HD76 - The NAIC Long-Term Model Act and Regulation and the Designation of Family Resources for the Long-Term Care of the Disabled

  • Published: 1990
  • Author: Joint Subcommittee
  • Enabling Authority: House Joint Resolution 332 (Regular Session, 1989)

Executive Summary:
A. Study Authority and Scope.

House Joint Resolution 332 (HJR 332) of 1989 (Appendix A) established a joint subcommittee (the Subcommittee) to study two issues. First, the Subcommittee was directed to reexamine the Virginia Long-Term Care Act in the light of recent amendments to the National Association of Insurance Commissioners' (NAIC) model long-term care act. A review of the NAIC's model long-term care regulations was also part of the Subcommittee's work. To date, long-term care insurance regulations have not been adopted in Virginia.

The Subcommittee also considered a related issue: supplementary trusts for disabled individuals. Virginia Code § 55-19.1 reputedly prevents some parents from establishing trusts intended to supplement (but not supplant) the public benefits their disabled children receive such as Medicaid, Supplementary Security Income (SSI), and custodial care in public institutions. This statute enables the Commonwealth to invade virtually any trust to recover public funds expended on behalf of a trusts's beneficiary -- regardless of the trust's purpose or structure. Advocates for disabled children and their families suggest that this law compels parents to disinherit their disabled children rather than give them financial resources that can be seized by the Commonwealth.

The Subcommittee consisted of seven members appointed as follows: One member from each of the following House Committees was appointed by the Speaker of the House: Health, Welfare and Institutions; Courts of Justice; and Corporations, Insurance and Banking. One member at-large from the House of Delegates was also appointed. The Senate committee on Privileges and Elections appointed one member from each of the following Senate Committees: Education and Health; Courts of Justice; and Commerce and Labor.

Delegate Bernard S. Cohen served as the Subcommittee's Chairman. Delegate Stephen H. Martin served as its Vice-Chairman. Other members appointed to serve from the House of Delegates were Franklin P. Hall and Joan H. Munford.

Members appointed to serve from the Senate were W. Onico Barker, John H. Chichester, and Johnny S. Joannou.

Arlen Kent Bolstad, Esq., Mary P. Devine, Esq., and Mark C. Pratt, Research Analyst, all of the Division of Legislative Services, served as legal and research staff to the Subcommittee. Barbara Hanback and Anne Howard from the House Committee Operation's office provided administrative assistance to the Subcommittee.

The Subcommittee held its first meeting in Richmond on June 22, 1989. Subsequently, the Subcommittee convened a work session and a public hearing. The Subcommittee held its final meeting in Richmond on December 4,1989, to discuss its findings and recommendations, and to finalize legislative proposals for the 1990 session of the General Assembly.

B. Subcommittee Recommendations and Findings: NAIC Amendments to the model long-term care act.

1. Findings. The Subcommittee found that most of the NAIC's amendments to its model long-term care act were consistent with the policies embraced in the Virginia Long-Term Care Act (the Virginia Act). Moreover, the Subcommittee found that incorporating these amendments into the Virginia Act would be beneficial to elderly consumers purchasing long-term care insurance. Additionally, it was generally agreed that some of the amendments would assist long-term care insurers, as well, by providing some clarification about the Commonwealth's requirements where long-term care benefits are offered through annuities and life insurance policy riders.

2. Recommendations. The Subcommittee recommended legislation incorporating most of these NAIC amendments into the Virginia Act. The proposed legislation is annexed as Appendix B. The amendments, if adopted, would:

a) Expand the definition of "long-term care insurance" in § 38.2-5200 to include annuities and life insurance policies or riders that provide long-term care benefits. The amendments also mandate certain disclosures in conjunction with the sale of these hybrid products;

b) Reduce existing 12-month preexisting condition exclusions permitted in § 38.2-5204 to 6 months;

c) Eliminate all prior hospitalization and higher level of institutional care preconditions presently permitted under § 38.2-5205;

d) Provide a uniform 30-day period following policy delivery in which a purchaser of long-term care insurance can return the policy for a full refund of premium;

e) Prohibit policies providing skilled nursing care benefits only, or disproportionately greater coverage for skilled care than for lower levels of care in a facility. Note: This NAIC amendment did not receive the Subcommittee's full endorsement, but its purpose was deemed worthy of further consideration by the General Assembly; and

f) Direct the State Corporation Commission to prescribe a standard long-term care insurance policy outline.

C. Subcommittee Findings and Recommendations: Supplemental Trusts for Disabled Individuals.

1. Findings. The Subcommittee reviewed this issue at length. It heard testimony from parents of disabled children, groups such as the Planned Lifetime Assistance Network (PLAN) of Charlottesville, Virginia that assist parents and others in caring for disabled persons, agencies of the Commonwealth that served the disabled, and legal experts in the areas of estates and trusts.

The Subcommittee found that § 55-19.1 of the Code of Virginia was enacted to promote the use of private resources to cover individual health care and living expenses, whenever possible, thus reserving public benefit programs for those who are genuinely needy. The Subcommittee learned of two elderly trust beneficiaries who were forced to seek public assistance through Medicaid, and other programs, when the trustee refused to expend money for their support and maintenance. Apparently, this specific case was the catalyst for the enactment of § 55-19.1.

However, the Subcommittee also found that § 55-19.1 has had the unintended effect of inhibiting the creation of trusts intended to supplement public benefits received by disabled individuals. Consequently, the Subcommittee concluded that the interests of the Commonwealth, and the interests of the disabled and their families would be best served by repealing § 55-19.1 and amending § 55-19 to (i) articulate the Commonwealth's right to be reimbursed from a spendthrift trust where its beneficiary has received public benefits, and (ii) exempt disabled individuals' supplemental trusts from invasion by the Commonwealth.

2. Recommendations. Accordingly, the Subcommittee recommended that the General Assembly adopt a legislative proposal accomplishing these objectives. The proposal is annexed as Appendix E to this report.