Chapter 13

Front 1

Medicare

Back 1

1. Medicare is a federal health insurance program for people age 65 and older and others
of any age who have received Social Security disability benefits for at least two years.
2. Medicare is run by the Centers for Medicare and Medicaid Services, a division of the
Department of Health and Human Services. Individual insurers handle the paperwork,
review claims, handle claim payments, and work to prevent payment of claims when
Medicare is the secondary insurer.
3. If one is age 65 or over and he/she or his/her spouse works, Medicare may be the
secondary insurer to any employer group health plan he/she participates in.
a. Group Health plans with 20 or more employees is primary to Medicare and pays first.
b. If the employer’s plan does not pay all of one’s expenses, Medicare may pay
secondary benefits for Medicare covered services to supplement the amount
paid by the group plan.
c. Employers who have 20 or more employees are required to offer the same
health benefits, under the same conditions to employees age 65 or over and
to employees’ spouses who are age 65 or over, as offered to the younger
employees and spouses. (If an employee is disabled and on Medicare, he/she is
to receive the same offer as all other employees.)
4. Certification of Providers – hospitals and other providers of health care that wish
to participate in the Medicare program must be licensed by the state. Medicare will not
pay for any services rendered by a provider that is not certified
5. Right of Appeal – if an insured disagrees with a decision on the amount Medicare will
pay on a claim, he/she has the right to appeal the decision
6. There are two traditional parts to the Medicare program, both of which have amounts
that the recipient must pay out-of-pocket, such as deductibles and coinsurance much like
other medical expense plans.
a. These out-of-pocket amounts are indexed according to formulas established by Congress.
b. The two parts are Part A - Hospital Insurance and Part B - Medical Insurance

Front 2

Medicare Enrollment

Back 2

a. The Initial Enrollment Period lasts seven months and begins on the first day of
the third month before one is eligible for Medicare and ends on the last day of
the third month following the month in which one is eligible for Medicare.
b. The General Enrollment Period provides a period from January 1 to March 31
each year in which one can enroll for Medicare if he/she did not enroll during
the initial enrollment period. If one enrolls during the general enrollment
period, coverage will begin the following July.
7. Effective in 1999, Medicare recipients who were carrying both Parts A and B became
eligible for other health care options provided they lived within a service area of an
alternative health plan. These alternative plans, effectively managed health care, are
known as Part C – Medicare Advantage (formerly Medicare + Choice). As part of
the premium paid for Part B, or for a possible additional charge, Medicare pays the
Medicare Advantage alternative health plan a lump sum to oversee the health care
services of the enrolled participants. The services provided by these plans may differ by
degree of choice of providers, out-of-pocket expenses, and extra benefits, but all must
provide basic Medicare covered services.
8. The Department of Insurance does not have to approve Medicare material provided by
the U.S. Government prior to use for solicitation
9. When Medicare recipients have a benefit change, they receive a notice of Medicare
benefits change including coverage and/or premium changes

Front 3

Medicare - Part A

Hospital Insurance (inpatient)

Back 3

1. Part A is premium free to those who qualify through Social Security or railroad
retirement or government employment (financed by the payroll tax, FICA).
2. People under age 65 who have been disabled for 24 months and are receiving Social
Security disability benefits qualify for Medicare and those over age 65 who do not
qualify through Social Security, railroad retirees or government employees may receive
benefits for Part A coverage by paying monthly premiums.
3. The deductible is applied on a per benefit period basis.
4. Part A claim payments are made directly to the provider for any of the five major
services received during a benefit period. A benefit period begins on the first day of
hospitalization. It ends after a person has been out of the hospital or skilled nursing
facility for 60 consecutive days or remains in a skilled nursing facility without skilled
care for 60 consecutive days. Part A provides an aggregate of 190 days of lifetime
inpatient psychiatric care.
a. Hospitalization – semiprivate room and board, general nursing and
miscellaneous hospital services and supplies, including prescription drugs, but
only while hospitalized.
b. Post-hospital Skilled Nursing Facility Care – to qualify, one must have
been hospitalized for at least three days, enter a Medicare-approved facility
generally within 30 days after hospital discharge and meet other program
requirements. After 20 days of Skilled Nursing Care, the flat amount of
coinsurance is paid through the 100th day. At that time, the patient must pay
100% of the cost.
c. Home Health Care – medically necessary skilled care, home health aide
services, nurses’ visits, medical supplies, etc., for a limited, specified period.
d. Hospice Care – full scope of pain relief and support services available to the
terminally ill. Hospice care includes a family counseling benefit.
e. Blood – except the first three pints per benefit period/annually

