Long-term Care Insurance Notice of Publication of Final Rulemaking

Long-term Care Insurance

Notice of Publication of Final Rulemaking

On May 12, 2017, the Arizona Secretary of State published the Department’s Final

Exempt Rulemaking in the Arizona Register (23 A.A.R. 1120, May 12, 2017). The

rulemaking amends Article 10 – Long-term Care Insurance, AAC R20-6-1001 through

1026, Appendices A through J.

The purpose of this rulemaking is to revise the existing regulation to incorporate

changes made to the National Association of Insurance Commissioners’ (NAIC) Long-

Term Care Insurance Model Regulation, which the NAIC adopted in 2014.

If you have any questions about this rulemaking please contact Mary Kosinski at

(602)364-3471 or at: mkosinski@azinsurance.gov.

A copy of the proposed rules, with the changes incorporated as they will ultimately

appear in the Arizona Administrative Code, follows this Notice.

ARTICLE 10. LONG-TERM CARE INSURANCE

R20-6-1001. Applicability and Scope.

R20-6-1002. Definitions.

R20-6-1003. Policy Terms

R20-6-1004. Required Policy Provisions

R20-6-1005. Unintentional Lapse

R20-6-1006. Inflation Protection

R20-6-1007. Required Disclosure Provisions

R20-6-1008. Required Disclosure of Rating Practices to Consumers

R20-6-1009. Initial Filing Requirements

R20-6-1010. Requirements for Application Forms and Replacement Coverage;

Prohibition Against Preexisting Conditions and Probationary Periods in

Replacement Policies or Certificates; Reporting Requirements

R20-6-1011. Prohibition Against Post-claims Underwriting

R20-6-1012. Reserve Standards

R20-6-1013. Loss Ratio

R20-6-1014. Premium Rate Schedule Increases

R20-6-1015. Premium Rate Schedule Increases for Policies Subject to Loss Ratio

Limits Related to Original Filings

R20-6-1016. Filing Requirements for Group Policies

R20-6-1017. Standards for Marketing

R20-6-1018. Suitability

R20-6-1019. Nonforfeiture Benefit Requirement

R20-6-1020. Standards for Benefit Triggers

R20-6-1021. Additional Standards for Benefit Triggers for Qualified Long-Term Care

Insurance Contracts

R20-6-1022. Standard Format Outline of Coverage

R20-6-1023. Requirement to Deliver Shopper’s Guide

R20-6-1024. Availability of New Services or Providers

R20-6-1025. Right to Reduce Coverage and Lower Premiums

R20-6-1026. Instructions for Appendices

Appendix A. Long-term Care Insurance Personal Worksheet

Appendix B. Long-term Care Insurance Potential Rate Increase Disclosure Form

Appendix C. Notice to Applicant Regarding Replacement of Individual Health or

Long-Term Care Insurance

Appendix D. Notice to Applicant Regarding Replacement of Health or Long-

Term Care Insurance

Appendix E. Long-term Care Insurance Replacement and Lapse Reporting

Form

Appendix F. Long-term Care Insurance Claims Denial Reporting Form

Appendix G. Recission Reporting Form for Long-Term Policies

Appendix H. Things You Should Know Before You Buy Long-term Care

Insurance

Appendix I. Long-term Care Insurance Suitability Letter

Appendix J. Long-term Care Insurance Outline of Coverage

R20-6-1001. Applicability and Scope

Except as otherwise specifically provided, this Article applies to all long-term care

insurance policies, including qualified long-term care contracts and life insurance policies

that accelerate benefits for long-term care, delivered or issued for delivery in this state by

insurers; fraternal benefit societies; nonprofit health, hospital and medical service

corporations; prepaid health plans; health care service organizations and all similar

organizations.

R20-6-1002. Definitions

The definitions in A.R.S. § 20-1691 and the following definitions apply in this Article.

A. “Benefit trigger,” for purposes of a tax-qualified long-term care insurance contract,

as defined in Section 7702B(b) of the Internal Revenue Code of 1968, as

amended, “benefit trigger” shall include a determination by a licensed health care

practitioner that an insured is a chronically ill individual.

B. “Exceptional increase” means only those rate increases that an insurer has filed

as exceptional and that the Director determines the need for the premium rate

increase is justified due to changes in laws or regulations applicable to long-term

care coverage in this state; or due to increased and unexpected utilization that

affects the majority of insurers of similar products.

1. Except as provided in Sections R20-6-1014 and R20-6-1015, exceptional

increases are subject to the same requirements as other premium rate

schedule increases.

2. The Director may request independent actuarial review on the issue of whether

an increase should be deemed an exceptional increase.

3. The Director may also determine whether there are any potential offsets to

higher claims costs.

C. “Incidental,” as used in R20-6-1014(L) and R20-6-1015(L), means that the value

of the long-term care benefits provided is less than 10% of the total value of the

benefits provided over the life of the policy, with value measured as of the date of

issue.

D. “Licensed health care professional” means an individual qualified by education and

experience in an appropriate field, to determine, by record review, an insured’s

actual functional or cognitive impairment.

E. “Long-term care benefit classification” means one of the following:

1. Institutional long-term care benefits only,

2. Non-institutional long-term care benefits only, or

3. Comprehensive long-term care benefits.

F. “Managed care plan” means a health care or assisted living arrangement designed

to coordinate patient care or control costs through utilization review, case

management, use of specific provider networks, or a combination of these

methods.

G. “Personal information” has the same meaning prescribed in A.R.S. § 20-2102(19).

H. “Privileged information” has the same meaning prescribed in A.R.S. § 20-2102(22).

I. “Qualified actuary” means a member in good standing of the American Academy

of Actuaries.

J. “Similar policy forms” means all long-term care insurance policies and certificates

that are issued by a particular insurer and that have the same long-term care

benefit classification as a policy form being reviewed.

R20-6-1003. Policy Terms

A. A long-term care insurance policy delivered or issued for delivery in this state shall not

use the terms set forth below, unless the terms are defined in the policy and the

definitions satisfy the following requirements:

1. “Activities of daily living” means eating, toileting, transferring, bathing, dressing, or

continence.

2. “Acute condition” means that an individual is medically unstable and requires

frequent monitoring by medical professionals, such as physicians and registered

nurses, to maintain the individual’s health status.

3. “Adult day care” means a program of social and health-related services for six or

more individuals, that is provided during the day in a community group setting, for

the purpose of supporting frail, impaired, elderly, or other disabled adults who can

benefit from the services and care in a setting outside the home.

4. “Agent” means an insurance producer as defined in A.R.S. § 20-281(5).

5. “Bathing” means washing oneself by sponge bath, or in a tub or shower, and

includes the act of getting in and out of the tub or shower.

6. “Chronically ill individual” has the meaning prescribed for this term by A.R.S. § 20-

1691(3) and Section 7702B(c)(2) of the Internal Revenue Code of 1986, as

amended.

a. Under this provision, a chronically ill individual means any individual who has

been certified by a licensed health care practitioner as:

i. Being unable to perform (without substantial assistance from another

individual) at least 2 activities of daily living for a period of at least 90 days

due to loss of functional capacity, or

ii. Requiring substantial supervision to protect the individual from threats to

health and safety due to severe cognitive impairment.

b. The term “chronically ill individual” does not include an individual otherwise

meeting these requirements unless within the preceding twelve-month period

a license health care practitioner has certified that the individual meets these

requirements.

7. “Cognitive impairment” means a deficiency in a person’s:

a. Short or long-term memory;

b. Orientation as to person, place, or time;

c. Deductive or abstract reasoning; or

d. Judgment as it relates to safety awareness.

8. “Continence” means the ability to maintain control of bowel and bladder function,

or when unable to maintain control, the ability to perform associated personal

hygiene, such as caring for a catheter or colostomy bag.

9. “Dressing” means putting on and taking off all items of clothing and any necessary

braces, fasteners, or artificial limbs.

