Health Literacy Fact Sheet

The purpose of this paper is to explore the sources of information used in making decisions about whether and what type of long-term care insurance to purchase. We focused on three main areas. First, we examined how state regulation affects the information provided to individuals interested in purchasing a policy. This was accomplished through a review of state regulations. Second, we assessed the three main sources of consumer information: widely-used written consumer guides, required information provided by insurance agents, and the activities of State Health Insurance Assistance Programs (SHIPs) -- publicly-funded organizations tasked with broad education of seniors.[1] We reviewed readily-available resources and had structured interviews with six agents. We also undertook a survey of SHIPs to ascertain the extent to which they are currently helping consumers with long-term care insurance issues. Third, we assessed the required and optional education that insurance agents receive by reviewing the courses required by some states and the content for two long-term care insurance certification courses.

In general, we found ample sources of high-quality, deep, and objective information about long-term care and long-term care insurance. However, consumer guides tend to be too general to be effective at helping consumers make a specific set of choices about long-term care insurance. While some agents are experts on long-term care, most long-term care insurance is not sold by an agent that is an expert. SHIPs are also variable in terms of their own efforts to educate the volunteer insurance counselors about long-term care and long-term care insurance. In nearly all states, insurance agents need not know very much about long-term care to be licensed and it does not appear that most take the time, expense, or effort to become a specialist on long-term care insurance.

This review suggests that consumers need additional help in sorting through the decisions necessary to consider and purchase long-term care insurance. Specifically, we propose a three-pronged approach towards helping potential purchasers of long-term care insurance policies. First, consumers need a tool for comparing and contrasting policies and making informed decisions about the trade-offs of alternative options available within a policy. Secondly, since consumers depend on sales agents for information, it is imperative that sales agents have a solid base of knowledge about long-term care as well as the role of different insurance features to help insure risk and finance care. Finally, as a check on agents knowledge and as a source of independent opinions, potential purchasers should have access to knowledgeable counselors who are not sales agents to help them make better informed decisions about whether to purchase long-term care insurance and what type of coverage to buy.

These results also have implications for the law that is about to be implemented that promotes using reverse mortgages to finance long-term care insurance. The law requires that individuals participating in this program receive counseling on the advantages and disadvantages of these types of products. The regulations, which have yet to be released, should consider standards for training those who provide the counseling, for what materials are used, and for the content of the information regarding both the costs and suitability of obtaining a reverse mortgage and using the proceeds to purchase long-term care insurance. Agents representing reverse mortgage brokers and long-term care insurance should be required to understand the trade-offs inherent in combining the sale of one’s equity with the purchase of long-term care insurance.

Overview of the Issues Examined in This Study

Long-term care is assistance with essential but routine tasks of everyday life, such as bathing, dressing, eating, toileting, or moving about the house for individuals who are severely limited in conducting these activities on their own. Much of this care is provided by family, friends, and volunteers. For many, but not most, the care provided by family members is supplemented by professional home health aides, certified nursing assistants, personal care assistants, as well as special equipment such as walkers, wheelchairs, lifts, ramps, pill dispensers, and grab-bars. For most people with long-term care needs, care is provided in residential homes, but some persons are transported to an adult day care facility or live in an institution such as a nursing home or assisted living facility.

Long-term care costs can substantially erode retirement savings. The average annual cost of a nursing home exceeds $50,000. Home care and informal long-term care can also be costly. The current market price for paid home care ranges from an hourly rate of $37 for a licensed practical nurse to an hourly rate of $18.12 for a home health aide.[2] For the families that provide informal care, the cost of care takes the form of time off from work, limits in their preparation for retirement, and neglect of their own health. In the future, the number of people likely to need long-term care is expected to grow substantially faster than the population of adult children and paid caregivers. The expected mismatch between the growing demand and available supply will likely to increase the cost of long-term care.[3]

For the most part, long-term care is not covered by Medicare or private health insurance. Medicaid is the largest payer of long-term care in the country, but covers only those with the highest costs, fewest resources, and greatest needs. Because of Federal rules and significant state control over Medicaid, both eligibility and available benefits depend on where you live and whether or not you meet specific categorical, financial, and functional status requirements. Due to strict Medicaid eligibility requirements, individuals and families pay a large portion of the long-term care costs.

