August 10, 2011

GAO Releases First Study of Long-Term Care Insurance

Almost half of LTC buyers accepted premium increases rather than limit benefits

(Photo: AP) (Photo: AP)

A newly released Government Accounting Office (GAO) study of long-term care insurance finds that nearly half of government employees who had purchased coverage chose to accept a rate increase rather than accept reduced benefits.

The study, dated July 11, showed that factors related to carriers’ business strategy had the most effect on their interest in providing coverage, but in differing ways. Carriers interested in growing their market share were attracted to the Federal Long-Term Care Insurance Program (FLTCIP), while carriers that wanted a slower growth rate were less interested in providing coverage through FLTCIP.

In 2009, shortly after the second FLTCIP contract was awarded to John Hancock Life Insurance Co., the insurer revised the program’s actuarial assumptions, in effect since its inception in 2002. The revision reflected John Hancock’s expectation that more people would keep their coverage longer, and would also live longer.

The company also notified 66% of enrollees that their premiums would increase by up to 25% to account for the differences between actuarial assumptions and actual program experience.

GAO found that 46% of enrollees chose to accept the premium increases rather than see their benefits reduced. The same percentage reduced inflation growth protection to 4% from 5%, with 26% switching to the new plan to do so and 20% retaining the original plan. Only 1.6% of enrollees chose instead to let their coverage lapse rather than pay the premium increase.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), said of the study results: "We have long attempted to counter the perception that rate increases caused large numbers of people to drop coverage. People understand the risk they face when they purchase long-term care insurance and the protection becomes even more valuable as they age."

He added that 23% of policyholders experienced a decrease in premiums of between 0.1% and 5%.

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