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.

Section 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.

Section 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.

Section 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.

Section 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.

Section 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.

Section 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.

Section 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).

Section 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.

Section 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).

Section 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.

Section 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.