Policy makers, long-term care providers, and consumers are increasingly turning to private long-term care insurance to fill this void. Because the risk of needing expensive long-term care is low to modest but financial consequences when it is needed are substantial, experts believe long-term care costs are more efficiently handled by insurance than by saving.[4] Without the pooling of risk accomplished by insurance, invariably one would either save too much or too little relative to actual costs of needed care. Given the likelihood that far too few people are adequately saving to meet expected living expenses during retirement without considering long-term care, chances are low that they will have sufficient resources to finance the potentially extraordinary expenses associated with the need for long-term care. Consequently, there is considerable interest in having people include in their planning for retirement and other life-course events the contingencies associated with needing long-term care.

Nursing home insurance has been around for nearly as long as nursing homes, but insurance coverage for a broader array of long-term care services is more recent. National companies did not begin selling long-term care insurance until the mid-1980s. Since then, there has been tremendous growth and change in the number of companies selling policies, the characteristics of those policies, and the number of long-term care insurance policies sold.

At the end of 2001, over 8.3 million individual and group long-term care insurance policies had been sold, with about 5.1 million policies still in effect (i.e., that had not lapsed).[5] While this reflects a tremendous rate of growth, particularly since the mid-1980s, the proportion of the population age 50 or older with a long-term care insurance policy is still relatively small. Less than 11 percent of the population age 65 and older has a policy.[6]

To date, most long-term care insurance policies sold have been sold individually, but employers are an important part of this growing market. At least 4,700 employers[7], including 27 state governments provide access to long-term care insurance to their retirees, employees, and to the parents and dependents of their employees.[8] In 2002, the largest employer in the country, the Federal government, offered access to a long-term care insurance policy to Federal employees, retirees, and family members of Federal employees. However, only about 200,000 of the 20 million persons eligible were enrolled in the new program as of January 2003.[9] Most employers that offer long-term care insurance do not contribute towards the premium. Perhaps this would help explain why most employers have not been able to encourage more than seven percent of eligible employees to purchase a policy.[10]

To encourage more people to purchase a long-term care insurance policy, state and Federal policy makers have supported financial incentives, mostly through tax incentives. At least 39 states provide explicit tax breaks or special asset protection in Medicaid for those who purchase long-term care insurance.[11] Laws passed in 1996 and 2003 created limited Federal income tax incentives for purchasing long-term care insurance. Some policy makers support other options to encourage growth in the long-term care insurance market including providing a full federal income tax deduction of long-term care insurance premiums as well as allowing for the purchase long-term care insurance through employer-provided flexible spending accounts and employee benefit cafeteria plans.[12]

A different type of incentive for purchasing long-term care insurance was included in a law passed in 2000. A provision of The American Homeownership and Economic Opportunity Act encourages people to use reverse mortgages to finance the premiums for long-term care insurance. Reverse mortgages are effectively loans from the bank to the homeowner for the equity in their home. Homeowners need not move out of the home, but the home must be sold once the person dies or moves out of their home and the proceeds of the sale of the home are used to satisfy the reverse mortgage loan.

Those who obtain a reverse mortgage must also purchase a reverse mortgage insurance policy.[13] However, under the American Homeownership and Economic Opportunity Act, persons who use the equity in their home to purchase qualified long-term care insurance get the initial reverse mortgage insurance premium waived. Since the average cost of this initial premium is around $2,000, the waiver could be a financial incentive for purchasing long-term care insurance.[14] Regulations for this program have not yet been issued, but those in the business of producing and selling long-term care insurance seem hopeful that it will help generate sales.[15]

While additional tax and other financial incentives might help to encourage a few people who otherwise would not purchase a policy to do so, evidence so far suggests that consumers need more than marginal subsidies to encourage them to purchase long-term care insurance. Some contend that the products are the problem: policies have limits on the amounts they contribute to total long-term care costs and offer few protections in the event that insurers go out of business or the consumer can no longer afford the premium. Consumer confusion about the nature of the products; the mistaken belief that Medicaid and Medicare provide comprehensive coverage; lack of assurance that the specific options they choose effectively tailor the insurance policy to cover the risks; and denial of the possibility of dependency also impede the purchase of long-term care insurance.

