticipated to be held under the form, to include:

(I) sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held;

(II) a statement that the assumptions used for reserves contain reasonable margins for adverse experience;

(III) a statement that the net valuation premium for renewal years does not increase (except for attained-age rating where permitted); and

(IV) a statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses; or, if such a statement cannot be made, a complete description of the situations where this does not occur. The description may include a demonstration of the type and level of change in the reserve assumptions that would be necessary for the difference to be sufficient;

(-a-) an aggregate distribution of anticipated issues may be used as long as the underlying gross premiums maintain a reasonably consistent relationship;

(-b-) if the gross premiums for certain age groups appear to be inconsistent with this requirement, the department may request a demonstration under paragraph (2) of this subsection based on a standard age distribution; and

(v) either a statement or comparison as follows:

(I) a statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms also available from the insurer except for reasonable differences attributable to benefits; or

(II) comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences. An insurer will not be required to provide a comparison of every age and set of benefits, period of payment or elimination period; instead, a broad range of expected combinations designed to provide a fair presentation is to be provided.

(2) The department may request, and the insurer shall provide, at any time, an actuarial demonstration that benefits are reasonable in relation to premiums. If requested:

(A) the actuarial demonstration shall include either premium and claim experience on similar policy forms, adjusted for any premium or benefit differences, relevant and credible data from other studies, or both; and

(B) the period in subsection (b)(1) of this section does not include the period during which the insurer is preparing the requested information.

(c) Premium rate schedule increases. This subsection applies to premium rate increases for any long-term care policy or certificate delivered or issued for delivery in this state on or after July 1, 2002, except for certificates under a group long-term care insurance policy issued to one or more employers or labor organizations, or to a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organizations, which was in force on July 1, 2002, the provisions of this section shall apply on the policy anniversary following January 1, 2003.

(1) Exceptional premium rate increases.

(A) Exceptional premium rate increases are subject to the requirements of paragraph (2) of this subsection in addition to subparagraphs (B) and (C) of this paragraph.

(B) The department may request a review by an independent qualified actuary or a professional actuarial entity of the basis for a request that an increase be considered an exceptional premium rate increase.

(C) The department, in determining that the necessary basis for an exceptional premium rate increase exists, shall determine any potential offsets to higher claims costs.

(2) All premium rate schedule increases.

(A) An insurer shall submit a pending premium rate schedule increase, including an exceptional premium rate increase, to the department not later than the 60th day preceding the date of the notice to the policyholders, and shall include:

(i) information required by §3.3829(b) of this subchapter;

(ii) certification by a qualified actuary that:

(I) no further premium rate schedule increases are anticipated if the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized;

(II) the premium rate filing is in compliance with the provisions of this section;

(iii) an actuarial memorandum justifying the rate schedule increase request that includes:

(I) lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale, subject to the following:

(-a-) annual values for the five years preceding and the three years following the valuation date shall be provided separately;

(-b-) the projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;

(-c-) the projections shall demonstrate compliance with subparagraph (B) of this paragraph; and

(-d-) for exceptional premium rate increases:

(-1-) the projected experience shall be limited to the increases in claims expenses attributable to the approved reasons for the exceptional premium rate increase; and

(-2-) in the event the department determines, as provided in paragraph (1)(C) of this subsection that offsets may exist, the insurer shall use appropriate net projected experience;

(II) disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;

(III) disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the insurer have been relied on by the actuary; and

(IV) a statement that policy design, underwriting and claims adjudication practices have been taken into consideration;

(V) composite rates reflecting projections of new certificates in the event that it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase;

(iv) a statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the department; and

(v) sufficient information for review of the premium rate schedule increase by the department.

(B) All premium rate schedule increases shall be determined in accordance with the following:

(i) exceptional premium rate increases shall provide that 70% of the present value of projected additional premiums from the exceptional premium rate increase will be returned to policyholders in benefits;

(ii) premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

(I) the accumulated value of the initial earned premium multiplied by 58%;

(II) 85% of the accumulated value of prior premium rate schedule increases on an earned basis;

(III) the present value of future projected initial earned premiums multiplied by 58%; and

(IV) 85% of the present value of future projected premiums not in subclause (III) of this subparagraph on an earned basis;

(iii) If a policy form has both exceptional premium rate increases and other increases, the values in subclauses (II) and (IV) of clause (ii) of this subparagraph will also include 70% for exceptional rate increase amounts; and

(iv) All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in Subchapter GG of this chapter. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.