Front 4

Medicare - Part B

Medical Insurance (Outpatient)

Back 4

1. Part B is optional and offered to all applicants when they become entitled to Part A
either by qualification or premium. All Part B recipients pay a monthly premium.
2. Part B provides five major services per calendar year.
a. Medical Expense – physician’s services, inpatient and outpatient medical and
surgical services and supplies, physical and speech therapy, diagnostic tests,
durable medical equipment, ambulance services, etc.
b. Clinical Laboratory Services – blood tests, biopsies, urinalysis, etc.
c. Home Health Care – medically necessary skilled care, home health aide services,
medical supplies, for those who are home bound in their personal residence.
d. Outpatient Hospital Treatment – reasonable and necessary services for the
diagnosis or treatment of an illness or injury.
e. Blood – except the first three pints per benefit period/annually.
3. Prescription Drugs are not covered under Part B.
4. Part B payments are based upon a national fee schedule. The schedule assigns a dollar
value to each physician service based upon work, practice costs, and malpractice
insurance costs. Under this new payment system each physician service is covered by
Medicare. It has an amount that Medicare will recognize for that service which is taken
from the national fee schedule. Medicare generally pays 80% of that amount. Part B
has an annual deductible and requires a copayment.
5. Claim Payments are made in one of two ways:
a. Medicare Assignment - the claim is paid directly to the doctor or provider.
b. If the provider does not take assignments, the claim is paid directly to the insured.
6. Part B does not cover routine physical exams or dental services, but will cover kidney
dialysis treatments

Front 5

Medicare - Part C

Medicare Advantage (formerly Medicare + Choice)

Back 5

1. Medicare Advantage plans include: managed care, preferred provider organization
(PPO), private fee-for-service, and specialty plans.
2. Medicare Parts A and B are both required to participate in Medicare Part C.
3. Joining a Medicare Advantage plan requires premium payment for Part B as well as any
premium required for additional benefits provided through the Medicare Advantage plan.
4. A Medigap plan is unnecessary with Medicare Advantage as these plans generally cover
many of the same benefits that a Medigap policy covers

Front 6

Medicare - Part D

Prescription Drug Insurance

Back 6

1. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also
known as the Medicare Modernization Act (MMA), established a voluntary prescription
drug program known as Medicare - Part D, effective January 1, 2006. Additionally,
MMA provides a program for certain low income individuals to receive Part D
premium, deductible, and copayment subsidies.
2. Under the provisions of Part D voluntary prescription drug coverage, anyone entitled to
or enrolled in Part A and/or Part B of Medicare may enroll in the voluntary prescription
drug program in his/her area. Beneficiaries must enroll with a participating approved
Medicare Part D Prescription Drug Provider (PDP) or a Medicare Advantage plan that
offers prescription drug coverage (MA-PD) under Part C of Medicare.
3. Medicare Advantage participants may have coverage through their plan. Beneficiaries
will pay a monthly premium and a yearly deductible.

Front 7

Medicare Supplement Insurance (MEDIGAP)

Back 7

1. Purpose – private plans that are designed to supplement Medicare coverage and
follow the same guidelines as Medicare. These plans pay all or some of the Medicare
deductible and coinsurance.
2. Open Enrollment – a person 65 years of age or older may also purchase a Medicare Supplement by
paying the necessary premium (if the applicant applies within six months of enrolling in Medicare Part B).
An HMO could be a substitute for a Medicare Supplement if the HMO contracts with Medicare.
3. Standardized Plans (Core Benefits)
a. The Omnibus Budget Reconciliation Act of 1990 (OBRA) is a law that requires
all Medicare Supplement policies to be standardized. Medigap regulations limit
the number of policies to no more than ten standard benefit packages. Each of
the ten plans has a letter designation ranging from A through J.
b. Plans C through J offer foreign travel emergency care as an additional benefit,
and plans H, I and J also cover prescription drugs as an additional benefit.
c. Insurers are not required to offer all ten plans, but must make Plan A (The Core
Plan) available if they offer any of the ten plans in a state. Plan A is the basic
benefits found in all plans to which the other and optional benefits are added.
4. Plan A (Core Plan) Minimum Requirements – The core plan must contain the
following benefits:
a. Part A coinsurance for days 61 through 90 of hospitalization in any Medicare
benefit period.
b. Hospital coinsurance for the 91st through the 150th day.
c. The hospital expenses for an additional 365 days.
d. Cost of the first three pints of blood for both (Part A) and (Part B).
e. The Part B coinsurance for medical insurance (20%) of allowable charges.
5. Policy Requirements
a. A Medicare Supplement policy must contain a 30-day free look provision on the
first page in bold print.
b. The policy must also contain an Outline of Coverage containing information on
benefits, deductibles, exclusions, and premiums in bold print.
c. The insurer is required to explain the relationship of this coverage to the
benefits of Medicare.
d. Insurance laws require that a question about replacement appear on the
application form. The agent must retain a copy of the replacement form for a
specified number of years.
e. The agent must also provide a Buyer’s Guide and an Outline of Coverage at the
time of application, obtaining a signed receipt. The signed receipt helps provide
error and omission protection.
6. Agents’ Compensation
a. The first year commission is limited to 200% of the renewal commission.
Renewals are paid for five years.
b. When a Medicare Supplement is replaced only the renewal commissions are paid.