10. “Eating” means feeding oneself by getting food into the body from a receptacle

such as a plate, cup, or table, or by a feeding tube or intravenously.

11. “Guaranteed renewable” means the insured has the right to continue a long-term-

care insurance policy in force by the timely payment of premiums and the insurer

has no unilateral right to make any change in any provision of the policy or rider

while the insurance is in force, and cannot decline to renew, except that the insurer

may revise rates on a class basis.

12. “Hands-on assistance” means physical help to an individual who could not perform

an activity of daily living without help from another individual, and includes minimal,

moderate, or maximal help.

13. “Home health services” means the services described at A.R.S. § 36-151.

14. “Level premium” means that an insurer does not have any right to change the

premium, even at renewal.

15. “Licensed health care practitioner” has the same meaning as A.R.S. § 20-1691(7).

16. “Maintenance or personal care services” has the same meaning as A.R.S. § 20-

1691(10).

17. “Medicare” means “The Health Insurance for the Aged Act, Title XVIII of the Social

Security Amendments of 1965 as Then Constituted or Later Amended,” or “Title I,

Part I of Public Law 89-97, as Enacted by the Eighty-Ninth Congress of the United

States of America and popularly known as the Health Insurance for the Aged Act,

as then constituted and any later amendments or substitutes thereof,” or words of

similar import.

18. “Noncancellable” means the insured has the right to continue the long-term care

insurance in force by the timely payment of premiums during which period the

insurer has no right to unilaterally cancel or make any change in any provision of

the insurance or in the premium rate.

19. “Personal care” means the provision of hands-on assistance to help an individual

with activities of daily living in relation to the level of skill required, the nature of the

care, and the setting in which the care must be delivered.

20. “Qualified long-term care services” has the meaning prescribed for this term under

A.R.S. § 20-1691(14) and means services that meet the requirements of Section

7702B(c)(1) of the Internal Revenue Code of 1986, as amended, as follows:

necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and

rehabilitative services, and maintenance or personal care services which are

required by a chronically ill individual, and are provided pursuant to a plan of care

prescribed by a licensed health care practitioner.

21. “Toileting” means getting to and from the toilet, getting on and off the toilet, and

performing tasks associated with personal hygiene.

22. “Transferring” means moving into or out of a bed, chair, or wheelchair.

B. Any long-term care policy delivered or issued for delivery in this state shall include the

following policy terms and provisions as specified in this subsection:

1. “Home care” shall be defined in relation to the level of skill required, the nature of

the care, and the setting in which the care must be delivered.

2. “Intermediate care” shall be defined in relation to the level of skill required, the

nature of the care, and the setting in which the care must be delivered.

3. “Mental or nervous disorder” shall not be defined to include more than neurosis,

psychoneurosis, psychopathy, psychosis, or mental or emotional disease or

disorder.

4. “Skilled nursing care,” “specialized care,” “assisted living care” and other services

shall be defined in relation to the level of skill required, the nature of the care and

the setting in which care is delivered.

5. Service providers, including “skilled nursing facility,” “extended care facility,”

“convalescent nursing home,” “personal care facility,” “specialized care providers,”

“assisted living facility” and “home care agency” shall be defined in relation to the

services and facilities required to be available and the licensure, certification,

registration or degree status of those providing or supervising the services. When

the definition requires that the provider be appropriately licensed, certified or

registered, it shall also state what requirements a provider must meet in lieu of

licensure, certification or registration when the state in which the service is to be

furnished does not require a provider of these services to be licensed, certified or

registered, or when the state licenses, certifies or registers the provider of services

under another name.

R20-6-1004. Required Policy Provisions

A. Renewability

1. An individual long-term care insurance policy shall contain a renewability provision

which shall be either “guaranteed renewable” or “noncancellable.” The renewability

provision shall be appropriately captioned, shall appear on the first page of the

policy, and shall state that the coverage is guaranteed renewable or

noncancellable. This requirement does not apply to a long-term care insurance

policy that is part of or combined with a life insurance policy that does not contain

a renewability provision and that reserves the right not to renew solely to the

policyholder.

2. An insurer shall not use the terms “guaranteed renewable” and “noncancellable”

in any individual long-term care insurance policy without further explanatory

language according to the disclosure requirements of this Article.

3. A qualified long-term care insurance policy shall have the guaranteed renewability

provisions specified in Section 7702B(b)(1)(C) of the Internal Revenue Code of

1986, as amended, in the policy.

4. A long-term care insurance policy or certificate shall include a statement that

premium rates are subject to change, unless the policy does not afford the insurer

the right to raise premiums.

B. Limitations and Exclusions

1. If a long-term care insurance policy or certificate contains any limitations with

respect to preexisting conditions, the limitations shall appear as a separate

paragraph of the policy or certificate and shall be labeled as “Preexisting Condition

Limitations.”

2. A long-term care insurance policy or certificate containing any limitations or

conditions for eligibility not prohibited by A.R.S. §§ 20-1691.03 and 20-1691.05

shall describe the limitations or conditions, including any required number of days

of confinement, in a separate paragraph of the policy or certificate and shall label

the paragraph “Limitations or Conditions on Eligibility for Benefits.”

3. A policy shall not be delivered or issued for delivery in this state as long-term care

insurance if the policy limits or excludes coverage by type of illness, treatment,

medical condition or accident, except as follows:

a. Preexisting conditions or disease;

b. Mental or nervous disorders; however, this shall not permit exclusion or

limitation of the benefits on the basis of Alzheimer’s Disease;

c. Alcoholism and drug addiction;

d. Illness, treatment or medical condition arising out of:

i. War, declared or undeclared, or act of war;

ii. Participation in a felony, riot or insurrection;

iii. Service in the armed forces or auxiliary units;

iv. Suicide, attempted suicide, or intentionally self-inflicted injury; or

v. Aviation, if non-fare-paying passenger;

e. Treatment provided in a government facility, unless otherwise required by law;

f. Services for which benefits are available under Medicare or other governmental

program, except Medicaid;

g. Any state or federal workers’ compensation, employer’s liability or occupational

disease law, or any motor vehicle no-fault law;

h. Services provided by a member of the covered person’s immediate family and

services for which no charge is normally made in the absence of insurance;

i. Expenses for services or items available or paid under another long-term care

insurance or health insurance policy; or

j. In the case of a qualified long-term care insurance policy, expenses for services

or items to the extent that the expenses are reimbursable under Title XVIII of

the Social Security Act or would be reimbursable but for the application of a

deductible or coinsurance amount;

4. Subsection (B) does not prohibit exclusions and limitations by type of provider or

territorial limitations. No long-term care issuer may deny a claim because services

are provided in a state other than the state of policy issue under the following

conditions:

a. When the state other than the state of policy issue does not have the

provider licensing, certification or registration required in the policy, but

where the provider satisfies the policy requirements outlined for providers

in lieu of licensure, certification or registration; or

b. When the state other than the state of policy issue licenses, certifies or

registers the provider under another name.

5. “State of policy issue” means the state in which the insurer issued the individual

policy or certificate.

C. Extension of benefits. A long-term care insurance policy shall provide that termination

of long-term care insurance is without prejudice to any benefits payable for

institutionalization if the institutionalization began while the long-term care insurance

was in force and continues without interruption after termination. An insurer may limit

this extension of benefits period to the duration of the benefit period, if any, or to

payment of the maximum benefits and the insurer may still apply any policy waiting

period and all other applicable provisions of the policy.

D. Reinstatement.

A long-term care insurance policy shall include a provision for reinstatement of

coverage if a lapse occurs if the insurer receives proof that the insured was cognitively

impaired or had a loss of functional capacity before expiration of the grace period in

the policy. The option to reinstate shall be available to the insured for at least five

months after the date of termination and shall allow for the collection of past due

premiums, as appropriate. The standard of proof of cognitive impairment or loss of

functional capacity shall not be more stringent than the benefit eligibility criteria for

these conditions set forth in the original long-term care policy.

