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As LTC Grows, Oversight Is Fine-Tuned

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Regulators and legislators continue to monitor current regulations and put stronger ones in place to safeguard long-term care policyholders, interviews indicate.

Even as the National Conference of Insurance Legislators, in Albany, N.Y., plans to broach the topic at its annual meeting in Scottsdale, Ariz., next month, regulators continue work on a manual that would offer guidance for following a long-term care model regulation currently being brought to state legislators.

That model, the Long-term Care Insurance model regulation, was adopted in August 2000 after regulators and consumer advocates raised concern over spiraling rate increases being put into effect by some long-term care carriers because initial rates were underestimated. In some cases, the low rates were a bid to gain market share.

The new regulation changed the way reasonable premiums are determined. Instead of an initial minimum fixed loss ratio, the model allowed an actuary to certify a reasonable rate. But requirements for future rate increases are changed. An insurer must show that lifetime claims will equal 58% of the initial premiums plus 85% of all increased portions of the premiums.

Lynn Boyd, legislative director-long-term care with the American Council of Life Insurers in Washington says the model regulation, which the ACLI supports, has been enacted in five states and about six more are working on regulations. A total of 20-25 states are expected to enact the model regulation either this year or next year, Boyd says.

Some states have indicated that for various reasons they will not be working on the model next year, she adds. Those include Alabama, Colorado, Connecticut, Indiana, Iowa, Massachusetts, Nebraska, New York and North Dakota.

Legislatures are considering laws to oversee the sale of long-term care insurance at a time when sales are starting to take off.

The 2000 ACLI Life Insurers Fact Book says there was an 8% increase in long-term care insurance premium and an 11.1% increase in the number of policies in 1999 compared with 1998. In 1999 premiums from sales totaled $805 million and policies totaled 496,944 compared with 1998′s $745 million and 447,294 totals.

LIMRA International in Hartford, Conn., found earlier this year that the number of Americans covered by employer-sponsored long-term care plans increased by 19% in 2000.

Despite a decline in new sales of the product from the previous year, the overall market for LTC continued to grow, according to a LIMRA report.

The number of new employer groups offering the product declined by 6% from 1999 and the number of participants was off by 22% from the previous year, LIMRA indicated. Premiums, however, increased by 6%. By year-end 2000, nearly 3,800 employers were offering plans covering some 929,000 employees, LIMRA said. With self-funded public employer plans added, total enrollment is over one million, it added.

The NAIC is seeking to make it easier for regulators to implement the Long-term Care model regulation adopted in August 2000 by completing a guidance manual. Once complete, it is likely that companies will also use the manual as a template for compliance with state LTC requirements.

Work on the manual will not be finalized until the March 2002 NAIC meeting, at the earliest, according to Julia Philips, chair of the NAIC’s accident and health working group. The manual must be approved by the working group and then go through the full NAIC process and be adopted by the entire NAIC body before it can officially be used.

However, Philips says that since the manual does not have the force of law, there is a good probability that it will start to be used once the language in it is more clearly determined.

What still needs to be worked out, according to Philips, is language that requires an actuary to sign off on the adequacy of rates under “moderately adverse” conditions. Some actuaries say there needs to be a clearer understanding of “moderately adverse.”

Another point that has been raised is whether products being sold under an existing rate and form filing would be grandfathered or would be subject to the new regulation. The model regulation reads that any policy would be subject to its provisions after the effective date and does not mention grandfathering, she says.

If different states enforce different requirements, the issue might need to be looked at again, but if a consensus can be reached through the guidance manual, that might not be necessary, Philips adds.

In addition to the manual, the NAIC is also looking at long-term care as it relates to risk-based capital requirements, a project that is receiving input from the American Academy of Actuaries in Washington.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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