(C) For each rate increase that is effected, the insurer shall file for review by the department updated projections, as defined in paragraph (2)(A)(iii)(I) of this subsection, annually for the next three years on the anniversary of the implementation of the rate increase, and shall include a comparison of actual results to projected values. The department may extend the period for filing updated projections to more than three years if actual results are not consistent with projected values from prior projections submitted by the insurer. For group insurance policies that meet the conditions in subparagraph (K) of this paragraph, the projections required by this paragraph shall be provided to the policyholder in conjunction with filing the projections with the department.

(D) If any premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the insurer shall file for review by the department, every five years following the end of the required period in subparagraph (C) of this paragraph, lifetime projections, as defined in paragraph (2)(A)(iii)(I) of this subsection. For group insurance policies that meet the conditions in subparagraph (K) of this paragraph, the projections required by this paragraph shall be provided to the policyholder in conjunction with filing the projections with the department.

(E) If the department determines that the actual experience following a rate increase does not adequately match the projected experience filed by the insurer and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subparagraph (B) of this paragraph, the department may require the insurer to implement any of the following:

(i) premium rate schedule adjustments; or

(ii) other measures to reduce the difference between the projected and actual experience.

(F) In determining whether the actual experience adequately matches the projected experience under subparagraph (E) of this paragraph, consideration shall be given to paragraph (2)(A)(iii)(V) of this subsection, if applicable.

(G) If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:

(i) a plan, subject to the department´s approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both, or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the department may impose the condition in subparagraph (H) of this paragraph; and

(ii) the original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subparagraph (B) of this paragraph had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in paragraph (2)(B)(ii)(I) and (III) of this subsection.

(H) For a rate increase filing that meets the criteria in clauses (i)-(iii) of this subparagraph, the department shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months after the date each increase becomes effective to determine if significant adverse lapsation has occurred or is anticipated:

(i) the rate increase is not the first rate increase requested for the specific policy form or forms;

(ii) the rate increase is not an exceptional premium rate increase; and

(iii) the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.

(I) In the event significant adverse lapsation has occurred, is anticipated in the filing, or is evidenced in the actual results as presented in the updated projections provided by the insurer after the date of the requested rate increase, the department may determine that a rate spiral exists. Following the determination that a rate spiral exists, the department may require the insurer to offer to all in force insureds subject to the rate increase, without underwriting, the option to replace existing coverage with one or more reasonably comparable products being offered by the insurer or its affiliates.

(i) The offer shall:

(I) be subject to the approval of the department;

(II) be based on actuarially sound principles, but not be based on attained age; and

(III) provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.

(ii) The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:

(I) the maximum rate increase determined based on the combined experience; and

(II) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.

(J) If the department determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the department may, in addition to the provisions of subparagraph (H) of this paragraph, prohibit the insurer from any of the following:

(i) filing and marketing comparable coverage for a period not to exceed five years; or

(ii) offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.

(K) Subparagraphs (E), (H) and (I) of this paragraph shall not apply to group insurance issued to one or more employers or labor organizations, or to a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organizations, where:

(i) the policies insure 250 or more persons, and the policyholder has 5,000 or more eligible employees of a single employer; or

(ii) the policyholder, and not the certificate holders, pays a material portion of the premium, which shall be not less than 20% of the total premium for the group in the calendar year prior to the year during which a rate increase is filed.

§3.3832. Outline of Coverage.

(a) An outline of coverage shall be delivered to an applicant for an individual or group long-term care insurance policy or certificate at the time of initial solicitation through means which prominently direct the attention of the recipient to the document and its purpose. In the case of agent solicitations, the outline of coverage shall be delivered prior to the presentation of an application or enrollment form. In the case of direct-response solicitations, the outline of coverage shall be delivered in conjunction with any application or enrollment form. The outline of coverage shall comply with the following standards and standard format. The contents of the outline of coverage shall include the following prescribed text.

(1) The outline of coverage shall be a freestanding document, in no smaller than 12-point type.

(2) The outline of coverage shall contain no material of an advertising nature.

