The Texas Department of Insurance proposes 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. 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 proposed 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 proposed 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 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 proposed amendments to §3.3804 clarify that 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.

Proposed 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. Proposed new subsection (c) to §3.3810 specifies when the term "level premium" may be used.

The proposed amendments to §3.3819 clarify that reserves for long-term care policies must be determined in accordance with Subchapter GG of Chapter 3 of this title. The proposed 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).

Proposed 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 proposed amendments to the section.

The proposed 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 proposed 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 proposed amendment to §3.3832(b)(12) replaces the former telephone number for the Texas Department of Aging with the current telephone number. The proposed amendments to §3.3832(b)(15) require disclosure of contingent lapse benefit upon rejection of a nonforfeiture offer, remove the hyphen from the word "nonforfeiture," and delete a row of unnecessary figures from the example contained in §3.3832(b)(15)(A). The proposed 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 proposed 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 proposed 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 proposed 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 loss ratio 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.

Kim Stokes, Senior Associate Commissioner, Life, Health and Licensing, has determined that for each year of the first five years the proposed sections will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the rule. There will be no measurable effect on local employment or the local economy as a result of administering or enforcing the proposed amendments.

Ms. Stokes has determined that for each year of the first five years the sections are in effect, the public benefits anticipated as a result of the sections will be: the stabilization of long-term care insurance premium rates; adequate disclosure of rate practices to consumers, enabling them to make more informed choices; the achievement of uniformity in methods used to develop rates for long-term care coverages; and the effective and consistent regulation of long-term care insurance coverage. Ms. Stokes has determined further that the public benefit also includes the protection of consumers who do not purchase nonforfeiture benefits by the provision of contingency benefits in case of lapse. The economic costs to any insurers required to comply with these proposed amendments are a direct result of the enactment of HB 2482, 77th Leg., and its directive that the Commissioner adopt rules consistent with nationally recognized models relating to the stabilization of long-term care premium rates, and not as a result of the proposed rule. Any other economic costs associated with compliance with the rule will be minimal. The proposed amendments are consistent with the rating practices and consumer disclosure amendments of the Long-Term Care Insurance Model Regulation, promulgated by the National Association of Insurance Commissioners (NAIC) in October 2000 and the corresponding provisions of the Long-Term Care Insurance Model Act promulgated by the NAIC in April 2000.

The proposed amendments, like the NAIC model regulations, require insurers to provide certain disclosures to applicants. The department is developing a disclosure form that insurers will be able to use in providing this disclosure. Insurers who use the form prescribed by the department should not incur costs relating to the disclosure requirements beyond those anticipated by HB 2482. The proposed amendments provide insurers with the option of using other disclosure forms. However, if an insurer elects to use such a form, the insurer will be required to file the form with the department. Insurers who elect not to use the prescribed disclosure form will incur costs associated with the filing of the form with the department. Based on the department's knowledge of the industry, it is anticipated that most insurers who elect to use non-prescribed forms will use first class U.S. Postal Service delivery to file these forms. If the U.S. Postal Service is used, Ms. Stokes estimates that the cost of filing these disclosure forms will cost no more than $1.50 per form. This cost includes manual or electronic production of the form, the paper, the envelope, the manual or electronic addressing of the envelope, and the postage. The actual total cost to each insurer would depend on the number of disclosure forms that the insurer seeks to use. The additional cost for filing the disclosure form would be incurred only by those insurers who elect not to use the disclosure form prescribed by the department.

Ms. Stokes has determined that there is no adverse economic impact on insurers that qualify as a small business or micro-business under Government Code §2006.001 as a result of these proposed amendments. The economic costs to any small business or micro-business insurer required to comply with these proposed amendments are a direct result of the enactment of HB 2482 and its directive that the commissioner adopt rules consistent with nationally recognized models relating to the stabilization of long-term care premium rates and consumer disclosures. The determining factor in the costs that would be incurred by an insurer in complying with these amendments is not related to the size of the entity, but rather, is dependent upon whether the entity elects not to use the disclosure form prescribed by the department. The size of the business, therefore, has no bearing upon the applicability of these proposed amendments. Because of this and because the intent of HB 2482 is to stabilize long-term care insurance premium rates among all long-term care insurers, it is neither legal nor feasible to exempt small business or micro-business insurers from the requirements of these proposed sections.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on December 10, 2001 to Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to Diane Moellenberg, Chief Director of Regulatory Development, Life, Health and Licensing, Mail Code 107-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. A request for a public hearing should be submitted separately to the Office of the Chief Clerk.

The amendments to Subchapter Y are proposed 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.

The following articles are affected by this proposal: Insurance Code, Article 3.70-12.