E. Continuation or conversion.

1. A group long-term care insurance policy shall provide covered individuals with a

basis for continuation or conversion of coverage as specified in this subsection.

2. The policy shall include a provision that maintains coverage under the existing

group policy when the coverage would otherwise terminate, subject only to the

continued timely payment of premiums when due. A group policy that restricts

provision of benefits and services to, or has incentives to use certain providers or

facilities, may provide continuation benefits that are substantially equivalent to the

benefits of the existing group policy. The Director shall make a determination as to

the substantial equivalency of benefits and, in doing so, shall take into

consideration the differences between managed care and non-managed care

plans, including provider system arrangements, service availability, benefit levels

and administrative complexity.

3. The policy shall include a provision that an individual, whose coverage under the

group policy would otherwise terminate or has been terminated for any reason,

including discontinuation of the group policy in its entirety or with respect to an

insured class, who has been continuously insured under the group policy (and any

group policy which it replaced) for at least six months immediately prior to

termination, is entitled to the issuance of a converted policy by the insurer under

whose group policy the individual is covered, without evidence of insurability.

4. A converted policy shall be an individual policy of long-term care insurance

providing benefits identical to or benefits that the Director determines to be

substantially equivalent to or in excess of those provided under the group policy

from which conversion is made. Where the group policy from which conversion is

made restricts provision of benefits and services to, or contains incentives to use

certain providers or facilities, the Director, in making a determination as to the

substantial equivalency of benefits, shall take into consideration the differences

between managed care and non-managed care plans, including, but not limited to,

provider system arrangements, service availability, benefit levels and

administrative complexity, and other plan elements.

5. An insurer may require an individual seeking a conversion policy to make a written

application for the converted policy and pay the first premium due, if any, as

directed by the insurer not later than 31 days after termination of coverage under

the group policy. The insurer shall issue the converted policy effective on the day

following the termination of coverage under the group policy. The converted policy

shall be renewable annually.

6. Unless the group policy from which conversion is made replaced previous group

coverage, the insurer shall calculate the premium for the converted policy on the

basis of the insured’s age at inception of coverage under the group policy from

which conversion is made. If the group policy from which conversion is made

replaced previous group coverage, the premium for the converted policy shall be

calculated on the basis of the insured’s age at inception of coverage under the

group policy replaced.

7. An insurer is required to provide continuation of coverage or issuance of a

converted policy as provided in this subsection, unless:

a. Termination of group coverage resulted from an individual’s failure to make any

required payment of premium or contribution when due; or

b. The terminating coverage is replaced not later than 31 days after termination,

by group coverage that:

i. Is effective on the day following the termination of coverage;

ii. Provides benefits identical to or benefits the Director determines to be

substantially equivalent to or in excess of those provided by the terminating

coverage; and

iii. Has a premium calculated in a manner consistent with the requirements of

subsection (E)(6).

8. Notwithstanding any other provision of this Section, a converted policy that an

insurer issues to an individual who at the time of conversion is covered by another

long-term care insurance policy providing benefits on the basis of incurred

expenses, may contain a provision that reduces benefits payable if the benefits

provided under the additional coverage, together with the full benefits provided by

the converted policy, would result in payment of more than 100% of incurred

expenses. An insurer may include this provision in the converted policy only if the

converted policy also provides for a premium decrease or refund that reflects the

reduction in payable benefits.

9. The converted policy may provide that the benefits payable under the converted

policy, together with the benefits payable under the group policy from which

conversion is made, shall not exceed those that would have been payable had the

individual’s coverage under the group policy remained in force and effect.

10. Notwithstanding any other provision of this Section, an insured individual whose

eligibility for group long-term care coverage is based upon the individual’s

relationship to another person, is entitled to continuation of coverage under the

group policy if the qualifying relationship terminates by death or dissolution of

marriage.

F. Discontinuance and replacement. If a group long-term care policy is replaced by

another group long-term care policy issued to the same policyholder, the succeeding

insurer shall offer coverage to all persons covered under the previous group policy on

its date of termination. Coverage provided or offered to individuals by the insurer and

premiums charged to persons under the new group policy:

1. Shall not result in any exclusion for preexisting conditions that would have been

covered under the group policy being replaced; and

2. Shall not vary or otherwise depend on the individual’s health or disability status,

claim experience, or use of long-term care services.

G. Premium Increases.

1. An insurer shall not increase the premium charged to an insured because of:

a. The increasing age of the insured at ages beyond 65, or

b. The duration of coverage under the policy.

2. Purchase of additional coverage is not considered a premium rate increase,

however, for the calculation required under R20-6-1019, an insurer shall add to

and consider the portion of the premium attributable to the additional coverage as

part of the initial annual premium.

3. A reduction in benefits is not considered a premium change, however, for the

calculation required under R20-6-1019, an insurer shall base the initial annual

premium on the reduced benefits.

H. Electronic enrollment for group policies.

1. For coverage offered to a group defined in A.R.S. § 20-1691(5)(a), any

requirement that an insurer or insurance producer obtain an insured’s signature is

satisfied if:

a. The group policyholder or insurer obtains the insured’s consent by telephonic

or electronic enrollment, and provides the enrollee with verification of

enrollment information within five business days of enrollment; and

b. The telephonic or electronic enrollment process has necessary and reasonable

safeguards to assure the accuracy, retention, and prompt retrieval of records,

and the confidentiality of individually identifiable and privileged information.

2. If the Director requests, the insurer shall make available records showing the

insurer’s ability to confirm enrollment and coverage amounts.

I. Minimum standards for home health and community care benefits.

1. If an insurer issues a long-term care insurance policy or certificate that provides

benefits for home-health or community care, the policy or certificate shall not, limit

or exclude benefits by any of the following:

a. Requiring that the insured would need skilled care in a skilled nursing facility if

home health services are not provided;

b. Requiring that the insured first or simultaneously receive nursing or therapeutic

services, or both, in a home, community or institutional setting before home

health services are covered;

c. Requiring that eligible services be provided by a registered nurse or licensed

practical nurse;

d. Requiring that a nurse or therapist provide services covered by the policy that

can be provided by a home health aide or other licensed or certified home care

worker acting within the scope of licensure or certification;

e. Requiring that the insured or claimant have an acute condition before home

health services are covered;

f. Limiting benefits to services provided by Medicare-certified agencies or

providers;

g. Excluding coverage for personal care services provided by a home health aide;

h. Requiring that home health care services be provided at a level of certification

or licensure greater than that required by the eligible service; or

i. Excluding coverage for adult day care services.

2. If a long-term care insurance policy provides benefits for home health or

community care services, it shall provide home health or community care coverage

that equals a dollar amount equivalent to at least one-half of one year’s missing

home benefit coverage available at the time covered home health or community

care services are being received. This requirement does not apply to policies or

certificates issued to residents of continuing care retirement communities.

3. An insurer may apply home health care coverage to non-home health care benefits

in the policy or certificate when determining maximum coverage under the terms

of the policy or certificate.

J. Appeals. Policy shall include a clear description of the process for appealing and

resolving benefit determinations.

R20-6-1005. Unintentional Lapse

A. An insured may designate in writing at least one person to receive notice of lapse or

termination of a long-term care insurance policy for nonpayment of premium, in

addition to the insured. Designation shall not constitute acceptance of any liability by

the third-party notice recipient for services provided to the insured.

B. An insurer shall not issue an individual long-term care insurance policy or certificate

until the applicant has provided either a written designation of at least one person, in

addition to the applicant, who shall receive notice of lapse or termination of the policy

or certificate for nonpayment of premium, with the person’s full name and home

address, or the applicant’s written waiver, dated and signed, indicating that the

applicant chooses not to designate a notice recipient.