The purpose of this paper is to identify what is known about the resources available to consumers to make an informed decision about long-term care insurance. The paper begins by defining the unique nature of long-term care insurance, the consumer decision-making process, and state regulation regarding long-term care information and education. To better understand the information on long-term care insurance available to consumers, we collected information from consumer organizations; visited the websites supported by Federal agencies, state agencies, and consumer organizations; reviewed the materials agents must provide applicants in states adhering to the National Association of Insurance Commissioners (NAIC) guidelines; and surveyed SHIPs. Because insurance agents are an integral part of the purchase process, this paper also reviews the regulatory framework governing sales agent disclosure, education and training, as well as private sector initiatives to educate agents about long-term care and insurance. The paper then draws upon the review of information sources, a survey of SHIPs, and interviews with long-term care insurance agents to articulate recommendations that could give consumers better tools to make informed decisions about long-term care insurance.

Background on Long-Term Care Insurance, Consumer Decision Making, and State Regulation

The Unique Nature of Long-Term Care Insurance.

Long-term care insurance helps to finance the cost of long-term care that is purchased when the policy holder has met a specific threshold of dependency. Generally, claimants are reimbursed either a fixed dollar amount for specific services or a fixed daily or monthly amount. These services might include: nursing home care; personal care for needs like bathing, eating, and dressing; homemaker services for chores like cleaning, shopping, or cooking; physical, occupational, or other therapies to restore or maintain function; and respite care to relieve family caregivers. Consumers effectively design their own insurance policies when they apply for insurance. They choose the benefit amount and the duration for which benefit payments will be paid. Consumers can also choose a policy whose benefit amounts increase over time, and, to a limited degree, how those benefit amounts are to be increased over time. To file a claim for benefits, individuals typically must not be able to perform specific functional tasks or be so cognitively impaired that supervision is required to undertake a task. Different policies use different tests and procedures to determine eligibility, including the relative number of limitations necessary to file a claim. So in effect, consumers also have to choose the level and test of impairment in their policy. Most policies offer a choice of waiting or elimination periods, which reflects the period of time in which one meets the test for functional dependency but must wait before filing an insurance claim. The choices vary from no days to 180 days, and the requirements for the waiting period can also vary. Some policies simply count the number of days in which the claimant is functionally dependent while other policies count the number of days in which the person meets the test of functional dependence and has purchased qualified long-term care services. A 90-day elimination or waiting period, which is quite common, will mean very different levels of coverage if the elimination period requires purchasing services for 90 days rather then simply needing care for 90 days.

The price of the policy, or its premium, is affected by these particular policy choices and the age of the applicant. A policy with a 90-day elimination period that requires purchasing services, for example, will be much less expensive than a policy with no elimination period, assuming all else is the same. A policy that increases benefits at a compounded inflation rate of 5 percent will cost more than a policy with an annual increase in benefits of 5 percent without compounding, which in turn will cost more than a policy with no benefit increases, assuming all else is the same.

Policies are usually not sold to persons with a chronic health condition, especially a chronic condition that is potentially debilitating. Long-term care insurance companies try to set the insurance premium so that it will remain the same amount for the life of the policy holder. This is done by setting the premium based on the average life expectancy at the initial age of purchase. Premiums are set to exceed the expected claims for most years and the excess premium is used to fund the policy when expected claims begin to exceed the annual premium. If premiums were not structured this way but instead varied as policyholders got older (like term life insurance does), then annual premiums would increase so dramatically after age 70 that virtually no one could afford it. The additional premiums paid in the earlier years are pooled and managed by professional money managers to help fund average expected claims when the risk of needing long-term care vastly exceeds the premium.[16]

Setting a premium based on the initial age of purchase provides an incentive to purchase long-term care insurance at younger ages. Relative to the price that would have to be paid if purchased at an older age, the annual cost of the policy is dramatically lower and as long as the premium does not change it becomes a known expense, whose price over time is declining in real terms. This makes it easier to incorporate into the family budget, especially as incomes are rising. If one can afford $100 a month premium at age 40, then in most circumstances paying $100 a month a decade later at age 50 will be even easier to manage.