Front 8

Minimum Benefit Standards

Back 8

1. The policy must not exclude coverage for any preexisting conditions that occurred more
than six months prior to the effective date of coverage.
2. Losses resulting from accident or sickness must be paid on the same basis.
3. A policy that pays benefits according to the cost sharing percentages of Medicare must
automatically change to coincide with any changes in the Medicare laws.
4. A guaranteed renewable or noncancellable policy may not be written to terminate
spousal coverage solely because of deteriorating health, or upon the insured’s death, or
any other event, except for nonpayment of premiums.
5. If a group policy is terminated by the group policyholder, the insurer must offer a
certificate holder one of the following:
a. An individual policy providing the same benefits as the group policy.
b. An individual policy that provides only benefits required to meet the minimum standards.
6. If the group policy is replaced with another group policy, the replacing insurer must
offer the same coverage to all persons covered under the former policy without any new
or additional exclusions.
7. If a group policy is purchased during the open enrollment period, the policy must be
issued regardless of the group’s health status.
8. The policy cannot limit coverage to a single disease or affliction.
9. An “accident” shall be defined to employ “result” language. It does not have to pass an
accidental means test. The definition of accident will not be more restrictive than the
following: “Injury or injuries for which benefits are provided are all accidental bodily
injuries sustained as a direct result of an accident, independent of disease or infirmity or
any other cause while coverage is in force.”
10. Medicare Supplement policies must provide assistance with daily living for the home
health care Medicare patient.
11. Medicare Supplement policies must define a nursing home the same as the provisions of
Medicare. A nursing home offers 24-hour care under the supervision of a registered nurse.

Front 9

Medicare Replacement Requirements

Back 9

1. When replacing a Medicare Supplement policy the agent must:
a. Be sure that the replacement does not result in decreased benefits at an increase
in premium.
b. Use an application containing questions that elicit information to determine
if the applicant has or has had a Medicare Supplement in effect or if the
application is for replacement of an existing Medicare Supplement.
c. Provide a notice of replacement to the applicant prior to issuance or delivery
of the new Medicare Supplement policy. One copy of the notice, signed by the
applicant and the agent, must be provided to the applicant. One signed copy
must also be retained by the insurer.
2. An agent when recommending the purchase or replacement of a Medicare Supplement
policy must make reasonable efforts to determine the appropriateness of the purchase or
replacement.
3. Any sale of a Medicare Supplement policy is prohibited, unless the transaction would
not insure more than 100% of the individual’s actual medical expenses covered under
the combined policies.
4. Every insurer providing Medicare Supplement insurance must report annually, the
policy and certificate numbers and issue dates for individuals who have more than one
Medicare Supplement.
5. If a Medicare Supplement policy replaces another Medicare Supplement policy that has
been in force for six months or more, the replacing insurer shall not impose an exclusion
or limitation based on a preexisting condition. If the original policy has been in force
for less than six months, the replacing insurer shall waive any time periods applicable
to preexisting conditions to the extent that they have already been satisfied under the
original policy.

Front 10

Medicare Select

Back 10

Medicare Select insurance is the managed health care version of the traditional Medicare
Supplement policy that has been offered usually through indemnity insurers. It is an
experimental program, whereby services are provided the insured through network
providers who have contracted with the insurer to provide medical care. By using hospitals,
physicians, surgeons, etc., on the approved provider list the insured receives benefits
at the contracted rate. If the insured seeks services from a non-network provider then
they generally participate in the cost in the way of deductibles and coinsurance, unless
an emergency. If in the event the Medicare Select program should be discontinued, the
insureds will have the right to convert their coverage to a traditional Medicare Supplement
policy without having to prove insurability.

