HOUSE BILL No. 5295

 

January 26, 2012, Introduced by Reps. Dillon, Brunner, Hovey-Wright, Tlaib, Nathan, Stapleton, Lipton and Switalski and referred to the Committee on Insurance.

 

      A bill to amend 1956 PA 218, entitled

 

"The insurance code of 1956,"

 

by amending sections 3910a and 3927 (MCL 500.3910a and 500.3927),

 

section 3910a as added and section 3927 as amended by 2006 PA

 

442.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

 1        Sec. 3910a. (1) This section does not apply to life

 

 2  insurance policies or riders containing accelerated benefits for

 

 3  long-term care.

 

 4        (2) A policy or certificate offered with nonforfeiture

 

 5  benefits shall have coverage elements, eligibility, benefit

 

 6  triggers, and benefit length that are the same as coverage to be

 

 7  issued without nonforfeiture benefits. The nonforfeiture benefit

 

 8  included in the offer shall be the benefits described in


 

 1  subsection (8).

 

 2        (3) If the offer required to be made under section 3910 is

 

 3  rejected, the insurer shall provide a contingent benefit upon

 

 4  lapse as described in this section for individual and group

 

 5  policies without nonforfeiture benefits issued on and after June

 

 6  1, 2007.

 

 7        (4) If a group policyholder elects to make the nonforfeiture

 

 8  benefit an option to the certificateholder, a certificate shall

 

 9  provide either the nonforfeiture benefit or the contingent

 

10  benefit upon lapse.

 

11        (5) Except as otherwise required, policyholders shall be

 

12  notified not less than 45 days before the due date of a premium

 

13  increase and of the amount of the increase.

 

14        (6) The Until July 1, 2012, the contingent benefit on lapse

 

15  is triggered every time an insurer increases the premium rates to

 

16  a level that results in a cumulative increase of the annual

 

17  premium equal to or exceeding the percentage of the insured's

 

18  initial annual premium as follows based on the insured's issue

 

19  age, and the policy or certificate lapses within 120 days of the

 

20  due date of the premium so increased:

 

 

21        TRIGGERS FOR A SUBSTANTIAL PREMIUM INCREASE

 

 

 

22                                  Percent Increase Over

23         Issue Age                   Initial Premium

24       29 and under                       200%

25          30-34                           190%


         35-39                           170%

         40-44                           150%

         45-49                           130%

         50-54                           110%

         55-59                            90%

          60                              70%

          61                              66%

          62                              62%

          63                              58%

10           64                              54%

11           65                              50%

12           66                              48%

13           67                              46%

14           68                              44%

15           69                              42%

16           70                              40%

17           71                              38%

18           72                              36%

19           73                              34%

20           74                              32%

21           75                              30%

22           76                              28%

23           77                              26%

24           78                              24%

25           79                              22%

26           80                              20%

27           81                              19%

28           82                              18%

29           83                              17%

30           84                              16%

31           85                              15%


          86                              14%

          87                              13%

          88                              12%

          89                              11%

      90 and over                         10%

 

 

 6        (7) On Until July 1, 2012, on or before the effective date

 

 7  of a substantial premium increase as defined described in

 

 8  subsection (6), the insurer shall do all of the following:

 

 9        (a) Offer to reduce policy benefits provided by the current

 

10  coverage without the requirement of additional underwriting so

 

11  that required premium payments are not increased.

 

12        (b) Offer to convert the coverage to a paid-up status with a

 

13  shortened benefit period as provided in subsection (8). This

 

14  option may be elected at any time during the 120-day period under

 

15  subsection (6).

 

16        (c) Notify the policyholder or certificateholder that a

 

17  default or lapse at any time during the 120-day period under

 

18  subsection (6) is considered to be the election of the offer to

 

19  convert under subdivision (b).

 

20        (8) Benefits continued as nonforfeiture benefits, including

 

21  contingent benefits upon lapse, are as follows:

 

22        (a) For purposes of this subsection, attained age rating is

 

23  defined as a schedule of premiums starting from the issue date

 

24  that increases age at least 1% per year prior to age 50 and at

 

25  least 3% per year beyond age 50.

 

26        (b) For purposes of this subsection, the nonforfeiture

 

27  benefit shall be of a shortened benefit period providing paid-up


 

 1  long-term care insurance coverage after lapse. The same benefits

 

 2  shall be payable for a qualifying claim, but the lifetime maximum

 

 3  dollars or days of benefits shall be determined as provided in

 

 4  subdivision (c). As used in this subdivision, "same benefits"

 

 5  means amounts and frequency in effect at the time of lapse but

 

 6  not increased thereafter.

 

 7        (c) The standard nonforfeiture credit will be equal to 100%

 

 8  of the sum of all premiums paid, including the premiums paid

 

 9  prior to any changes in benefits. The insurer may offer

 

10  additional shortened benefit period options, as long as the

 

11  benefits for each duration equal or exceed the standard

 

12  nonforfeiture credit for that duration. However, the minimum

 

13  nonforfeiture credit shall not be less than 30 times the daily

 

14  nursing home benefit at the time of lapse. In either event, the

 

15  calculation of the nonforfeiture credit is subject to the

 

16  limitation of subsection (9).