Although this characteristic of long-term care insurance makes it easier to budget for, it also makes it very expensive to change or modify policies. The prefunding accomplished in one policy is not usually transferable to another policy. Therefore, if the policy holder wishes to change policies, they are likely to have to forgo the accumulated value of the prefunding and start anew. The new policy (for the same amount of coverage) will require a higher premium since the individual is now purchasing the policy at an older age.[17] Since the cost of changing policies becomes larger the longer the policy is held, this makes the initial policy choice extremely important.

This pricing structure, plus the nature of long-term care, makes the purchase of long-term care insurance relatively unique from at least two perspectives. First, it limits the degree to which a policyholder can change policies without a substantially financial penalty. It is quite likely that as one gets older, one’s understanding and perceptions of the risks of needing long-term care might change as does one’s family and financial circumstances. Moreover, both the fiscal strength of the insurance company as well as its interest in selling and servicing long-term care insurance can change over time as well.[18] Insurance companies may have very different priorities that affect the servicing of policies if they no longer choose to sell long-term care insurance policies. Yet, policy holders are not likely to be able to change their policy or move their policy to another insurer without facing a huge financial loss. This is unlike most other forms of insurance which are renewed and revised annually.

Second, long-term care insurance relies on speculation in a number of areas. Individuals generally cannot know how much long-term care insurance they might need or the types of long-term care services that will be offered in the future. Similarly, insurers cannot know how long-term interest rates, disability rates, and mortality rates, as well as how policy holders or the service delivery system might change over time.

The inability to anticipate the future, for both the purchaser and the insurer, is a an issue in other forms of insurance. However, in all other forms of insurance, the contemporary facts, such as current earnings, or the value of the car or house are relevant in helping to define the amount of life, disability, auto or homeowners insurance to purchase. Contemporary facts for example, like the existing technology and costs of repairing an automobile, for example, help to guide insurance companies when setting automobile rates for the next year. Fortunately they need not worry about setting rates in the future. For long-term care insurance, contemporary facts, such as current income and assets or even the current cost of long-term care, are not as relevant in choosing a long-term care insurance policy as it is in choosing any other form of insurance. It is for this reason that long-term care insurance has been structured to provide a payment towards the cost of services rather than covering the cost of services. This limits the insurer’s risk, but leaves the policyholder at risk for covering the gap between the cost of services and the benefit level of the policy.

Consumer Decision Making.

Few studies have been done on how individuals make decisions regarding long-term care insurance. Among people who had purchased a long-term care insurance policy, 40 percent said that the most important influence was their spouse and 27 percent said it was their insurance agent.[19] A different study examined reasons for not purchasing long-term care insurance by surveying people who considered buying a policy, met with an insurance agent, but subsequently decided not to purchase a policy. For this group, price (54 percent), benefit design (28 percent), and product confusion (18 percent) were the three most significant reasons mentioned for not making the purchase.[20] It is hard to know what respondents meant when saying the price was too high. Does it mean that they could not afford it, or does it mean that the product is not sufficiently valued and therefore they are not willing to purchase the recommended product at that price? Product confusion may mean that potential consumers are not sure of their own needs, the nature of the product, the trustworthiness of the agent, and/or the reliability of the insurer(s). [21]

In some respects, decisions about long-term care insurance resemble decisions made about other employee benefits. Generally, most people rely on co-workers, friends, and family for help in deciding what forms of insurance to purchase and from whom. The reputation of the insurance company may be a key part of the consumer's decision making process.[22] The importance of consumer perceptions and advice from others who are trusted is also born out in academic research on consumer decision making.

Regrettably, research on consumer decision making casts a pallid shadow on the notion that providing better or easier to read information can make for a more deliberative decision making process.[23] The pioneers of behavior research now believe that deliberative calculated decision making is more the exception than the rule; most consumer behavior is guided by simple, instinctive behavioral rules that can be triggered to operate differently in the same person, by how the costs, risks, and benefits are construed by that person at the time the decision is being made.