Front 11

Medi-Cal

Back 11

1. Medi-Cal provides increased assistance to those with a financial need and unable to pay
for their medical needs.
2. The Medi-Cal program assists individuals receiving public assistance through the
Supplemental Security Income/State Supplemental Payment Program and who are:
a. 65 years of age or older.
b. Blind or disabled.
c. Receiving Temporary Assistance for Needy Families.
d. Medically needy or medically indigent refugees in this country 18 months or less.
e. Pregnant women.
f. Persons in skilled nursing or intermediate care facilities.
g. Children under age 21 in foster care.
h. Individuals needing dialysis.
3. Medi-Cal is a federal and state (government) administered program.
4. Medi-Cal pays for hospital care, outpatient care, certain nursing facilities, doctors,
laboratory and x-ray services, prescriptions, Long-Term Care, and some home health
care after current assets are exhausted.

Front 12

Long-Term Care Insurance

Back 12

The Long-Term Care (LTC) insurance regulation is intended to promote the availability
of long-term care coverage. Long-Term Care insurance includes any individual policy,
group policy or rider that is advertised, marketed, offered, solicited, or designed to provide
coverage for no less than 12 consecutive months. It may cover diagnostic, preventive,
therapeutic, rehabilitative, maintenance, or personal care services that are provided in a
setting other than an acute care unit of a hospital. The policy provides a form of medical
care without hospitalization.

Front 13

People Most Likely to Purchase Long-Term Care Insurance

Back 13

Most people that purchase Long-Term Care insurance are in the middle to upper-middle
income range. Wealthy individuals typically have enough assets and resources that a stay in
a nursing home does not pose much of a financial threat. On the other end of the scale, those
in the low income group do not have the assets to protect and typically cannot afford Long-
Term Care insurance or may ultimately qualify for Medicaid.

Front 14

Types of Contracts

Long Term Care

Back 14

Long-term care coverage may be written as any of the following:
1. Individual Policies.
2. Group Policies.
a. Written renewable.
b. Convertible.
c. More economical than individual.
3. Riders/Endorsements to Life insurance policies.

Front 15

Elimination Period/Benefit Period

Long Term Care

Back 15

Rates are affected by the length of the elimination and benefit period. Most benefit periods
are two to five years (the shorter the elimination period and the longer the benefit period, the
higher the premium). Unlike Health or Disability plans, LTC is not written to age 65, but
for a stated benefit period such as three years. Some plans may be written for the life of the
insured; these plans are very high in premium.

Front 16

Benefit Triggers

Long Term Care

Back 16

1. Impairment in ADLs – the Activities of Daily Living (ADLs) include bathing,
dressing, eating, toileting, transferring, and ambulating. If the insured is incapable
of performing any two of these ADLs, the benefits will be triggered. The insured is
considered to be functionally impaired. Generally, an insurance company will not issue
a policy and assume a Long-Term Care risk if the prospective insured is unable to feed
himself/herself.
2. Cognitive Impairment – involves the loss of memory and deductive or abstract
reasoning due to an organic mental illness, including Alzheimer’s Disease.
3. Physician’s Certification – a written certification from the doctor stating the patient
is in need of long-term care. Prior hospitalization is not a requirement to trigger the
benefits.

Front 17

Coverages

Long Term Care

Back 17

1. LTC Facilities and Levels of Care
a. Skilled Nursing Facility
1) A licensed facility, operated according to the laws of the state, providing skilled
nursing care under the supervision of a physician.
2) Provides continuous 24-hour nursing services by or under the supervision of
an R.N.
3) Maintains a daily medical record of each patient.
b. Intermediate Care Facility
1) A licensed facility, operated according to the laws of the state, providing continuous
24-hour nursing service by or under the supervision of an R.N. or L.P.N.
2) Maintains a daily medical record of each patient.
c. Custodial Care Facility
1) A licensed facility, operated according to the laws of the state, providing
nursing care under the supervision of an R.N.
2) Accommodates three or more persons for a charge.
3) This care includes assistance with bathing, eating, dressing and other routine activities.

2. Optional LTC coverages
a. Home Health Care – is normally broken down into two classifications of care
and they are:
1) Home Convalescent Care – health care provided in one’s home under a
planned program established by his/her attending physician.
2) Residential Care – living accommodations within long-term care facilities.
These facilities are commonly for the middle and upper classes because of the
costs.
b. Hospice Care – often offered as an optional LTC benefit with the focus on pain
control, comfort and counseling for the terminally ill patient and his/her family.
c. Adult Day Care – designed to provide custodial care on a day care basis
outside the home for individuals not requiring 24-hour confinement in a nursing
home but continue to live at home.
d. Respite Care – provides relief to the caregiver and can include a service, such as
someone coming to the home while the original caregiver tends to other matters.