C. The insurer shall use a form for written designation or waiver that provides space

clearly delineated for the designation. The insurer shall include the following language

on the form for waiver of the right to name a designated recipient: “Protection against

unintended lapse. I understand that I have the right to designate at least one person

other than myself to receive notice of lapse or termination of this long-term care

insurance policy for nonpayment of premium. I understand that this notice will not be

given until 30 days after a premium is due and unpaid. I elect NOT to designate a

person to receive this notice.”

D. At least once every two years, an insurer shall notify the insured of the right to change

the person designated to receive notice in subsection (A). An insured may add, delete,

or change a designated recipient or change a designated recipient at any time by

notifying the insurer in writing, and providing the name and home address for the new

designated recipient or the designated recipient to be deleted.

E. If the insured pays premiums for the long-term care insurance policy or certificate

through a payroll or pension deduction plan, the insurer is not required to comply with

the requirements in subsections (A) through (D) until 60 days after the insured is no

longer on the payment plan.

F. An individual long-term care insurance policy shall not lapse or be terminated for

nonpayment of premium unless the insurer gives the insured and any recipient

designated under subsections (A) through (D) written notice at least 30 days before

the effective date of termination or lapse, by first class mail, postage prepaid, at the

address provided by the insured for purposes of receiving notice of lapse or

termination. An insurer shall not give notice until 30 days after the date on which a

premium is due and unpaid. Notice is deemed given five days after the date of mailing.

G. Reinstatement. In addition to the requirement in subsections (A) through (D), a long-

term care insurance policy or certificate shall include a provision that provides for

reinstatement of coverage in the event of a lapse if the insurer is provided proof that

the policyholder or certificateholder was cognitively impaired or had a loss of functional

capacity before the grace period contained in the policy expired. This option shall be

available to the insured if requested within five months after termination and shall allow

for the collection of past due premium, where appropriate. The standard of proof of

cognitive impairment or loss of functional capacity shall not be more stringent than the

benefit eligibility criteria on cognitive impairment or the loss of functional capacity

contained in the policy or certificate. Reinstatement after termination for other than

unintentional lapse shall be governed by A.R.S. § 20-1348.

R20-6-1006. Inflation Protection

A. An insurer shall not offer a long-term care insurance policy unless the insurer offers

to the policyholder, at the time of purchase, in addition to any other inflation protection,

the option to purchase a policy with an inflation protection provision that provides for

benefit levels to increase with benefit maximums or reasonable durations which are

meaningful to account for reasonably anticipated increases in the costs of long-term

care services covered by the policy. The terms of the required provision shall be no

less favorable than one of the following:

1. A provision that provides for annual increases in benefit levels compounding

annually at a rate of not less than 5%;

2. A provision that guarantees an insured the right to periodically increase benefit

levels without providing evidence of insurability or health status, if the insured did

not decline the option for the previous period. The increased benefit shall be no

less than the difference between the existing policy benefit and that benefit

compounded annually at a rate of at least 5% for the period beginning from the

purchase of the existing benefit and extending until the year in which the offer is

made; or

3. A provision for coverage of a specified percentage of actual or reasonable charges

that is not subject to a maximum specified indemnity amount or limit.

B. If the policy is issued to a group, the insurer shall extend the offer required by

subsection (A) to the group policyholder; except, if the policy is issued under A.R.S. §

20-1691.04(C) to a group, other than to a continuing care retirement community, the

insurer shall make the offer to each proposed certificateholder.

C. An insurer is not required to make the offer in subsection (A) for life insurance policies

or riders with accelerated long-term care benefits.

D. An insurer shall include the information listed in this subsection in or with the outline

of coverage.

1. A graphic comparison of the benefit levels of a policy that increases benefits over

the policy period with a policy that does not increase benefits. The graphic

comparison shall show benefit levels over at least a 20-year period.

2. Any expected premium increases or additional premiums to pay for automatic or

optional benefit increases. If premium increases or additional premiums will be

based on the attained age of the applicant at the time of the increase, the insurer

shall provide a revised schedule of attained-age premiums. An insurer may use a

reasonable hypothetical or a graphic demonstration for this disclosure.

E. Inflation-protection benefit increases shall continue without regard to an insured’s age,

claim status, claim history, or length of time the person has been insured under the

policy.

F. An insurer's offer of inflation protection that provides for automatic benefit increases

shall include an offer of a premium that the insurer expects to remain constant. The

insurer shall disclose in the offer in a conspicuous manner that the premium may

change in the future unless the premium is guaranteed to remain constant.

G. An insurer shall include in a long-term care insurance policy inflation protection as

provided in subsection (A)(1) unless the insurer obtains a rejection of inflation

protection signed by the insured as required in subsection (H). The rejection may be

either on the application form or on a separate form.

H. A rejection of inflation protection is deemed part of an application and shall state: “I

have reviewed the outline of coverage and the graphs that compare the benefits and

premiums of this policy with and without inflation protection. Specifically, I reviewed

Plans [insert description of plans], and I reject inflation protection.”

R20-6-1007. Required Disclosure Provisions

A. Riders and endorsements. Except for riders or endorsements by which an insurer

effectuates a request made in writing by the insured under an individual long-term

care insurance policy, if an insurer adds a rider or endorsement to an individual long-

term care insurance policy after date of issue or at reinstatement or renewal that

reduces or eliminates benefits or coverage in the policy, the insurer shall require

signed acceptance by the individual insured. After the date of policy issue, any rider

or endorsement that increases benefits or coverage with a concomitant increase in

premium during the policy term shall require the signed written agreement of the

insured unless the increased benefits or coverage are required by law. If the insurer

charges a separate additional premium for benefits provided in connection with riders

or endorsements, the premium charge shall be set forth in the policy, rider, or

endorsement.

B. Payment of Benefits. A long-term care insurance policy that provides for the payment

of benefits based on standards described as “usual and customary,” “reasonable and

customary” or words of similar import shall define the terms and explain them in its

accompanying outline of coverage.

C. Disclosure of tax consequences. For life insurance policies that provide an

accelerated benefit for long-term care, an insurer shall provide a disclosure statement

at the time of application for the policy or rider and at the time the accelerated benefit

payment request is submitted, that receipt of these accelerated benefits may be

taxable, and that assistance should be sought from a personal tax adviser. The

disclosure statement shall be prominently displayed on the first page of the policy or

rider and any other related documents. This subsection shall not apply to qualified

long-term care insurance contracts.

D. Benefit triggers. A long-term care insurance policy shall use activities of daily living

and cognitive impairment to measure an insured’s need for long-term care. The long-

term care insurance policy shall describe these terms and provisions in a separate

paragraph in the policy labeled “Eligibility for the Payment of Benefits” that includes

and explains:

1. Any additional benefit triggers,

2. Benefit triggers that result in payment of different benefit levels, and

3. Any requirement that an attending physician or other specified person certify a

certain level of functional dependency for the insured to be eligible for benefits.

E. A long-term care insurance contract shall contain a disclosure statement in the policy

and in the outline of coverage indicating whether it is intended to be a qualified long-

term care insurance contract as specified in the outline of coverage in Appendix J,

paragraph 3. The contract shall also include a Specification Page which shall include

the benefits, amounts, durations, the premium rate including all optional benefits

selected by the insured, and any other benefit data applicable to the insured.

R20-6-1008. Required Disclosure of Rating Practices to Consumers

A. This Section applies as follows:

1. Except as provided in subsection (A)(2), this Section applies to any long-term care

policy or certificate issued in this state on or after May 10, 2005.

2. For certificates issued under an in-force, long-term care insurance policy issued to

a group as defined in A.R.S. § 20-1691(5)(a), the provisions of this Section apply

on the first policy anniversary that occurs on or after November 10, 2005.

B. Unless a policy is one for which an insurer cannot increase the applicable premium

rate or rate schedule, the insurer shall provide the information listed in this subsection

to the applicant at the time of application or enrollment. If the method of application

does not allow for delivery at that time, the insurer shall provide the information to the

applicant no later than at the time of delivery of the policy or certificate.