In the case of long-term care insurance, the likelihood of purchasing a policy is increased by trust in the agent and how the agent presents the risks and benefits of long-term care insurance for the potential client and his or her spouse. A long-term care insurance agent is likely to be involved in helping a potential customer decide if long-term care insurance is right for them as well as which policy options to purchase. Most agents recognize the importance of gaining the trust of potential clients as an honest broker of information about policy choices.[24] Some long-term care insurance agents have specialized in earning the trust of other financial and insurance professionals, so that a trusted financial advisor, stock broker, real estate agent, or auto insurance agent can "transfer the trust they have developed with their customer" to the long-term care insurance agent by recommending that they talk to a particular long-term care insurance agent.[25] Though agents may not attain the level of trust that a spouse or friend would, they may compensate for this through their knowledge of a product that is confusing to consumers. As such, insurance agents are a major influence on how individuals make long-term care insurance decisions.

State Regulation of Long-Term Care Insurance and Education.

State laws govern both what constitutes long-term care insurance and the sale of long-term care insurance - including the type of training agents must acquire to be licensed and the information agents must provide to consumers. States turn to the National Association of Insurance Commissioners (NAIC) for guidance on such laws. The NAIC, comprised of the Insurance Commissioner from each state, establishes templates of laws and regulations that states might consider across different types of insurance products. These templates, called Models, are offered to minimize the variation in insurance products and regulatory practices across states. Moreover, they are developed in the belief that they are the most practical and effective way of protecting the consumer and ensuring the integrity of the insurance industry. NAIC Models are formed through a negotiated process that includes insurance regulators, industry representatives, and consumer groups; the Models are often modified considerably when adopted by state legislatures.

The NAIC Long-Term Care Insurance Model Act and the NAIC Long-Term Care Insurance Model Regulations were first drafted in 1986 and were most recently revised in 2000. The model law and regulations have few provisions specific to agents selling long-term care insurance. The NAIC models simply require that agents have a state license to sell insurance, and that the insurance companies ensure that agents representing their products are properly trained to market those products in a "fair and accurate" manner and to determine the "suitability" of long-term care insurance for each potential applicant. In June 2004, the NAIC Senior Issues Task Force began to evaluate incorporating California's education requirements for long-term care agents into the NAIC long-term care model laws.[26]

Over the years, these models have been useful for state regulators, but they are only part of the political process that determines a state's insurance laws and regulations. State legislatures may choose to adopt all, some, or none of the NAIC model. Some states have adopted considerable portions of NAIC recommendation. Most states, in fact, have minimum requirements about the printed information that agents must provide applicants.

Only a few states, however, have any requirements on what long-term care information agents must understand about long-term care or long-term care insurance before they can sell a long-term care insurance policy. In virtually all states, a license to sell insurance is all that is needed. California may have the most substantial set of requirements. New agents selling long-term care insurance in California must complete 25 hours of continuing educations - 8 hours of which must be specific to long-term care insurance - per year for the first four years of their license. Then, after the initial four year period, to renew their license, insurance agents must complete 30 hours of continuing education during each 2-year term, which must include 8 hours of long-term care insurance course. In Colorado, the required long-term care insurance continuing education course need only be taken once. These may be the only states with requirements for any initial or ongoing specific long-term care or long-term care insurance education.

Sources of Consumer Information on Long-Term Care Insurance

To better understand the information on long-term care insurance available for consumers, we reviewed information from consumer organizations, visited the websites supported by Federal agencies, state agencies, and consumer organizations, and reviewed the materials agents must provide applicants in states adhering to the NAIC guidelines.[27] These types of information are divided into three categories: readily-available consumer guides, information provided by long-term care insurance agents, and information provided by SHIPs.

Readily-Available Consumer Guides.