 

17        (d) The nonforfeiture benefit shall begin not later than the

 

18  end of the third year following the policy or certificate issue

 

19  date. The contingent benefit upon lapse shall be effective during

 

20  the first 3 years as well as thereafter. However, for a policy or

 

21  certificate with attained age rating, the nonforfeiture benefit

 

22  shall begin on the earlier of the end of the tenth year following

 

23  the policy or certificate issue date or the end of the second

 

24  year following the date the policy or certificate is no longer

 

25  subject to attained age rating.

 

26        (e) Nonforfeiture credits may be used for all care and

 

27  services qualifying for benefits under the terms of the policy or


 

 1  certificate, up to the limits specified in the policy or

 

 2  certificate.

 

 3        (9) All benefits paid by the insurer while the policy or

 

 4  certificate is in premium paying status and in the paid-up status

 

 5  shall not exceed the maximum benefits that would be payable if

 

 6  the policy or certificate had remained in premium paying status.

 

 7        (10) There shall be no difference in the minimum

 

 8  nonforfeiture benefits as required under this section for group

 

 9  and individual policies.

 

10        (11) This section is effective June 1, 2007 and shall apply

 

11  as follows:

 

12        (a) Except as otherwise provided in subsection (15) and

 

13  subdivision (b), this section applies to any long-term care

 

14  policy issued in this state on or after June 1, 2007.

 

15        (b) This Except as otherwise provided in subsection (15),

 

16  this section does not apply to certificates issued on or after

 

17  June 1, 2007, under a group long-term care insurance policy as

 

18  defined in section 3901(c)(i), which policy was in force at the

 

19  time this section became effective.on June 1, 2007.

 

20        (12) Premiums charged for a policy or certificate containing

 

21  nonforfeiture benefits or a contingent benefit on lapse are

 

22  subject to the loss ratio requirements of section 3926a treating

 

23  the policy as a whole.

 

24        (13) To determine whether contingent nonforfeiture upon

 

25  lapse provisions are triggered under subsection (6), a replacing

 

26  insurer that purchased or otherwise assumed a block or blocks of

 

27  long-term care insurance policies from another insurer shall


 

 1  calculate the percentage increase based on the initial annual

 

 2  premium paid by the insured when the policy was first purchased

 

 3  from the original insurer.

 

 4        (14) For qualified long-term care insurance contracts that

 

 5  are level premium contracts, an insurer shall offer a

 

 6  nonforfeiture benefit that meets all of the following:

 

 7        (a) Is appropriately captioned.

 

 8        (b) Provides a benefit available in the event of a default

 

 9  in the payment of any premiums and states that the amount of the

 

10  benefit may be adjusted subsequent to being initially granted

 

11  only as necessary to reflect changes in claims, persistency, and

 

12  interest as reflected in changes in rates for premium paying

 

13  contracts approved by the commissioner for the same contract

 

14  form.

 

15        (c) Provides at least 1 of the following:

 

16        (i) Reduced paid-up insurance.

 

17        (ii) Extended term insurance.

 

18        (iii) Shortened benefit period.

 

19        (iv) Other offerings approved by the commissioner that are

 

20  similar to subparagraphs (i) to (iii).

 

21        (15) Beginning July 1, 2012, an insurer shall not increase a

 

22  premium rate for any long-term care policy issued in this state

 

23  by an amount that is more than the cumulative change in the

 

24  consumer price index for medical care, as reported by the United

 

25  States department of labor, bureau of labor statistics, and as

 

26  certified by the commissioner.

 

27        Sec. 3927. (1) Benefits Subject to section 3910a(15),


 

 1  benefits under individual long-term care insurance policies shall

 

 2  be considered reasonable in relation to premiums provided if the

 

 3  expected loss ratio is at least 60%, calculated in a manner that

 

 4  provides for adequate reserving of the long-term care insurance

 

 5  risk. In evaluating the expected loss ratio, due consideration

 

 6  shall be given to all relevant factors, including:

 

 7        (a) Statistical credibility of incurred claims experience

 

 8  and earned premiums.

 

 9        (b) The period for which rates are computed to provide

 

10  coverage.

 

11        (c) Experienced and projected trends.

 

12        (d) Concentration of experience within early policy

 

13  duration.

 

14        (e) Expected claim fluctuation.

 

15        (f) Experience refunds, adjustments, or dividends.

 

16        (g) Renewability features.

 

17        (h) All appropriate expense factors.

 

18        (i) Interest.

 

19        (j) Experimental nature of the coverage.

 

20        (k) Policy reserves.

 

21        (l) Mix of business by risk classification.

 

22        (m) Product features such as long elimination periods, high

 

23  deductibles, and high maximum limits.

 

24        (n) Premiums charged and losses incurred for other similar

 

25  policies.

 

26        (2) This section does not apply to fixed indivisible premium

 

27  life insurance policies that fund long-term care benefits


 

 1  entirely by accelerating the death benefit.

 

 2        (3) This section applies to all long-term care insurance

 

 3  policies or certificates except those described in sections

 

 4  3926(1) and 3926a(1) and (2).