Partnership vs Non-Partnership (traditional) vs. hybrid policies
LTC Insurance suitability guidelines vs. consumer best interest standards
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For many of you who have been reading our blog posts over the past 2 ½ years, we at Senior Insurance Training Services have been sharing with you our trials and tribulations through the LTC Partnership task force meetings.
One of the constant themes has been product viability, affordability and complexity questions about the types of products – traditional vs. partnership vs. hybrids.
- What should Californians buy and why?
- What are the suitability standards and how were they developed?
- What do they mean by consumer best standards?
- How do the two differ?
Due to the complexity of the above talking points, this article will only highlight the crucial talking points that are about to be tackled by the legislature and Department of Insurance regarding traditional, Partnership and hybrid LTC Insurance solutions.
First, Partnership versus Traditional or non-Partnership.
Prior to 2012, when agents, financial advisors and investment reps new to the California partnership would attend one of my classes, I was required to State the purpose of the training:
- Assuring high quality performance in the agents that market partnership policies is only one of the obligations assumed by the State of California when it does promote the purchase of this product. The state must guard against having Partnership products misrepresented because the agent does not understand them and therefore cannot appreciate or accurately describe the benefits of the consumer protection provisions. Agents need to understand the provisions well enough to help choose a benefit plan that addresses the concerns of the individual consumer.
- Differences between Partnership policies and non-Partnership policies
- Why the California Partnership for LTC?
- Who should consider purchasing partnership policies and who shouldn’t?
- Understanding Medi-Cal eligibility and estate recovery and asset protection. Without this knowledge and agent cannot advise a client on the level of benefits they need for whatever amount of assets they wish to protect.
In fact, when the Partnership launched back in 1990, the program not only met, but exceeded all state and federal guidelines for LTC Insurance.
Today, due to the rapid expansion of product features and designs throughout the 1990’s and 2000’s, there are now only four key product differences:
- New minimum daily, monthly and annual benefit amounts ($100, $3,000 and $73,000)
- 3%, 4% or 5% compound inflation at any age
- No elimination and/or deductible periods greater than 90 days
- Unique care and case management features
Let’s not forget state-certified endorsed limits on future rate increases and asset recovery protection features.
In simple terms, let us show you the differences of Partnership vs Non-Partnership:
Minimum Daily Dollar Amount
- Partnership: $100 per day $3,000 per month $73,000 per year
- Non-Partnership: $50 per day, $1,500 per month $18,000 per year
- Partnership: at any age 3% 4% 5% compound
- Non-Partnership: 1% 2% 3% 4% or 5% CPI, FPO, PBIO, up to age 75/85 and/or no inflation at all
- Partnership: 0, 20, 30, 50, 60, 90 calendar days
- Non-Partnership: same but can include 180, 360, 730 service or calendar days
However, because of these recent changes, the state’s leading consumer advocate expressed and conditioned her support for the most recent changes to Partnership products on the assumption that the consumer would be well informed about the potential impact of the lower benefit amounts.
In fact, this is a recurring theme during the task force and now the ad hoc task force discussions – how should consumers be informed and agents and advisors explain the product and features as it relates to these new changes?
Since these changes took effect January 1, 2019, not one insurance carrier from the original Partnership companies has filed a new Partnership product or filed for the new changes to allow existing Partnership insured’s the ability to step down.
In lieu of the most recent in-force rate increases, that’s not allowing existing insured’s more options to reduce or to mitigate projected rate increases. This fact has now created a concern at the legislative level that may create potential problems for carriers in the very near future.
Based on this information, the issue of suitability, plan design, step down recommendations in lieu of rate increases and the potential creation of consumer best interest standards to include agents, advisors and investment reps as it relates to Partnership products vs non-Partnership vs. Hybrids (Asset-based or Linked 7702 B’s) vs. 101g’s (Chronic Care, accelerated or Critical Care) products and the confusion surrounding these product offerings, may cause and require additional suitability and disclosure standards in California.
California Suitability Guidelines and Consumer Best Interest Standards
Why is suitability important?
LTC Insurance isn’t right for everyone. Suitability refers to the process of determining whether it makes good financial sense for someone to buy LTC Insurance.
All states require insurance companies, agents, advisors and investment reps to make reasonable efforts to determine the appropriateness of a recommended sale or replacement. At a minimum, most states require that producers use a state-specific personal worksheet or to provide state-specific educational information to all clients before accepting an application. Suitability often gets confused with best interest standards and in California, that is quite evident.
Appropriateness of LTC Insurance
People consider LTC insurance for a variety of reasons. These reasons include to avoid spending assets for long-term care, to ensure that they have choices regarding the type of care received and to protect family members from the burden associated with caregiving.
A little over 5 years ago, a study was done addressing why buyers bought LTC insurance. This study focused on the emotional aspects of the purchasing decision. The words “freedom, choice, independence, control and dignity” were the most commonly reference words in describing what motivated them to buy.
The purchase of LTC insurance is an emotional decision. But LTC Insurance can be expensive and is not appropriate for everyone. We believe that suitability should focus on “is this insurance for you?” There are six issues traditionally that one should address before considering LTC insurance:
- Gender and
- Marital status
We will defer the six considerations to our LTC Insurance (CTQ) course. When it comes to Consumer Best Interest Standards, we believe this is more relevant to plan design issues, such as:
- Type of coverage: Traditional, Partnership or Hybrids
- Dollar amount: Daily, Monthly, Annual
- Length or duration of coverage: Years or Pools of Dollars
- Elimination or deductible: Days or dollars
- Inflation protection: Yes or No, How Much and Why
- Nonforfeiture vs. contingent nonforfeiture
This confusion still permeates our discussions within the Ad Hoc Task Force today as we attempt to clarify the two to avoid further regulations or legislation.
We were recently provided some clarification for our new curriculum on best interest standards. We have a very broad “honesty, good faith and fair dealing” standard in California. The language below is more specific and addresses the suitability issue with regard to financial products that include benefits for long-term care:
“Best interest” means acting at the time the recommendation is made with the care, skill, prudence and diligence that a prudent person familiar with such matters would use under the circumstances without regards to the financial or other interests of the producer, insurer or any party other than the Consumer.
A producer or insurer acts in the best interest to Consumer if they recommend the best option that the producer or insurer has available to recommend at the time of the recommendation, based on the characteristics of the product and the financial needs and objectives of the consumer.
Acting in the consumer’s best interest does not mean recommending the best option available in the marketplace at the time of the recommendation.
Well, there you have it! Pretty clean-cut … not!
We have developed our new curriculum, which incorporates the six issues of suitability, but expanded it with a checklist/worksheet/questionnaire that can be used with the client.
In addition to the new updated expanded suitability portion of the course, we’re adding a whole new section on “consumer best interest plan design” section. This section will break down the six issues of plan design and why, using the most recent claims data and utilization studies as well as who buys LTC Insurance and why!
We bring over thirty years of experience and research, especially the last four years of Partnership Task Force discussions, studies and reports, to provide you with the most current data, facts and statistics to better support your recommendations and conclusions on why Californians should consider LTC Insurance.