State Medicaid could start to go after insurers and other financial services companies that fail to live up to agreements with people who end up using Medicaid to pay nursing home bills.
New York state insurance regulators raised that possibility last week, when they announced a $26.3 million consent agreement with Manulife's John Hancock unit.
John Hancock paid a $2.5 million penalty, $21.6 million in extra benefits to policyholders and their beneficiaries — and $2.2 million to the state Medicaid program — to rectify problems with how it calculated the end of long-term care insurance benefit payments for 156 users of John Hancock LTCI policies.
John Hancock designed the policies to fit with the New York State Partnership for Long-Term Care program. Policyholders who used the coverage and ran out of private benefits could exclude more assets than usual from eligibility calculations if they applied for Medicaid nursing home benefits.
Here are seven implications of the consent agreement for clients and their advisors.
1. Regulators like saying that they've been tough on insurers.
New York regulators said they began looking into the issue in 2019 because of a consumer complaint.
Regulators and John Hancock found that the consumer had an LTCI policy with a daily benefits maximum and a lifetime benefits maximum.
The policyholder started out using less than the maximum daily benefit each day. John Hancock failed to roll the unused daily benefit amount over to later days.
Once John Hancock discovered it had made that error, it agreed to go through its book of business and look to see whether similar calculation errors had affected other LTCI benefit payment terminations.
The New York department's announcement emphasizes the error, not the work John Hancock did to try to help make things right.
2. Keeping track of old insurance policies, and other old financial products, will be tricky.
An advisor's 90-something clients could have cash-value life insurance policies written in the 1950s; certificates for shares of common stock purchased directly from the issuer in the 1960s; mutual funds purchased in the 1980s; and annuities and long-term care insurance policies purchased in the 1990s.
The conscientious clients who began planning for post-retirement income and long-term care needs earliest may have the biggest piles of financial services documents for products purchased in the times before computers made tracking purchases easy.
3. Advisors will need more help from analysts and researchers to understand clients' older financial services holdings.
The New York regulator noted that one problem with the John Hancock LTCI benefit calculations is that the policy benefit calculation provisions were confusing, and conflicted with what regulators saw when they approved the LTCI policy form.
In other words: To give a client complete help with resolving policy benefit concerns, an advisor might need to work with an analyst, lawyer or other expert who knows how to get and interpret product filings sent to regulators many years ago.
