(a) Notification and Offer of Exchange. Within 18 months from the date that an insurer begins to advertise, market, offer, or sell, policies under the Texas Long-Term Care Partnership Program the insurer is required to offer on a one-time basis, in writing, to all policyholders or certificate holders that were issued long-term care coverage of the type certified by the insurer on or after February 8, 2006, the option to exchange their existing policy or certificate for a partnership policy or certificate.
(b) New Coverage. The insurer shall make the new coverage available in one of the following ways:
  (1) by adding a rider or endorsement to the existing policy and charging a separate premium for the new rider or endorsement based on the insured's attained age if an additional premium is appropriate; or
  (2) by exchanging the existing policy or certificate for a new partnership policy or certificate.
    (A) If the new coverage has an actuarial value of benefits equal to or lesser than the actuarial value of benefits of the existing coverage, based on uniform assumptions as determined on the date of issue for a new insured, then the following two requirements apply:
      (i) the new policy shall not be underwritten; and
      (ii) the rate charged for the new policy shall be determined using the original issue age and risk class of the insured that was used to determine the rate of the existing policy.
    (B) If the new coverage has an actuarial value of benefits exceeding the actuarial value of benefits of the existing coverage, based on uniform assumptions, as determined on the date of issue for a new insured, then the following two requirements apply:
      (i) the insurer shall apply its new business, long-term care underwriting guidelines to the increased benefits only; and
      (ii) the rate charged for the new policy shall be determined using the method set forth in subparagraph (A)(ii) of this paragraph for the existing benefits, increased by the rate for the increased benefits using the current attained age and risk class of the insured for the increased benefits only.
    (C) In lieu of subparagraphs (A) and (B) of this paragraph, an insurer may implement an alternative exchange methodology or program only for policies or certificates issued on and after February 8, 2006, and that is filed with the department and approved by the commissioner in accordance with the requirements and procedures set forth in Subchapter A of this chapter (relating to Submission Requirements for Filings and Departmental Actions Related to Such Filings).
(c) Exchange Requirements. Any exchange of an existing long-term care policy or certificate for a partnership policy or certificate must comply with the following requirements:
  (1) Any offer of exchange shall be made to all policyholders on a nondiscriminatory basis.
  (2) An exchange offer shall be deferred to all policyholders who are currently eligible for benefits, within an elimination period on a claim, or who would not be eligible to apply for coverage due to issue age limitations under the new policy, until such time when such condition expires.
  (3) All rates for exchanges must meet the requirements specified in §3.3831 of this subchapter (relating to Standards and Rates). In accordance with §3.3831 of this subchapter, exchange policies may be underwritten, and the premium may be increased, subject to §3.3810 of this subchapter (relating to Policy or Certificate Standards for Noncancellability).
  (4) The new coverage offered shall be on a form that is currently approved for sale in the general market.
  (5) In the event of an exchange, the insured shall not lose any rights, benefits or built-up value that have accrued under the original policy with respect to the benefits provided under the original policy, including, but not limited to, rights established because of the lapse of time related to pre-existing condition exclusions, elimination periods, or incontestability clauses.
(d) Exchanges and Not Replacements. Policies issued pursuant to this section shall be considered exchanges and not replacements.
(e) One-time Reporting Requirement. An insurer is required to report exchanges made pursuant to this section on a one-time basis for the reporting period in which the insurer begins to advertise, market, offer, or sell policies under the Texas Long-Term Care Partnership Program on Form Number LHL562(LTC) Long-Term Care Insurance Replacement and Lapse Reporting Form in accordance with the procedures and requirements specified in §3.3837(a)(4) of this subchapter (relating to Reporting Requirements).

Source Note: The provisions of this §3.3870 adopted to be effective February 2, 2009, 34 TexReg 599