1. A statement that the policy may be subject to rate increases in the future.

2. An explanation of potential future premium rate revisions, and the policyholder’s or

certificateholder’s option if a premium rate revision occurs.

3. The premium rate or rate schedules applicable to the applicant that will be in effect

until the insurer makes a request for an increase.

4. A general explanation for applying premium rate or rate schedule adjustments that

includes:

a. A description of when premium rate or rate-schedule adjustments will be

effective (e.g., next anniversary date, next billing date); and

b. The insurer's right to a revised premium rate or rate schedule as provided in

subsection (B)(3) if the premium rate or rate schedule is changed.

5. Information regarding each premium rate increase on this policy form or similar

policy form over the past 10 years for this state or any other state that, at a

minimum, identifies:

a. The policy forms for which premium rates have been increased;

b. The calendar years when the form was available for purchase; and

c. The amount or percent of each increase, which may be expressed as a

percentage of the premium rate before the increase, or as minimum and

maximum percentages if the rate increase is variable by rating characteristics.

6. The insurer may, in a fair manner, provide explanatory information related to the

rate increases in addition to the information required under subsection (B)(5).

C. An insurer may exclude from the disclosure required under subsection (B)(5),

premium rate increases applicable to:

1. Blocks of business acquired from other nonaffiliated insurers, and

2. Policies acquired from other nonaffiliated insurers if the increases occurred before

the acquisition.

D. If an acquiring insurer files for a rate increase on a long-term care insurance policy

form or a block of policy forms acquired from a nonaffiliated insurer on or before the

later of January 10, 2005, or the end of a 24-month period following the acquisition of

the policies or block of policies, the acquiring insurer may exclude that rate increase

from the disclosure required under subsection (B)(5). However, the nonaffiliated

insurer that sells the policy form or a block of policy forms shall include that rate

increase in the disclosure required under subsection (B)(5). If the acquiring insurer

files for a subsequent rate increase, even within the 24-month period, on the same

policy form acquired from a nonaffiliated insurer or block of policy forms acquired from

nonaffiliated insurers, the acquiring insurer shall make all disclosures required by

subsection (B)(5), including disclosure of the earlier rate increase.

E. Unless the method of application does not allow an insured to sign an

acknowledgement that the insurer made the disclosures required under subsection

(B) at the time of application, the applicant shall sign an acknowledgement of

disclosure at that time. Otherwise, the applicant shall sign a disclosure

acknowledgement no later than at the time of delivery of the policy or certificate.

F. An insurer shall use the forms in Appendix A and Appendix B to comply with the

requirements of subsections (B) through (E). The text and format of an insurer’s forms

shall be substantially similar to the text and format of Appendices A and B.

G. An insurer shall provide notice of an upcoming premium rate schedule increase to all

policyholders or certificateholders, if applicable, at least 45 days before the effective

date of the increase. The notice shall include the information required by subsection

(B).

R20-6-1009. Initial Filing Requirements

A. This Section applies to any long-term care policy issued in this state on or after May

10, 2005.

B. At the time of making a filing under A.R.S. § 20-1691.08, an insurer shall provide to

the Director a copy of the disclosure documents required under R20-6-1008 and an

actuarial certification that includes the following:

1. The initial premium rate schedule is sufficient to cover anticipated costs under

moderately adverse experience and that the premium rate schedule is reasonably

expected to be sustainable over the life of the form with no future premium

increases anticipated;

2. The policy design and coverage provided have been reviewed and taken into

consideration;

3. The underwriting and claims adjudication processes have been reviewed and

taken into consideration;

4. The premiums contain at least the minimum margin for moderately adverse

experience as defined in subsection (4)(a) or the specification of and justification

for a lower margin as required by subsection (4)(b).

a. A composite margin shall not be less than 10% of lifetime claims.

b. A composite margin that is less than 10% may be justified in uncommon

circumstances. The proposed amount, full justification of the proposed amount

and methods to monitor developing experience that would be the basis for

withdrawal of approval for such lower margins must be submitted.

c. A composite margin lower than otherwise considered appropriate for the stand-

alone long-term care policy may be justified for long-term care benefits

provided through a life policy or an annuity contract. Such lower composite

margin, if utilized, shall be justified by appropriate actuarial demonstration

addressing margins and volatility when considering the entirety of the product.

d. A greater margin may be appropriate in circumstances where the company has

less credible experience to support its assumptions used to determine the

premium rates;

5. A statement that the premium rate schedule:

a. Is not less than the premium rate schedule for existing similar policy forms also

available from the insurer except for reasonable differences attributable to

benefits, or

b. A comparison of the premium schedules for similar policy forms that are

currently available from the insurer with an explanation of the differences; and

6. A statement that reserve requirements have been reviewed and considered.

Support for this statement shall include:

a. Sufficient detail or sample calculations provided so as to have a complete

depiction of the reserve amounts to be held; and

b. A statement that the difference between the gross premium and the net

valuation premium for renewal years is sufficient to cover expected renewal

expenses; or if such a statement cannot be made, a complete description of

the situations where this does not occur. An aggregate distribution of

anticipated issues may be used as long as the underlying gross premiums

maintain a reasonably consistent relationship.

C. An actuarial memorandum shall be included that is signed by a member of the

Academy of Actuaries and that addresses and supports each specific item required

as part of the actuarial certification and provides at least the following:

1. An explanation of the review performed by the actuary prior to making the

statements in subsections (B)(2) and (B)(3);

2. A complete description of pricing assumptions;

3. Sources and levels of margins incorporated into the gross premiums that are

the basis for the statement in subsection (B)(1) of the actuarial certification and

an explanation of the analysis and testing performed in determining the

sufficiency of the margins. The actuary shall clearly describe deviations in

margins between ages, sexes, plans or states. Deviations in margins required

to be described are other than those produced utilizing generally accepted

actuarial methods for smoothing and interpolating gross premium scales; and

4. A demonstration that the gross premiums include the minimum composite

margin specified in subsection (B)(4).

D. In any review of the actuarial certification and actuarial memorandum, the Director

may request review by an actuary with experience in long-term care pricing who is

independent of the insurer. In the event the Director asks for additional information

as a result of any review, the period in A.R.S. § 20-1691.08 does not include the period

during which the insurer is preparing the requested information.

R20-6-1010. Requirements for Application Forms and Replacement Coverage;

Prohibition Against Preexisting Conditions and Probationary Periods in

Replacement Policies or Certificates; Reporting Requirements

A. An insurer’s application form for a long-term care insurance policy shall include the

questions listed in this Section to elicit information as to whether, as of the date of the

application, the applicant has another long-term care insurance policy or certificate in

force or whether a long-term care policy or certificate is intended to replace any other

health or long-term care policy or certificate presently in force. An insurer may include

the questions in a supplementary application or other form to be signed by the

applicant and insurance producer, except where the coverage is sold without an

insurance producer. For a replacement policy issued to a group as defined in A.R.S.

§ 20-1691(5)(a), the insurer may modify the questions only to the extent necessary to

elicit information about health or long-term care insurance policies other than the

group policy being replaced if the certificateholder has been notified of the

replacement.

1. Do you have another long-term care insurance policy or certificate in force

(including health care service contract, health maintenance organization contract)?

2. Did you have another long-term care insurance policy or certificate in force during

the last 12 months?

a. If so, with which company?

b. If that policy lapsed, when did it lapse?

3. Are you covered by Medicaid?

4. Do you intend to replace any of your medical or health insurance coverage with

this policy or certificate?

B. The application or enrollment form for such policies or certificates shall clearly indicate

the payment plan the applicant selects.