We identified a wide variety of organizations providing readily-available and free long-term care information that could be easily found by potential consumers. We ignored informational brochures and websites that were clearly part of a sales effort. The amount of sales information, it should be noted, is overwhelming and will certainly dominate a consumer's internet-based search process. In particular we collected information from the following organizations:

Consumer Groups

Table 1 summarizes what we found by categorizing the type of information provided and culling examples of the advice from different brochures. Our intent here is not to provide a comprehensive set of guidelines, nor is it to evaluate either the brochure or the advice provided. We merely want readers to get a sense of the array of information that consumers might find. Since the information was not uniform or even consistent, our choice of whose advice to present is biased by our desire to convey some of the variability in what is available.

Table 1. Selected Consumer Advice on Long-Term Care Insurance, Culled from a Variety of Readily-Available Sources

Area of Advice	Suggestion	Other Considerations
At what age should you purchase Policy features	Age 40 and certainly by age 65. (Consumers Union)

Daily benefit amount	· Find out what long-term care costs in your area to help determine the base amount (AARP, NAIC)	· Consumer need not buy insurance that covers the full cost of care since some long-term care is financed by Medicare (CMS)
Benefit trigger	· Limits in two ADLs and that one of the ADLs used in the list should be a limitation in bathing (Consumers Union) · Be sure that Alzheimer's disease is covered (NAIC/HIAA)	· Eligibility should be certifiable by policyholder’s physician rather than someone chosen by the insurance carrier (AARP) · Don't buy a policy that requires hospitalization or nursing home care or skilled nursing care in order to begin receiving benefits (NAIC/HIAA; IMSA) · Avoid policies that do not cover care received outside of the U.S. (LTCFEDS.COM)
Types of services	· In-home care and nursing home care should be covered (AARP) · Alternative care facilities, like care at an assisted living facility should be covered (ConsumersUnion) · Personal care and homemaker services (i.e. cooking, shopping) should be an option (AHCA, NCAL, ElderLawAnswers.com )	· Services covered should not be limited to skilled care (NAIC/HIAA) · Home care benefit should include adult day care, hospice services, and respite care. (Consumers Union)
Waiting periods (sometimes called the elimination period or deductible)	· 30 days (Consumers Union)	· Buy a policy in which this is applied once, rather than for each episode of care (AARP)
Length or duration of coverage	· At least one year (NAIC/HIAA)	· Four years (Consumers Union)
Inflation protection	· Buyers should obtain a policy that automatically increases the benefit amount over time (AARP) · For buyers age 70 or older, 5% annual increases should be sufficient and for younger buyers a compounded 5 percent benefit amount (NAIC Shopper's Guide)	· A 65 to 75 year old should consider buying a 6-year or lifetime benefit with simple inflation. Those ages 75 and older should buy a bigger daily benefit for as long a period as they can afford (ElderLawAnswers.com)
Non-forfeiture of benefits, if you should stop paying premiums	· Highly recommended (NYSUT)	· It adds to the cost, but you should consider it (Consumers Union)
Waiver of premiums while receiving benefits	· Yes (NYSUT)	· Make sure there are no restrictions while receiving benefits (HIAA)
Other provisions	· Find a policy that provides an ability to increase or decrease coverage (NYSUT)	· The right to change the benefit should be guaranteed without providing evidence of insurability (NAIC/HIAA)
How much should you spend on long-term care insurance?	· No more than 7 percent of annual income (United Seniors Health Cooperative) · Not more than 5 to 10 percent of income (ElderLawAnswers.com)	· If the premium is a concern, it is better to purchase a 2-year policy with inflation protection than a longer term policy without inflation protection (medicare.gov) · Check with your state's insurance department to learn how rate increases are regulated (NAIC Shopper's Guide)
Financial strength of insurer	· Rated in one of the top two categories by at least two rating services, such as A.M. Best, Moody's Investor Services, Fitch Ratings, or Standard & Poor's) and have no low ratings (NYSUT)	· Weiss financial safety rating of at least a B+ (Consumers Union)
Insurer reputation	· Insurance company is a member of the Insurance Marketplace Standards Association
Agent commission	· Consumers should know how their agent is paid (Consumers Union)	· Be sure the commission amount is within reason (NYSUT)

As this table demonstrates, consumers can find abundant information about long-term care insurance. We were surprised, however, by the variability and vagueness in some of the advice. Perhaps there is too much information, since not all of the information is consistent and quite general. However, it does help consumers focus on key questions to discuss with their agent or insurance counselor, or answer by reviewing prospective insurance policies.