Front 18

Waiver of Premium/Nonforfeiture Options/Return of
Premium

Back 18

1. Most Long-Term Care policies offer a waiver of premium benefit that provides for
premiums to be waived usually after 90 days of confinement or after the time of a claim,
whichever is less.
2. Some Long-Term Care policies provide the following nonforfeiture options:
a. Cash Surrender Value – a guaranteed lump sum that is paid to the
policyowner upon the lapse or surrender of the policy.
b. Reduced Paid-Up – a reduced amount of daily benefit is provided for the
duration of the benefit period after premium payments have been discontinued.
c. Extended Term – the full amount of daily benefit is paid for a limited period
of time (for as long as the cash value will purchase) after premium payments
have been discontinued.
3. Some Long-Term Care insurers offer a Return of Premium optional benefit that provides
for a refund of the entire or some part of the premium paid less claims paid, either on a
specified policy anniversary, at policy surrender, or death of the insured.

Front 19

Underwriting Considerations

Long Term Care

Back 19

1. As with any health insurance program, the underwriter for Long-Term Care is most
concerned with the possibility of an immediate large claim against the policy due to a
prolonged confinement in a LTC facility.
2. LTC policies’ loss ratio is established by each state.

Front 20

Preexisting Conditions

Long Term Care

Back 20

A Long-Term Care insurance company may have obtained information concerning
preexisting conditions on the application but cannot contain it in its policy.
1. The insurer cannot more restrictively define a preexisting condition than: a condition
for which advice or treatment was recommended or received within six months of the
effective date of coverage.
2. The insurer shall not exclude coverage for a loss or confinement from a preexisting
condition.

Front 21

Prohibited Provisions

Long Term Care

Back 21

1. A Long-Term Care policy may not contain a provision that:
a. Cancels, nonrenews, or terminates the policy on the grounds of age or
deterioration of the mental or physical health of the insured.
b. Establishes a new waiting period when existing coverage is converted or replaced
by a new form, except when the insured voluntarily selects an increase in benefits.
c. Provides coverage for only skilled nursing care instead of lower levels of care.
d. Limits or denies benefits to a policyholder who is diagnosed with any
destructive brain tissue disease that will result in loss of brain function.
e. Provides for payments of benefits based on standards described as “usual and
customary” or “reasonable and customary” or words of similar importance.
2. A Long-Term Care policy may not place conditions on benefits:
a. Based on prior hospitalizations.
b. For institutional care, if insured received a higher level of institutional care.
c. For home health care after prior institutional care.
d. For noninstitutional care eligibility, other than home health care, on a prior
institutional stay of more than 30 days.

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Minimum Benefit Standards

Long Term Care

Back 22

1. Every Long-Term Care policy must provide a 30-day examination period from the date
the policy is delivered. If the applicant is not satisfied and returns the policy for a full
refund, the policy is void.
2. Every Long-Term Care policy must contain a renewal provision that is no less favorable
to the insured than Guaranteed Renewable. The renewal provision must be stated on the
first page of the policy.
3. An Outline of Coverage must be delivered to an applicant on the initial solicitation and
prior to the presentation of the application form.
4. Every insurer issuing LTC policies must offer optional inflation protection, covering
the increased cost of care, and must not exclude the benefits for care and treatment of
insureds who have Alzheimer’s Disease.
In California, an insurer cannot deliver or issue for delivery a LTC policy unless the
insurer offers to the policyholder the option to purchase a LTC policy that provides for
benefit levels to increase to account for reasonable anticipated costs of long-term care
services covered by the policy. Insurers must offer at time of purchase, the option of an
inflation protection feature that is no less favorable than one that does one or more of
the following:
a. Increases benefit levels annually.
b. Guarantees the insured individual the right to periodically increase benefit
levels without providing evidence of insurability or health status so long as the
option for the previous period has not been declined.
c. Covers a specified percentage of actual or reasonable charges.
5. Any policy in which benefits are limited to nursing care shall be called a “Nursing
Facility Only” policy. Likewise, any policy in which benefits are limited to home care
services shall be called a “Home Care Only” policy.
6. LTC policies that pay on an indemnity basis have a maximum daily benefit.
7. Every LTC policy must include basic policy requirements in the policy provisions.
8. An Extension of Benefits must be provided if institutionalization began while the
policy was in force and continues without interruption after termination of the policy.
The extension of benefits may be limited to the duration of the benefit period or to the
payment of maximum benefits.
9. Every LTC policy that purports to provide benefits of home care or community-based
services shall provide at least the following:
a. Home health care.
b. Adult day care.
c. Personal (custodial) care.
d. Homemaker services.
e. Hospice services.
f. Respite care.
g. Acute care is an excluded coverage.
10. Home Health Care benefits shall not be limited or excluded by any of the following:
a. Requiring a need for care in a nursing home if home care services are not
provided.
b. Requiring that skilled nursing or therapeutic services be used before or with
unskilled services.
c. Requiring the existence of an acute condition.
d. Limiting benefits to services provided by Medicare-certified providers.
e. Defining an eligible provider in any manner that is more restrictive than that
used to license that provider by the respective state.
f. Requiring “medical necessity” or a similar standard as a criteria for benefits.