C. An insurance producer shall list any other health insurance policies the insurance

producer has sold to the applicant, including:

1. Policies that are still in force, and

2. Policies sold in the past five years that are no longer in force.

D. Solicitations Other than Direct Response. On determining that a sale will involve

replacement, an insurer, other than an insurer using direct response solicitation

methods, or its insurance producer; shall furnish the applicant, before issuing or

delivering the individual long-term care insurance policy, a notice that substantially

conforms to the form prescribed in Appendix C or D regarding replacement of health

or long-term care coverage. The insurer shall:

1. Give one copy of the notice to the applicant, and

2. Keep an additional copy signed by the applicant.

E. Direct Response Solicitations. Insurers using direct response solicitation methods as

defined in A.R.S. § 20-1661 shall deliver a notice that substantially conforms to the

form prescribed in Appendix C or D regarding replacement of health or long-term care

coverage to the applicant upon issuance of the policy.

F. If replacement is intended, the replacing insurer shall send the existing insurer written

notice of the proposed replacement within five working days from the date the

replacing insurer receives the application or issues the policy, whichever is sooner.

The notice shall identify the existing policy by name of the insurer and the insured,

and policy number or insured’s address including zip code.

G. A life insurance policy that accelerate benefits for long-term care shall comply with this

Section if the policy being replaced is a long-term care insurance policy. If the policy

being replaced is a life insurance policy, the insurer shall comply with the replacement

requirements of A.R.S. Title 20, Chapter 6, Article 1.1. If a life insurance policy that

accelerates benefits for long-term care is replaced by another such policy, the

replacing insurer shall comply with the requirements of this Section and with A.R.S.

Title 20, Chapter 6, Article 1.1.

H. Prohibition against preexisting conditions and probationary periods in replacement

policies or certificates. If a long-term care insurance policy or certificate replaces

another long-term care policy or certificate, the replacing insurer shall waive any time

periods applicable to preexisting conditions and probationary periods in the new long-

term care policy for similar benefits if similar exclusions are satisfied under the original

policy.

I. Reporting requirements.

1. An insurer shall maintain the following records for each insurance producer:

a. The amount of the insurance producer’s replacement sales as a percent of the

insurance producer’s total annual sales, and

b. The amount of lapses of long-term care insurance policies sold by the

insurance producer as a percent of the insurance producer’s total annual sales.

2. No later than June 30 of each year, on the forms specified in Appendix E and

Appendix F, an insurer shall report the following information for the preceding

calendar year to the Department:

a. The 10% of its insurance producers licensed in Arizona with the greatest

percentages of lapses and replacements as measured by subsection (I)(1);

b. The number of lapsed policies as a percent of the total annual sales and as a

percent of the insurer’s total number of policies in force as of the end of the

preceding calendar year;

c. The number of replacement policies sold as a percent of the insurer’s total

annual sales and as a percent of its total number of policies in force as of the

end of the preceding calendar year; and

d. For qualified long-term care insurance contracts, the number of claims denied

for each class of business, expressed as a percentage of claims denied.

J. In subsection (I):

1. “Claim” means a request for payment of benefits under an in-force policy,

regardless of whether the benefit claimed is covered under the policy or any terms

or conditions of the policy have been met.

2. “Denied” means the insurer refuses to pay a claim for any reason other than for

claims not paid for failure to meet the waiting period or because of an applicable

preexisting condition.

3. “Policy” means only long-term care insurance.

4. “Report” means on a statewide basis.

K. Reported replacement and lapse rates do not alone constitute a violation of insurance

laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing

more closely agent activities regarding the sale of long-term care insurance. Reports

required under this Section shall be filed with the Director.

L. Annual rate certification requirements. This subsection applies to any long-term care

policy issued in Arizona on or after November 10, 2017. The following annual

submission requirements apply subsequent to initial rate filings for individual long-term

care insurance policies made under this Section:

1. An actuarial certification prepared, dated and signed by a member of the American

Academy of Actuaries which contains a statement of the sufficiency of the current

premium rate schedule, including:

a. For the rate schedules currently marketed, that the premium rate schedule

continues to be sufficient to cover anticipated costs under moderately adverse

experience and that the premium rate schedule is reasonably expected to be

sustainable over the life of the form with no future premium increases

anticipated or a statement that margins for moderately adverse experience may

no longer be sufficient. For a statement that margins for moderately adverse

experience may no longer be sufficient, the insurer shall provide to the Director,

within 60 days of the date the actuarial certification is submitted to the Director,

a plan of action, including a time frame, for the re-establishment of adequate

margins for moderately adverse experience so that the ultimate premium rate

schedule would be reasonably expected to be sustainable over the future life

of the form with no future premium increases anticipated. Failure to submit a

plan of action to the Director within 60 days or to comply with the time frame

stated in the plan of action constitutes grounds for the Director to withdraw or

modify approval of the form for future sales pursuant to A.R.S. § 20-1691.08.

b. For the rate schedules that are no longer marketed, that the premium rate

schedule continues to be sufficient to cover anticipated costs under best

estimate assumptions or that the premium rate schedule may no longer be

sufficient. If the premium rate schedule is no longer sufficient, the insurer shall

provide to the Director, within 60 days of the date the actuarial certification is

submitted to the Director, a plan of action, including time frame, for the re-

establishment of adequate margins for moderately adverse experience;

2. A description of the review performed that led to the statement; and

3. An actuarial memorandum dated and signed by a member of the American

Academy of Actuaries who prepares the information shall be prepared to support

the actuarial certification and provide at least the following information:

a. A detailed explanation of the data sources and review performed by the actuary

prior to making the statement in subsection (L)(1),

b. A complete description of experience assumptions and their relationship to the

initial pricing assumptions,

c. A description of the credibility of the experience data, and

d. An explanation of the analysis and testing performed in determining the current

presence of margins.

4. The actuarial certification required pursuant to subsection (L)(1) must be based on

calendar year data and submitted annually starting in the second year following

the year in which the initial rate schedules are first used. The actuarial

memorandum required pursuant to subsection (L)(3) must be submitted at least

once every three years with the certification.

R20-6-1011. Prohibition Against Post-claims Underwriting

A. An application for a long-term care insurance policy or certificate that is not

guaranteed issue shall meet the requirements of this Section.

1. The application shall contain clear and unambiguous questions designed to

ascertain the applicant’s health condition.

a. If the application has a question asking whether the applicant has had

medication prescribed by a physician, the application shall also ask the

applicant to list the prescribed medication.

b. If the insurer knew or reasonably should have known that the medications listed

in the application are related to a medical condition for which coverage would

otherwise be denied, the insurer shall not rescind the policy or certificate for

that condition.

2. The application shall include the following language which shall be set out

conspicuously and in close conjunction with the applicant’s signature block:

“Caution: If your answers on this application are incorrect or untrue,

[company] has the right to deny benefits or rescind your policy.”

3. The policy or certificate shall contain, at the time of delivery, the following

language, or language substantially similar to the following, set out conspicuously:

“Caution: The issuance of this long-term care insurance [policy] [certificate]

is based on your responses to the questions on your application. A copy of

your [application] [enrollment form] [is enclosed] [was retained by you when

you applied]. If your answers are incorrect or untrue, the company has the

right to deny benefits or rescind your policy. The best time to clear up any

questions is now, before a claim arises! If, for any reason, any of your

answers are incorrect, contact the company at this address: [insert

address].”

B. Before issuing a long-term care insurance policy or certificate that is not guaranteed

issue to an applicant age 80 or older, the insurer shall obtain one of the following:

1. A report of a physical examination,

2. An assessment of functional capacity,

3. An attending physician’s statement, or

4. Copies of medical records.

C. The insurer or its insurance producer shall deliver a copy of the completed application

or enrollment form, as applicable, to the insured no later than at the time of delivery of

the policy or certificate unless the insurer gave a copy to the applicant at the time of

application.

D. An insurer selling or issuing long-term care insurance benefits shall maintain a record

of all policy or certificate rescissions, both state- and country-wide, except those which

the insured voluntarily effectuated.