(3) Text which is capitalized in the standard format outline of coverage shall be capitalized. Text which is underscored in the standard format outline of coverage may be emphasized by boldfacing or by other means which provide prominence equivalent to such underscoring.

(4) Use of text and sequence of text of the standard format outline of coverage is mandatory, unless otherwise specifically indicated.

(b) The outline of coverage shall be in the following format.

Figure: 28 TAC §3.3832(b)

(Company Name)

(Address-City & State)

(Telephone Number)

Long-Term Care Insurance

Outline of Coverage

(Policy Number or Group Master Policy and Certificate Number)

(Except for policies or certificates which are guaranteed issue, the

following caution statement, or language substantially similar, must

appear as follows in the outline of coverage.)

Caution: The issuance of this long-term care insurance (policy) (certificate) is based upon your responses to the questions on your application. A copy of your (application) (enrollment form) (is enclosed) (was retained by you when you applied). If your answers are incorrect or untrue, the company may have the right to deny benefits or rescind your policy. The best time to clear up any questions is now, before a claim arises! If, for any reason, any of your answers are incorrect, contact the company at this address: (insert address)

(1) POLICY DESIGNATION. This policy is (an individual policy of insurance) (a group policy which was issued in (indicate jurisdiction in which group policy was issued)).

(2) PURPOSE OF OUTLINE OF COVERAGE. This outline of coverage provides a very brief description of some of the important features of your policy. This is not the insurance contract and only the actual policy provision will control the rights and obligations of the parties to it. The policy itself sets forth in detail those rights and obligations applicable to both you and your insurance company. It is very important, therefore, that you READ YOUR POLICY OR CERTIFICATE CAREFULLY.

(3) TERMS UNDER WHICH THE POLICY OR CERTIFICATE MAY BE RETURNED AND PREMIUM REFUNDED.

(A) (Provide a brief description of the right to return--"free look" provisions of the policy. State that the person to whom the policy is issued is permitted to return the policy within 30 days (or more, if so provided for in the policy) of its delivery to that person, and that in the instance of such return the premium shall be fully refunded.)

(B) (Include a statement that the policy either does or does not contain provisions providing for a refund or partial refund of premium upon the death of an insured or surrender of the policy or certificate. If the policy contains such provisions, include a description of them.)

(4) MEDICARE SUPPLEMENT INSURANCE DISCLAIMER. THIS IS NOT MEDICARE SUPPLEMENT COVERAGE. If you are eligible for Medicare, review the Guide to Health Insurance for People with Medicare available from the insurance company.

(A) (For agents) Neither (insert company name) nor its agents represent Medicare, the federal government, or any state government.

(B) (For direct response) (insert company name) is not representing Medicare, the federal government, or any state government.

(5) LONG-TERM CARE COVERAGE. Long-term care insurance is designed to provide coverage for necessary or medically necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, provided in a setting other than an acute care unit of a hospital, such as in a nursing home, in the community, or in the home. Coverage is provided for the benefits outlined in paragraph (6) of this subsection. The benefits described in paragraph (6) of this subsection may be limited by the limitations and exclusions in paragraph (7) of this subsection.

(6) BENEFITS PROVIDED BY THIS POLICY.

(A) (Describe covered services and benefits, related deductible(s), waiting periods, elimination periods, and benefit maximums.)

(B) (Describe institutional benefits, by skill level.)

(C) (Describe noninstitutional benefits, by skill level.)

(D) Eligibility for Payment of Benefits

(NOTE: This portion of the outline of coverage must include an explanation of any instance in which provision of benefits is predicated upon the insured's having met a specific standard of eligibility for that benefit under the terms of the policy. The procedural requirements must be stated for such screening for the provision of benefits. The inability to perform activities of daily living and the impairment of cognitive ability shall be used to measure an insured´s eligibility for long-term care and must be defined and described as part of the outline of coverage in conformance with the provisions of §3.3804 of this title (relating to Definitions). The outline of coverage also shall specify when an attending physician or other specified person must certify that the insured has a certain level of functional dependency in order for the insured to be eligible for benefits. If the policy or certificate contains provisions allowing for additional benefits (such as waiver of premiums, respite care, etc.) upon the occurrence of a certain contingency or contingencies, this paragraph also shall delineate each such benefit and specify the criteria for eligibility for each benefit.

