Long-term care insurance is intended to protect against the chances that someone faces a physical or cognitive impairment that impacts their daily life in a significant way, and which is chronic in nature – in other words, an impairment that is expected to last for a substantial period of time. These types of chronic conditions, particularly Alzheimer’s Disease and other forms of dementia, are occurring in the elder population at increasing rates. Costs for care have been concurrently rising. The insurance market has been trying to find ways to adapt to these trends in ways that both improve health outcomes and care settings for insured and make long-term care insurance (whether in a stand-alone policy or offered attendant to a life insurance policy or annuity) more financially viable for insurers. These efforts, combined with a groundswell of businesses aimed at improving elder care by both established entities and start-ups, leave the private long-term care insurance market on the precipice of a potential breakthrough.
In countless surveys, seniors articulate a strong desire to remain in their homes as they age, even if they develop conditions that will require long-term care. At the same time, providing care in the home is more cost-effective and can allow for the provision of more tailored care, accounting for each individual’s medical conditions and desires. In response to this data, many companies have moved to try to meet the desires of aging Americans through a wide variety of methods. Companies have focused on meal preparation and delivery, home modification, medication management, socialization/preventing isolation, caregiver support, technological monitoring and emergency alerts, and care delivery (both in-person and virtual). While many of these companies — and the ideas they are pursuing — are in their infancy, the available data supports the viability of their efforts and aims.
There has been tremendous interest among the insurance community for next-generation elder care solutions. While insurers have made significant efforts to create solutions, they are faced with two legal/regulatory hurdles. The first is compliance with the various state regulations on insurance rebating, and the second concerns the tax qualified status of many insurance policies under section 7702B of the Internal Revenue Code.
With respect to rebating, many state laws and/or regulations articulate that providing anything of value to the insured as an inducement for the insured to obtain or maintain coverage could be an impermissible rebate. As many wellness programs have value, there is a risk that implementation of the programs would run afoul of prohibitions on rebating. These anti-rebating provisions may soon be getting an overhaul. The National Council of Insurance Legislators has adopted — and the National Association of Insurance Commissioners is in the process of adopting — changes to their model anti-rebating laws that would contemplate insurers lawfully providing access to wellness programs to their insureds.
Similarly, relief many be coming on the tax qualification component. The issue is that the terms of 7702B require the insured to be “chronically ill” as a trigger for coverage under the policy. The provision of wellness programs prior to the insured meeting that definition is preferred in terms of improving the insured’s condition and reducing the severity of any future debilitation. It appears that the Department of the Treasury, of which the IRS is a part, recognizes this issue. In August 2020, Treasury released a report from The Interagency Task Force on Long Term Care Insurance. The Task Force endorsed the idea of programs aimed at enhancing “the ability of those potentially needing LTC to remain in their homes.” While this statement, at present, amounts only to an encouragement to state and federal policy makers to facilitate changes that might bring these “incidental benefits” to fruition, it does represent a step in the direction of rethinking how private insurance coverage for long-term care expenses should be structured.
Wellness programs and pre-claim intervention will be a significant part of the long-term care insurance conversation for years to come. It seems that the regulatory community at the state and federal level also recognizes the value in these programs and is beginning to take the necessary steps that will allow the insurance community to embrace them more widely.