E. On or before March 31 of each year, an insurer shall report the following information

to the Director for the preceding calendar year, using the form prescribed in Appendix

1. Insurer name, address, phone number;

2. As to each rescission except those voluntarily effectuated by the insured:

a. Policy form number,

b. Policy and certificate number,

c. Name of the insured,

d. Date of policy issuance,

e. Date claim submitted,

f. Date of rescission, and

g. Detailed reason for rescission; and

3. Signature, name and title of the preparer, and date prepared.

R20-6-1012. Reserve Standards

A. If long-term care benefits are provided through the acceleration of benefits under

group or individual life policies or riders, an insurer shall determine policy reserves for

long-time care benefits under A.R.S. § 20-510. An insurer shall also establish claim

reserves for a policy or rider in claim status.

B. An insurer shall base reserves for policies and riders under subsection (A) on the

multiple decrement model using all relevant decrements except for voluntary

termination rates. An insurer may use single decrement approximations if the

calculation produces essentially similar reserves, if the reserve is clearly more

conservative, or if the reserve is immaterial. The insurer, when calculating reserves,

may take into account the reduction in life insurance benefits due to the payment of

long-term care benefits. The insurer shall not set the reserves for the long-term care

benefit and the life insurance benefit to be less than the reserves for the life insurance

benefit assuming no long-term care benefit.

C. In the development and calculation of reserves for policies and riders subject to this

Section, an insurer shall give due regard to the applicable policy provisions, marketing

methods, administrative procedures and all other considerations which impact

projected claim costs including the following:

1. Definition of insured events,

2. Covered long-term care facilities,

3. Existence of home convalescence care coverage,

4. Definition of facilities,

5. Existence or absence of barriers to eligibility,

6. Premium waiver provision,

7. Renewability,

8. Ability to raise premiums,

9. Marketing method,

10. Underwriting procedures,

11. Claims adjustment procedures,

12. Waiting period,

13. Maximum benefit,

14. Availability of eligible facilities,

15. Margins in claim costs,

16. Optional nature of benefit,

17. Delay in eligibility for benefit,

18. Inflation protection provisions,

19. Guaranteed insurability option, and

20. Other similar or comparable factors affecting risk.

D. A member of the American Academy of Actuaries shall certify an insurer’s use of any

applicable valuation morbidity table as appropriate as a statutory valuation table.

E. When long-term care benefits are provided other than as described in subsection (A),

an insurer shall determine reserves under A.R.S. § 20-508.

R20-6-1013. Loss Ratio

A. This Section applies to policies and certificates issued any time prior to May 10, 2005.

B. Benefits under an individual long-term care insurance policy are deemed reasonable

in relation to premiums if the expected loss ratio is at least 60% calculated in a manner

that provides for adequate reserving of the long-term care insurance risk. In evaluating

the expected loss ratio, the director shall consider all relevant factors, including:

1. Statistical credibility of incurred claims experience and earned premiums;

2. The period for which rates are computed to provide coverage;

3. Experienced and projected trends;

4. Concentration of experience within early policy duration;

5. Expected claim fluctuation;

6. Experience refunds, adjustments, or dividends;

7. Renewability features;

8. All appropriate expense factors;

9. Interest;

10. Experimental nature of the coverage;

11. Policy reserves;

12. Mix of business by risk classification; and

13. Product features such as long elimination periods, high deductibles, and high

maximum limits.

C. A premium rate schedule or proposed revision to a premium rate schedule that is

expected to produce, over the lifetime of the long-term care insurance policy, benefits

that are less than 60% of the proposed premium rate schedule is deemed to be

unreasonable.

D. Subsections (B) and (C) do not apply to life insurance policies that accelerate benefits

for long-term care. A life insurance policy that funds long-term care benefits entirely

by accelerating the death benefit is deemed to provide reasonable benefits in relation

to premiums paid if the policy complies with all of the following:

1. The interest credited internally to determine cash value accumulations, including

long-term care, if any, is guaranteed not to be less than the minimum guaranteed

interest rate for cash value accumulations without long-term care set forth in the

policy;

2. The portion of the policy that provides life insurance benefits complies with the

nonforfeiture requirements of A.R.S. § 20-1231;

3. The policy complies with the disclosure requirements of A.R.S. § 20-1691.06(A)

through (E);

4. At the time of making a filing under A.R.S. § 20-1691.08, the insurer files an

actuarial memorandum that includes the following information:

a. A description of the basis on which the long-term care rates were determined;

b. A description of the basis for the reserves;

c. A summary of the type of policy, benefits, renewability, general marketing

method, and limits on ages of issuance;

d. A description and a table of each actuarial assumption used; for expenses, an

insurer shall include percent of premium dollars per policy and dollars per unit

of benefits, if any;

e. A description and a table of the anticipated policy reserves and additional

reserves to be held in each future year for active lives;

f. The estimated average annual premium per policy and the average issue age;

g. A statement as to whether underwriting is performed, including:

i. Time of underwriting;

ii. A description of the type of underwriting used, such as medical underwriting

or functional assessment underwriting; and

iii. For a group policy, whether an enrollee’s dependents are subject to

underwriting; and

h. A description of the effect of the long-term care policy provisions on the

required premiums, nonforfeiture values, and reserves on the underlying life

insurance policy, both for active lives and those in long-term care claim status.

R20-6-1014. Premium Rate Schedule Increase

A. This Section applies to any long-term care policy or certificate issued in this state on

or after May 10, 2005 and prior to November 10, 2017.

B. An insurer shall notify the Director of a proposed premium rate schedule increase,

including an exceptional increase, at least 60 days before issuing notice to its

policyholders. The notice to the Director shall include:

1. Information required by R20-6-1008;

2. Certification by a qualified actuary that:

a. If the requested premium rate schedule increase is implemented and the

underlying assumptions, which reflect moderately adverse conditions, are

realized, no further premium rate schedule increases are anticipated;

b. The premium rate filing complies with the provisions of this Section; and

c. The insurer may request a premium rate schedule increase less than what is

required under this Section and the Director may approve the premium rate

schedule increase, without submission of the certification required by

subsection (B)(2)(a), if the actuarial memorandum discloses the premium rate

schedule increase necessary to make the certification required by subsection

(B)(2)(a), the premium rate schedule increase filing satisfies all other

requirements of this Section, and is, in the opinion of the Director, in the best

interest of the policyholders;

3. An actuarial memorandum justifying the rate schedule change request that

includes:

a. Lifetime projections of earned premiums and incurred claims based on the filed

premium rate schedule increase; and the method and assumptions used in

determining the projected values, including the following:

i. Any assumptions that deviate from those used for pricing other forms

currently available for sale;

ii. Annual values for the five years preceding and the three years following the

valuation date, provided separately;

iii. Development of the lifetime loss ratio, unless the rate increase is an

exceptional increase; and

iv. A demonstration of compliance with subsection (C);

b. For exceptional increases, the actuarial memorandum shall also include:

i. The projected experience that is limited to the increases in claims expenses

attributable to the approved reasons for the exceptional increase; and

ii. If the Director determines under Section R20-6-1002(B)(3) that offsets may

exist, the insurer shall use appropriate net projected experience;

c. Disclosure of how reserves have been incorporated in this rate increase when

the rate increase will trigger contingent benefit upon lapse;

d. Disclosure of the analysis performed to determine why a rate adjustment is

necessary, which pricing assumptions were not realized and why, and any

other actions of the insurer on which the actuary has relied;

e. A statement that the actuary has considered policy design, underwriting, and

claims adjudication practices;

f. Composite rates reflecting projections of new certificates in the event it is

necessary to maintain consistent premium rates for new certificates and

certificates receiving a rate increase; and

g. A demonstration that actual and projected costs exceed costs anticipated at

the time of the initial pricing under moderately adverse experience and that the

composite margin specified in R20-6-1009(B)(4) is projected to be exhausted;

4. A statement that renewal premium rate schedules are not greater than new

business premium rate schedules except for differences attributable to benefits,

unless the insurer provides the Director with documentation justifying the greater

rate; and

5. Upon the Director’s request, other similar and related information the Director may

require to evaluate the premium rate schedule increase.