(7) LIMITATIONS AND EXCLUSIONS. (State the principal exclusions, reductions, limitations, restrictions, or other qualifications to the payments of benefits contained in the policy, including:

(A) (preexisting conditions;

(B) (noneligible facilities/providers;

(C) (noneligible levels of care (e.g., unlicensed providers, care or treatment provided by a family member, etc.);

(D) (exclusions/exceptions; and

(E) (limitations.)

THIS POLICY MAY NOT COVER ALL THE EXPENSES ASSOCIATED WITH YOUR LONG-TERM CARE NEEDS.

(8) RELATIONSHIP OF COST OF CARE AND BENEFITS. Because the costs of long-term care services will likely increase over time, you should consider whether and how the benefits of this plan may be adjusted. (As applicable, indicate the following:

(A) (that the benefit level will not increase over time;

(B) (any automatic benefit adjustment provisions;

(C) (whether the insured will be guaranteed the option to buy additional benefits and the basis upon which benefits will be increased over time if not by a specified amount or percentage;

(D) (if such a guarantee is present, whether additional underwriting or health screening will be required, the frequency and amounts of the upgrade options, and any significant restrictions or limitations; and

(E) (whether any additional premium charge will be imposed, and how that is to be calculated.)

(9) TERMS UNDER WHICH THE (POLICY) (CERTIFICATE) MAY BE CONTINUED IN FORCE AND IS CONTINUED. (For long-term care insurance policies or certificates, describe one of the following permissible policy renewability provisions.)

(A) (Policies and certificates which are guaranteed renewable shall contain the following statement:

(i) RENEWABILITY: THIS POLICY (CERTIFICATE) IS GUARANTEED RENEWABLE. This means you have the right, subject to the terms of your policy (certificate), to continue this policy as long as you pay your premiums on time. (Company Name) cannot change any of the terms of your policy on its own, except that, in the future, IT MAY INCREASE THE PREMIUM YOU PAY.

(ii) (Policies and certificates that are noncancellable shall contain the following statement:) RENEWABILITY: THIS POLICY (CERTIFICATE) IS NONCANCELLABLE. This means that you have the right, subject to the terms of your policy, to continue this policy as long as you pay your premiums on time. (Company Name) cannot change any of the terms of your policy on its own and cannot change the premium you currently pay. However, if your policy contains an inflation protection feature where you choose to increase your benefits, (Company Name) may increase your premium at that time for those additional benefits.)

(B) (for group coverage, a specific description of continuation/ conversion provisions applicable to the certificate and group policy); and

(C) (a description of waiver of premium provisions or a statement that there are no such provisions.)

(10) ALZHEIMER'S DISEASE, OTHER ORGANIC BRAIN DISORDERS, AND BIOLOGICALLY BASED BRAIN DISEASES/SERIOUS MENTAL ILLNESS. (State that the policy provides coverage for insureds who meet the eligibility requirements explained above in paragraph 6 of this subsection because of a clinical diagnosis of Alzheimer's disease or related degenerative illnesses and illnesses involving dementia, or due to biologically based brain diseases/serious mental illnesses, including schizophrenia, paranoid and other psychotic disorders, bipolar disorders (mixed, manic, and depressive); major depressive disorders (single episode or recurrent); and schizo-affective disorders (bipolar or depressive). Specifically describe each benefit screen or other policy provision which provides preconditions to the availability of policy benefits for such an insured.)

(11) PREMIUM.

(A) (State the total annual premium for the policy. In the event the total premium for the policy is different from the annual premium, then the total premium also shall be stated. Initial policy fees shall be stated separately.)

(B) (If the premium varies with an applicant's choice among benefit options, indicate the portion of annual premium which corresponds to each benefit option.)

(C) (This paragraph also shall include a statement of the policy grace period.)

(12) TEXAS DEPARTMENT OF INSURANCE'S CONSUMER HELP LINE. An insurer shall include notification that the prospective insured may call the Texas Department of Insurance's Consumer Help Line at 800-252-3439 for agent, company, and any other insurance information, and 800-599-SHOP to order publications related to long-term care coverage, and the Texas Department of Aging at (800-252-9240 or current number if different) to receive counseling regarding the purchase of long-term care or other health care coverage.