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Long-Term Care Exclusions

Back 23

1. Rest cures.
2. Nervous or mental disorders which have no demonstrable organic cause (Alzheimer’s
Disease is covered).
3. Injury or sickness caused by war or any act of war, declared or undeclared.
4. Intentionally self-inflicted injuries.
5. Chemical dependency unless it results from the administration of drugs under a
physician’s prescription and direction.
6. Conditions covered under Workers’ Compensation.
7. Injury arising out of committing or attempting to commit a felony.
8. Services provided outside the United States.

Front 24

Long-Term Care Cancellation

Back 24

1. A Long-Term Care policy may be cancelled for nonpayment of premium.
2. When an insurer or policyholder has cancelled an individual’s group Long-Term Care coverage, continuation insurance must be offered. This is normally at a higher premium
cost.

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Replacement of Long-Term Care Policies

Back 25

1. In recommending the purchase or replacement of any Long-Term Care insurance, an
agent shall make a reasonable effort to determine its appropriateness.
2. No insurer or agent may unnecessarily replace a policyholder’s Long-Term Care
insurance policy or replace it with a policy with fewer benefits and a greater premium.
3. Any third or greater policy sold to a policyholder in any 12-month period is deemed
unnecessary, but this does not apply to the replacement of policies for consolidation
purposes.
4. All LTC applications must contain questions which request information from the
applicant concerning whether the new policy is intended to replace any other Accident,
Sickness or Long-Term Care contract.
a. When it is determined that the sale of the policy involves replacement, the agent
must provide the purchaser with a “Notice Regarding Replacement of Accident
and Sickness or Long-Term Care Coverage.”
b. One copy of the notice is given to the applicant and a signed copy is retained by
the insurer.
5. If a policy replaces another Long-Term Care Policy, the replacing insurer shall waive
any time periods applicable to preexisting conditions.
6. In California, be able to identify the provisions about sales commissions associated with
a replacement.
a. Any time that Long-Term Care Coverage is replaced, the sales commission that
is paid by the insurer shall be calculated on the difference between the annual
premium of the replacement coverage and that of the original coverage. If the
premium on the replacement product is less than or equal to the premium for the
product being replaced, the sales commission shall be limited to the percentage
of sale normally paid for renewal of Long-Term Care policies.
b. “Commission or other compensation” includes pecuniary or non-pecuniary
remuneration of any kind relating to the sale or renewal of the policy including,
but not limited to, bonuses, gifts, prizes, awards, and finder’s fees.

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Tax Qualified Long-Term Care Insurance

Back 26

Favorable tax treatment is given to some Long-Term Care contracts that meet the eligibility
qualifications. These plans must meet the following requirements:
1. The only protection in the contract is for Long-Term Care.
2. The contract does not pay any Medicare reimbursable expenses.
3. The policy must be a guaranteed renewable contract.
4. The policy has no cash value accumulation that may be assigned as collateral, borrowed
or surrendered for value.
5. All refunds or dividends must be applied to either reduce premiums or increase benefits.
6. The policy must comply with the NAIC Model Act that has been adopted by most states.
The new requirements of qualification were established by the Health Insurance Portability
and Accountability Act (HIPAA) and became effective January 1, 1997.
7. The Act defines qualified long-term care services as required diagnostic, preventative,
therapeutic, curing, treating and rehabilitative required for a chronically ill person and
the services are provided by a licensed caregiver.
8. The person is required to be functionally unable to care for themselves for a period of 90
days due to the loss of two functions of daily living, and needing substantial assistance
from another person. The Act allows six activities of daily living; a policy must contain
at least five to be considered a tax qualified Long-Term Care plan receiving the tax
benefits set forth by the IRS.

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California Comprehensive Long-Term Care Insurance

Back 27

Only LTC policies or certificates providing benefits for both institutional care and home
care may be called “Comprehensive Long-Term Care” insurance; and skilled nursing care,
intermediate nursing care, custodial care, home health care and community-based care are standard levels of care.