Information Provided by Long-Term Care Insurance Agents.

The previous discussion was about the information that is readily available to any consumer. At the point of contact with an insurance agent, most agents provide consumers written information. Much of the information will be in the form of a sales brochure, but in most states, some of the material that they provide is required by state law.

The NAIC model regulations require that agents provide: an outline of coverage, notice on rating and price adjusting practices, information on the consequences of replacing existing coverage, and a worksheet to determine the suitability of a purchase. In addition, applicants are to be provided a brief summary on what consumers need to know before buying long-term care insurance, a more extensive booklet on the nature of long-term care insurance, and contact information for the SHIPs in the state.

NAIC Information Infrastructure:

Two-Pronged Approach to Empowering the Consumer

Required Disclosures to the Buyer

Outline of coverage
Notice on rating practices
Notice on consequences of replacement
Personal worksheet to determine suitability of coverage

Buyer Education Material

Things You Should Know Before Your Buy Long-Term Care Insurance
Shopper's Guide to Long-Term Care Insurance
Contact information for SHIPs

The most prominent element of the information packet is the "outline of coverage." The model regulation provides a template for a recommended format and the vast majority of states have adopted this format.[28] In these states, consumers receive the terms under which the company can change their premiums, the benefits provided by the policy, and policy limitations and exclusions.

A second element of the NAIC's information structure is a notice on the rating practices of the insurer. This notice was recently added to the NAIC model to inform potential purchasers about the possibility that their premiums might increase in the future. The notice on rating practices includes information on the premium rate, circumstances under which rates can and cannot increase, when rate adjustments would be effective, and the options available to the purchaser if the premium increases in the future. By May 2003, slightly less than half of all states, including California, Florida, Illinois and Pennsylvania, had adopted this rating disclosure requirement.[29]

In addition, the NAIC Model calls for two types of insurer disclosure. The first is the consequences to the applicant of replacing any existing coverage (as described earlier, this typically involves a financial loss to the consumer). The second is information to enable the consumer to determine the financial suitability of long-term care insurance. According to the NAIC, 45 states required these notices in 2001. If the consumer takes the time to use the worksheet, then this provides another opportunity for the applicant to consider how he or she will pay premiums in the future.

The suitability worksheet, however, does not provide a framework for consumers and agents to delve into other aspects of suitability. Concern has been raised that agents simply focus on providing as much in benefits as buyers can currently afford with little regard for which benefits would be better at meeting specific needs (e.g., a greater home care benefit). Moreover, there is much more attention to current income and less attention to the factors that might affect the level of income in the future.[30] Moreover, there is no easy-to-use guide to inform decisions about which benefit provisions to keep and which to eliminate when potential clients indicate that the premium is too high.

Most states, in accordance with the NAIC model regulations, require insurers and agents to provide potential applicants with the contact information for the State's Health Information and Assistance Program (SHIP), a one-page summary sheet entitled, Things You Should Know Before You Buy Long-Term Care Insurance, and the NAIC-produced 62-page booklet entitled, A Shopper's Guide to Long-Term Care Insurance. According to the NAIC, in 2001, 40 states required insurers and agents to distribute this guide to potential applicants.

Some states have gone beyond this guide, publishing information for consumers on private long-term care insurance.[31] California, for example, has a side-by-side comparison of available long-term care insurance policies and their rates provided by each insurer in a standardized form. Colorado, Florida, Illinois, and Pennsylvania have additional publications as well. Pennsylvania provides samples of typical policies on its website.

Overview of the Issues Examined in This Study

State Regulation of Long-Term Care Insurance and Education

Sources of Consumer Information on Long-Term Care Insurance

The Long-Term Care Education of Insurance Agents

Conclusion and Recommendations

APPENDIX: Survey Sent to State Health Insurance Assistance Programs

Executive Summary