(13) DENIAL OF APPLICATION. A long-term care insurer shall state that within 30 days of denial of an application, it will refund any premiums paid by a long-term care applicant.

(14) OFFER OF INFLATION PROTECTION. Insurers shall include the information set out in subparagraphs (A) and (B) of this paragraph regarding the offer of inflation protection.

(A) A graphic comparison of the benefit levels of a policy and certificate, if applicable, that increases benefits due over the policy interval with a policy that does not increase benefits, depicting benefit levels over at least a 20-year period, shall be provided.

(B) A disclosure of any expected premium increases or additional premiums to pay for automatic or optional benefit increases shall be made. If premium increases or additional premiums will be based on the attained age of the applicant at the time of the increase, the insurer shall also disclose the magnitude of the potential premiums the applicant would need to pay at ages 75 and 85 for benefit increases. An insurer may use a reasonable hypothetical or a graphic demonstration for the purposes of this disclosure.

(15) OFFER OF NONFORFEITURE BENEFITS. Insurers shall include the information set out in subparagraphs (A), (B) and (C) of this paragraph regarding the offer of nonforfeiture benefits.

(A) A complete and clear explanation of each nonforfeiture option being offered, including an actual numerical example.

Figure 28 TAC §3.3832(b)(15)(A)

Example

$1000 Annual Premium

(B) Disclosure of the premium and percentage increase in premium associated with each of the nonforfeiture benefits offered.

(C) Disclosure that if the nonforfeiture offer is rejected that a contingent benefit upon lapse will be provided and a description of such benefit.

(16) DISCLOSURE REGARDING FEDERAL TAX TREATMENT OF LONG-TERM CARE INSURANCE POLICY.

(A) Policies intended to be qualified long-term care insurance policies. Include disclosure language substantially similar to the following: "This policy is intended to be a qualified long-term care contract as defined by the Internal Revenue Code of 1986, §7702B(b). There may be tax consequences associated with the purchase of a qualified long-term care insurance contract, such as the tax deductibility of premiums and the exclusion from taxable income of benefits. The prospective insured is urged to consult with a qualified tax advisor."

(B) Policies which are not intended to be a qualified long-term care insurance contract. Include disclosure language substantially similar to the following: "This policy is not intended to be a qualified long-term care insurance contract as defined by the Internal Revenue Code of 1986, §7702B(b). This policy will not qualify the insured for the favorable tax treatment provided for in the Internal Revenue Code of 1986, §7702B. The prospective insured is urged to consult with a qualified tax advisor." Additionally, the insurer shall disclose the criteria which result in the policy or certificate not being classified as a qualified long-term care insurance contract.

(17) ADDITIONAL FEATURES.

(A) (Indicate if medical underwriting is used.)

(B) (Describe other important features such as: unintentional lapse as provided by §3.3841 of this title (relating to unintentional lapse and reinstatement).

§3.3837. Reporting Requirements.

(a) Every insurer shall maintain records, for each agent, of that agent's number and dollar amount of replacement sales as a percentage of the agent's total number and amount of annual sales attributable to long-term care products, as well as the number and dollar amount of lapses of long-term care insurance policies sold by the agent and expressed as a percentage of the agent's total annual sales attributable to long-term care products.

(1) Each insurer shall report by June 30 of every year the 10% of its agents with the greatest percentages of lapses and replacements as measured by this subsection; provided, however, that any agent with 20 or fewer sales of long-term care policies for any reporting period shall not be included in such report, even if such agent's replacement-and-lapse percentage rates would otherwise result in inclusion in such report.

(2) Reported replacement and lapse rates do not alone constitute a violation of insurance laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.

(3) Every insurer shall report by June 30 of every year the number of lapsed long-term care policies as a percentage of its total annual sales of such policies and as a percentage of its total number of long-term care policies in force as of the end of the preceding calendar year.

(4) Every insurer shall report by June 30 of every year the number of replacement long-term care policies sold as a percentage of its total annual sales of such products, and as a percentage of its total number of such policies in force as of the preceding calendar year.

(5) Every insurer by June 30 of each year shall file the annual rate filing required by Insurance Code Article 3.70-12, §4(b).