Front 28

California Consumer Protection

Long Term Care

Back 28

1. Be able to identify the provisions about duty of honor, good faith, and fair dealing.
a. All insurers, brokers, agents and others engaged in the business of Long-Term
Care Insurance owe a policyholder a duty of honesty, good faith, and fair dealing.
b. The conduct of an insurer, broker, or agent during the offer and sale of a policy
is relevant to any action alleging a breach of the duty of honesty, good faith, and
fair dealing.
2. Be able to identify the provisions about advertisement and the “cold lead device”
disclosure.
a. Every insurer providing Long-Term Care Insurance in California, shall provide
a copy of any advertisement intended of use in California to the Commissioner
for review at least 30 days before dissemination.
b. An advertisement designed to produce leads must prominently disclose that “an
insurance agent will contact you”, if that is the case.
c. An agent, broker, or other person who contacts a consumer as a result of
receiving information generated by a cold lead device, shall immediately
disclose that fact to the consumer.

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Health Insurance Counseling Advocacy Program
(HICAP) - California

Back 29

1. HICAP provides free counseling to individuals that have questions concerning their
health insurance.
2. HICAP makes information available to senior consumers concerning Medicare benefits
and rights, HMOs, long-term care, and Medicare supplemental insurance.
3. HICAP can make speakers available to groups and can provide some legal services for
assistance with claims.
4. Each county is served by one of the 24 HICAP projects in the state.
5. HICAP does not sell insurance or endorse any specific type of insurance.
6. HICAP does not charge a fee for services.
7. HICAP is administered under the auspices of the Department on Aging.

Front 30

Senior Insurance in California

Back 30

1. All insurers, brokers, agents, and others engaged in the transaction of insurance owe a
prospective insured who is 65 years or older, a duty of honesty, good faith, and fair dealing.
This duty is in addition to any other duty, whether expressed or implied, that may exist.
2. Conduct of an insurer, broker, or agent, or other person engaged in the transaction of
insurance, during the offer and sale of a policy or certificate previous to the purchase is
relevant to any action alleging a breach of the duty of good faith and fair dealing.
3. All insurance policies and certificates, covered by this regulation, offered for sale to
individuals age 65 or older in California, shall provide an examination period of 30
days after the receipt of the policy or certificate for purposes of review of the contract at
which time the applicant may return the contract.
a. The return shall void the policy or certificate from the beginning, and all
premiums paid shall be fully refunded to the applicant by the insurer in a timely
manner.
b. Timely manner means not later than 30 days after the insurer receives the
returned policy or certificate.
c. If the insurer fails to refund all premiums paid in a timely manner, the legal rate
of interest shall be paid from the date the insurer received the returned policy or
certificate.
d. Each policy or certificate shall have a notice printed on its cover page and
outline of coverage stating the applicant’s right to return the policy.
4. All brokers, agents, or other entities offering a policy or certificate of insurance to
persons age 65 or older in this state shall provide the prospective insured with a full
and accurate written comparison with existing health coverage, and shall explain the
relationship of the proposed coverage to any existing health benefits provided by
Medicare, Medi-Cal, or any other health benefits available to the applicant.
5. Any advertisement or other device designed to produce leads based on a response from
a potential insured which is directed towards persons age 65 or older, shall disclose that
an agent may contact the applicant if that is the fact. In addition, an agent who makes
contact with a person as a result of acquiring that person’s name from a lead generating
device shall disclose that fact in the initial contact with the person.
a. No insurer, agent, broker, solicitor, or other person, or other entity shall solicit
persons age 65 and older in this state for the purchase of this type of insurance
through the use of a true or fictitious name which is deceptive or misleading
with regard to the status, character, or proprietary or representative capacity of
the entity or person, or to the true purpose of the advertisement.
b. For purposes of this type of insurance, an advertisement includes envelopes,
stationery, business cards, or other materials designed to describe and encourage
the purchase of a policy or certificate.
c. Advertisements shall not employ words, letters, initials, symbols, or other
devices which are so similar to those used by governmental agencies, a
nonprofit or charitable institution, senior organization, or other insurer that they
could have the capacity or tendency to mislead the public.
d. No advertisement may use the name of a state, or political subdivision thereof,
in a policy name or description.