C. All premium rate schedule increases shall be determined in accordance with the

following requirements:

1. The insurer shall return 70% of the present value of projected additional premiums

from an exceptional increase to policyholders in benefits;

2. The sum of the accumulated value of incurred claims, without the inclusion of

active life reserves, and the present value of future projected incurred claims,

without the inclusion of active life reserves, shall not be less than the sum of the

following:

a. The accumulated value of the initial earned premium times 58%;

b. 85% of the accumulated value of prior premium rate schedule increases on an

earned basis;

c. The present value of future projected initial earned premiums times 58%; and

d. 85% of the present value of future projected premiums not in subsection

(C)(2)(c) on an earned basis;

3. If a policy form has both exceptional and other increases, the values in subsections

(C)(2)(b) and (C)(2)(d) shall also include 70% for exceptional rate increase

amounts; and

4. All present and accumulated values used to determine rate increases shall use the

maximum valuation interest rate for contract reserves as specified in the NAIC

Accounting Practices and Procedures Manual to which insurers are subject under

A.R.S. § 20-223. The actuary shall disclose the use of any appropriate averages

in the actuarial memorandum required under subsection (B)(3).

D. For each rate increase that is implemented, the insurer shall file for approval by the

Director updated projections, as defined in subsection (B)(3)(a), annually for the next

three years and shall include a comparison of actual results to projected values. The

Director may extend the reporting period beyond three years if actual results are not

consistent with projected values from prior projections. For group insurance policies

that meet the conditions in subsection (M), the insurer shall provide the projections

required by this subsection to the policyholder in lieu of filing with the Director.

E. If any premium rate in the revised premium rate schedule is greater than 200% of the

comparable rate in the initial premium schedule, the insurer shall file lifetime

projections, as defined in subsection (B)(3)(a), for the Director’s approval every five

years following the end of the required period in subsection (D). For group insurance

policies that meet the conditions in subsection (M), the insurer shall provide the

projections required by this subsection to the policyholder instead of filing with the

Director.

F. If the Director finds that the actual experience following a rate increase does not

adequately match the projected experience and that the current projections under

moderately adverse conditions demonstrate that incurred claims will not exceed

proportions of premiums specified in subsection (C), the Director may require the

insurer to implement premium rate schedule adjustments or other measures to reduce

the difference between the projected and actual experience. In determining whether

the actual experience matches the projected experience, the Director shall consider

subsection (B)(3)(f), if applicable.

G. If the majority of the policies or certificates to which the increase applies are eligible

for the contingent benefit upon lapse, the insurer shall file:

1. A plan, subject to Director approval, for improved administration or claims

processing designed to eliminate the potential for further deterioration of the policy

form experience requiring further premium rate schedule increases, or both, or to

demonstrate that appropriate administration and claims processing have been

implemented or are in effect; otherwise the Director may impose the conditions in

subsections (H) through (J); and

2. The original anticipated lifetime loss ratio, and the premium rate schedule increase

that would have been calculated according to subsection (C) had the greater of the

original anticipated lifetime loss ratio or 58% been used in the calculations

described in subsections (C)(2)(a) and (C)(2)(c).

H. For a rate increase filing that meets the criteria listed in this subsection, the Director

shall review, for all policies included in the filing, the projected lapse rates and past

lapse rates during the 12 months following each increase to determine if lapsation in

excess of projected lapsation has occurred or is anticipated:

1. The rate increase is not the first rate increase requested for the specific policy form

or forms,

2. The rate increase is not an exceptional increase, and

3. The majority of the policies or certificates to which the increase applies are eligible

for the contingent benefit upon lapse.

I. If the Director finds excess lapsation under subsection (H) has occurred, is anticipated

in the filing or is evidenced in the actual results as presenting in the updated

projections provided by the insurer following the requested rate increase, the Director

may find that a rate spiral exists and may require the insurer to offer, without

underwriting, to all in-force insureds subject to the rate increase, the option to replace

existing coverage with one or more reasonably comparable products being offered by

the insurer or its affiliates. The information communicating the offer is subject to the

Director’s approval. The offer shall:

1. Be based on actuarially sound principles, but not on attained age;

2. Provide that maximum benefits under any new policy accepted by an insured shall

be reduced by comparable benefits already paid under the existing policy; and

3. Allow the insured the option of retaining the existing coverage.

J. The insurer shall maintain the experience of the insureds whose coverage was

replaced under subsection (I) separate from the experience of insureds originally

issued the policy forms. If the insurer requests a rate increase on the policy form, the

rate increase shall be limited to the lesser of:

1. The maximum rate increase determined based on the combined experience; and

2. The maximum rate increase determined based only on the experience of the

insureds originally issued the form, plus 10%.

K. If the Director finds that an insurer has exhibited a history or pattern of filing inadequate

initial premium rates for long-term care insurance, after considering the total number

of policies filed over a period of time and the percentage of policies with inadequate

rates, the Director may, in addition to remedies available under subsections (H)

through (J), prohibit the insurer from the following:

1. Filing and marketing comparable coverage for a period of up to five years, and

2. Offering all other similar coverages and limiting marketing of new applications to

the products subject to recent premium rate schedule increases.

L. Subsections (A) through (K) shall not apply to a policy for which long-term care

benefits provided by the policy are incidental, as defined under R20-6-1002(C), if the

policy complies with all of the following provisions:

1. The interest credited internally to determine cash value accumulations, including

long-term care, if any, are guaranteed not to be less than the minimum guaranteed

interest rate for cash value accumulations without long-term care set forth in the

policy;

2. The portion of the policy that provides insurance benefits other than long-term care

coverage meets the applicable nonforfeiture requirements under state law,

including A.R.S. §§ 20-1231, 20-1232 and 20-2636;

3. The policy meets the disclosure requirements of A.R.S. § 20-1691.06;

4. The portion of the policy that provides insurance benefits other than long-term care

coverage meets the disclosure requirements as applicable in the following:

a. A.R.S. Title 20, Chapter 6, Article 1.2; and

b. A.R.S. Title 20, Chapter 16, Article 2;

5. At the time of making a filing under A.R.S. § 20-1691.08, the insurer files an

actuarial memorandum that includes:

a. Description of the bases on which the actuary determined the long-term care

rates and the reserves;

b. A summary of the type of policy, benefits, renewability provisions, general

marketing method, and limits on ages of issuance;

c. A description and a table of each actuarial assumption used, with the percent

of premium dollars per policy and dollars per unit of benefits, if any, for

expenses;

d. A description and a table of the anticipated policy reserves and additional

reserves to be held in each future year for active lives;

e. The estimated average annual premium per policy and the average issue age;

f. A statement as to whether the insurer performs underwriting at the time of

application with an explanation of the following:

i. Whether underwriting is used, and if used, a description of the type of

underwriting, such as medical underwriting or functional assessment

underwriting; and

ii. For a group policy, whether the enrollee or any dependent will be

underwritten and when underwriting occurs; and

g. A description of the effect of the long-term care policy provision on the required

premiums, nonforfeiture values, and reserves on the underlying insurance

policy, both for active lives and those in long-term care claim status.

M. Subsections (F) and (H) through (J) shall not apply to group insurance as defined in

A.R.S. § 20-1691(6) where:

1. The policies insure 250 or more persons and the policyholder has 5,000 or more

eligible employees of a single employer; or

2. The policyholder, and not the certificateholder, pays a material portion of the

premium, which shall not be less than 20% of the total premium for the group in

the calendar year prior to the year a rate increase is filed.

R20-6-1015. Premium Rate Schedule Increases for Policies Subject to Loss Ratio

Limits Related to Original Filings

A. This Section applies to any long-term care policy or certificate issued in this state on

or after November 10, 2017.