(b) Every insurer issuing long-term care insurance benefits shall maintain a record of all policy, contract, or certificate rescissions relating to such long-term care insurance benefits, both for coverage in this state and nationwide, except for those which the insured voluntarily effectuated, and shall report to the commissioner by June 30th of every year this information utilizing Form LTC RESCIND as referenced in §3.3848 of this title (relating to Adoption by Reference of Department Form Utilized in Reporting).

(c) Every insurer issuing long-term care insurance benefits shall maintain a record by class of business the number of long-term care claims for long-term care services denied during the preceding calendar year. The insurer shall report this information expressed as a percentage of claims denied (other than claims denied for failure to meet the waiting period or because of any applicable preexisting conditions or because the service for which the claim was submitted is not the type of service covered by a long-term care policy) to the commissioner by June 30th of every year.

(d) For purposes of this section, reporting requirements relate only to long-term care insurance and coverages that are delivered or issued for delivery in this state.

§3.3839. Standards for Marketing.

(a) Every insurer, health care service plan, or other entity marketing long-term care insurance coverage in this state, directly or through its agents, shall establish marketing procedures to assure that:

(1) any comparison of policies by its agents or other producers will be fair and accurate;

(2) excessive insurance is not sold or issued;

(3) every reasonable effort is made to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance;

(4) no person shall, in selling or offering to sell a long-term care policy, misrepresent a material fact;

(5) the policy shall be delivered no later than 30 days after the application for the long-term care insurance policy or certificate is approved;

(6) the terms non-cancellable and level premium are used only to describe a policy or certificate that conforms to §3.3810 of this subchapter (relating to Policy or Certificate Standards for Noncancellability); and

(7) auditable procedures are in place to verify compliance with this subsection.

(b) Every insurer or other entity marketing long-term care insurance coverage in this state, directly or through its agents, shall ensure that the notice provided in paragraph (1) or (2) of this subsection, as appropriate, is prominently displayed by type, stamp, or other appropriate means on the first page of both the policy (or certificate) and the outline of coverage.

(1) For any policy or certificate which contains inflation protection provisions, the notice shall read as follows: "Notice to buyer: This policy (or certificate) may not cover all of the costs associated with long-term care incurred by the policyholder (or certificate holder) during the period of coverage. The policyholder (or certificate holder) is advised to review carefully all policy limitations."

(2) For any policy or certificate which does not contain inflation protection provisions, the notice shall read as follows: "Notice to buyer: This policy (or certificate) may not cover all of the costs associated with long-term care incurred by the policyholder (or certificate holder) during the period of coverage. The policyholder (or certificate holder) is advised to review carefully all policy limitations. In addition, the policyholder (or certificate holder) is advised that based on current health care cost trends, the benefits provided by this policy (or certificate) may be significantly diminished in terms of real value to the policyholder (or certificate holder), depending on the amount of time which elapses between the date of purchase and the date upon which the policyholder (or certificate holder) first becomes eligible for those benefits."

(c) The marketing of a long-term care insurance policy or certificate which includes benefits provisions under §3.3818(b) of this title (relating to Standards for Eligibility for Benefits) shall disclose within a common location and in equal prominence a description of all benefit levels payable for coverage described in §3.3818(b).

(d) In addition to the practices prohibited in the Insurance Code, Article 21.21, the following acts and practices in the marketing of long-term care policies or certificates in this state are prohibited.

(1) Twisting--Knowingly making any misleading representation or incomplete or fraudulent comparisons of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer.

(2) High pressure tactics--Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.

(3) Cold lead advertising--Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.

(4) Misrepresentation--Selling, marketing, offering, or advertising any insurance policy, certificate, or rider to such policy or certificate, which substantially meets the definition of long-term care insurance found in the Insurance Code Article 3.70-12, §2, but which provides benefits for a period of fewer than 12 months.

§3.3844. Nonforfeiture and Contingent Benefits.

(a) Required Offering of Nonforfeiture Benefits and Contingent Benefits upon Lapse. No insurer or other entity may offer a long-term care insurance policy or certificate in this state unless such insurer or other entity also offers to the prospective insured, or to the group policyholder, the option to purchase a policy that contains nonforfeiture benefits. On or after July 1, 2002, in the event a policyholder or certificate holder declines the option to purchase a policy that contains nonforfeiture benefits, the insurer shall provide contingent benefits upon lapse as described in subsection (g) of this section. In the event a group policyholder elects to make the nonforfeiture benefit an option to the certificate holder, a certificate shall provide either the nonforfeiture benefit or the contingent benefit upon lapse.