e. No advertisement may use any name, service mark, slogan, symbol, or any
device in any manner that implies that the insurer, or the policy or certificate
advertised, or that any agency who may call upon the consumer in response to
the advertisement, is connected with a governmental agency, such as the Social
Security Administration.
f. No advertisement may imply that the reader may lose a right, or privilege,
or benefits under federal, state, or local law if he/she fails to respond to the
advertisement.
g. An insurer, agent, broker, or other entity may not use an address so as to
mislead or deceive as to the true identity, location, or licensing status of the
insurer, agent, broker, or other entity.
h. No insurer may use, in the trade name of its insurance policy of certificate,
any terminology or words similar to the name of a governmental agency or
governmental program as to have the capacity or the tendency to confuse,
deceive, or mislead a prospective purchaser.
i. All advertisements used by agents, producers, brokers, solicitors, or other
persons for a policy of an insurer shall have written approval of the insurer
before they may be used.
j. No insurer, agent, broker, or other entity may solicit a particular class by use
of advertisements which state or imply that the occupational or other status as
members of the class entitles them to reduced rates on a group or other basis
when, in fact, the policy or certificate being advertised is sold on individual
basis at regular rates.
6. An insurer, agent, broker, or other person engaged in the transaction of insurance shall
not knowingly recommend for sale, or sell, insurance providing health benefits directly
to a Medi-Cal beneficiary who is age 65 or older. For insurance providing health
benefits sold to a person age 65 or older, the application or other supplemental record
signed by the applicant, shall contain a question designed to determine if the applicant is
receiving Medi-Cal benefits.
7. No insurer, broker, agent, or other person shall cause an insured age 65 or older to
replace a medical expense related policy or certificate unnecessarily.
a. No insurer, broker, agent, or other entity within the jurisdiction of the Insurance
Department shall promote or cause overloading of medical expense coverage
to persons aged 65 or older. “Overloading”, means possession by an insured of
functionally identical coverages that overlap or duplicate benefits to the extent
that a reasonable person would not consider their ownership to be cost-effective.
b. It will be presumed that the sale of medical expense insurance to a person 65
years of age or older, is overloading, as defined above, if the insured is already
covered by Medicare Parts A and B as well as one Medicare Supplement policy,
certificate, or contract and coverage for excess charges under Part B.
c. The application for medical expense insurance for a person age 65 and older
shall contain a question or questions designed to elicit information regarding all
other existing health and disability coverage in force by type and company.
8. No insurer, broker, agent, or other person shall knowingly recommend for purchase or
sell medical expense insurance to a person age 65 or older which results in the insured
having coverage, for medical benefits, for more than 100% of actual medical expenses.

9. Insurance policies or certificates sold to persons age 65 or older shall return to
policyholders or certificate holder’s benefits that have a minimum loss ratio of 60% for
individual policies and 75% for group policies. The loss ratio shall be on the basis of
incurred claims experience and earned premiums.
a. The Commissioner shall require every entity providing insurance policies and
certificates to persons 65 or older to maintain detailed experience data, and
require them to make an annual filing with the Commissioner disclosing the loss
ratio for each policy or certificate subject to this regulation.
b. If the annual filing or other information received by the Commissioner indicates
that the actual loss ratio for a policy or certificate is less than the minimum,
as established above, the Commissioner shall require the insurer or entity
providing the insurance to file a corrective plan. Any corrective plan shall be
reviewed and approved by the Commissioner prior to its implementation. If a
corrective plan is not filed in a timely manner, the Commissioner shall withdraw
approval of the policy or certificate.
10. Sales of health or medical expense related insurance, as discussed to this point, as well
as Medicare Supplement Insurance, and Long-Term Care Insurance sold to persons age
65 or older, shall be registered with the Commissioner.
a. Access to the registered information, including the identity of policyholders,
shall be strictly limited to the Insurance Department, with the exception that
the Attorney General, a district attorney, or city attorney may be granted access
upon request for the purpose of investigating or processing suspected unlawful
practices related to such sales.
b. The content of the filing shall contain no more than: the policyholder’s Medicare
identification number or Social Security number; a description of the type of
policy; date of sale; date of lapse; whether the policy is in force as of the date
of the filing; the policy form number, if applicable; and the name of any insurer,
broker, agent, or other person who was responsible for the sale of the policy.
11. The Commissioner shall have the administrative authority to assess penalties against
insurers, brokers, agents, and other entities engaged in any violation of any of the above
items. Furthermore, upon showing of any of the above in a civil action, a court may
also assess prescribed penalties.
a. Any broker, agent, or other person or other entity engaged in the transaction of
insurance, other than an insurer, who violates any of the above items is liable
for an administrative penalty of no less than $250 for the first violation. A
second or subsequent violation constitutes a penalty of no less than $1,000 and
no more than $25,000 for each violation.
b. Any insurer who violates any of the above items is liable for an administrative
penalty of $2,500 for the first violation. Any insurer violates any of the above
items with a frequency to indicate a general business practice, or commits a
knowing violation of any of the above items is liable for an administrative
penalty of no less than $10,000 and no more than $100,000 for each violation