Chronic Illness Riders may need to be refiled in New York
By Suzanne Seay
We read the proposed changes to New York’s Reg. 143 (accelerated death benefit) when they came across our desks, and again when they went into effect two months ago. But we failed to recognize at the time that the changes meant that some previously approved C-trigger chronic illness riders would need to be refiled to include new disclosure language on the first page.
This appears contrary to the Department’s statement in the State Administrative Procedure Act (SAPA) document, where they indicated:
‘For insurers who only offer accelerated death benefits pursuant to IL sections 1113(a)(1)(A), (B), and (C) there would be no costs imposed under this amendment.’
The disclosure language is provided in a new subsection of 41.8, which applies to the C-trigger (chronically ill for life) and the D-trigger (chronically ill). Both triggers must meet the definition of chronically ill under tax code, and the payments must qualify for favorable tax treatment under tax code. All the riders I’ve ever seen meet these requirements easily. The 2016 version of the outline, the most recent on the DFS website, requires a tax certification to accompany any submission of these riders. This was previously found in Section 41.8(c) of Reg. 143 and is now in Section 41.8(e).
The problem arises in §41.8(d), which now requires that if a rider is not intended to be considered a “qualified long-term care contract” under tax code section 7702B, the policy must state this fact. The provision doesn’t say where this disclosure must be stated, but it makes sense that the statement would appear on the first page of the rider, where several other disclosures are required to be located.
The bottom line is that insurers should consult with your own tax counsel to determine if your chronic illness accelerated death benefit riders, both C-trigger and D-trigger, are “intended to be qualified long-term care insurance contracts” under section 7702B. And if not, the rider policy forms need to include language to the effect: “This rider is not intended to be a qualified long-term care insurance contract under section 7702B of the Internal Revenue Code.”
Any riders that fall into this category issued to consumers after the effective date of the revised Reg. 143 (November 27, 2019) without this disclosure will be considered out of compliance by DFS. We are hopeful that the Department will not rigidly enforce this compliance date, as long as the insurer shows good-faith and clear movement toward becoming compliant as soon as possible.
One piece of good news for insurers is that with the changes to section 41.8(z), when paying on an accelerated death benefit claim, NY no longer requires insurers to consider or coordinate other similar benefits the insured may be receiving from other insurers.