(b) Nonforfeiture Benefit Provisions.

(1) The nonforfeiture provision shall provide for a benefit available in the event of a default in the payment of any premiums. The amount of the benefit may be adjusted subsequent to being initially granted only as necessary to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying contracts approved by the commissioner for the same contract form.

(2) The nonforfeiture provision shall be clearly and conspicuously captioned.

(c) Nonforfeiture Benefit Options. Insurers shall offer at least one of the following nonforfeiture options:

(1) reduced paid-up;

(2) extended term;

(3) shorten benefit period; or

(4) other offerings approved by the U.S. Secretary of Health and Human Services as provided by the Internal Revenue Code §7702B(g)(4)(B).

(d) Nonforfeiture and Contingent Benefit Standards/Requirements.

(1) Except as provided in paragraph (2) of this subsection, no policy or certificate shall begin a nonforfeiture benefit later than the end of the third year following the policy or certificate issue date. The contingent benefit upon lapse shall be effective during the first three years as well as thereafter.

(2) For a policy or certificate with attained age rating, the nonforfeiture benefit shall begin on the earlier of:

(A) The end of the tenth year following the policy or certificate issue date; or

(B) The end of the second year following the date the policy or certificate is no longer subject to attained age rating.

(3) Nonforfeiture credits may be used for all care and services qualifying for benefits under the terms of the policy or certificate, up to the limits specified in the policy or certificate.

(4) All benefits paid by the insurer while the policy or certificate is in premium paying status and in the paid up status will not exceed the maximum benefits which would have been payable if the policy or certificate had remained in premium paying status.

(5) There shall be no difference in the minimum nonforfeiture benefits as required under this section for group and individual policies.

(6) Premiums charged for a policy or certificate containing nonforfeiture benefits or a contingent benefit upon lapse shall be subject to the requirements of §3.3831 of this title (relating to Standards and Rates) treating the policy as a whole.

(7) To determine whether the contingent nonforfeiture upon lapse provisions are triggered, a replacing insurer that purchased or otherwise assumed a block or blocks of long-term care insurance policies from another insurer shall calculate the percentage increase based on the initial annual premium paid by the insured when the policy was first purchased from the original insurer.

(8) A qualified actuary shall certify as to the reasonability of rates charged for each nonforfeiture benefit and the reserving required by §3.3819 of this title (relating to Requirement for Reserve) shall include reserving for the nonforfeiture options.

(e) Additional Requirements for Shortened Benefit Period. An insurer offering a shorten benefit period shall comply with the following:

(1) The shortened benefit period shall provide paid-up long-term care insurance coverage after lapse. The same benefits (amounts and frequency in effect at the time of lapse but not increased thereafter) will be payable for a qualifying claim, but the lifetime maximum dollars or days of benefits shall be determined as specified in paragraph (2) of this subsection.

(2) The standard nonforfeiture credit will be equal to 100 percent of the sum of all premiums paid, including the premiums paid prior to any changes in benefits. The insurer may offer additional shortened benefit period options, as long as the benefits for each duration equal or exceed the standard nonforfeiture credit for that duration. However, the minimum nonforfeiture credit shall not be less than thirty (30) times the daily nursing home benefit at the time of lapse. In either event, the calculation of the nonforfeiture credit is subject to the limits specified in the policy or certificate.

(f) Disclosure of Nonforfeiture Benefits. The application or a separate form shall include an election to accept or reject the nonforfeiture benefit. The rejection notice shall state: "I have reviewed the outline of coverage and the explanation of nonforfeiture benefits and I reject the nonforfeiture option." The agent shall provide information to assist the prospective policyholder in accurately completing the rejection statement.

(g) Contingent Nonforfeiture Benefits.

(1) The contingent benefit on lapse shall be triggered every time an insurer increases the premium rates to a level which results in a cumulative increase of the annual premium equal to or exceeding the percentage of the insured's initial annual premium set forth in Triggers for a Substantial Premium Increase based on the insured's issue age, and the policy or certificate lapses within 120 days of the due date of the premium so increased. Policyholders shall be notified at least 45 days prior to the due date of the premium reflecting the rate increase.

Triggers for a Substantial Premium Increase