LTC Insurers Face Skepticism
About Delivering On Promises
A top benefits expert says some aides on Capitol Hill wonder whether long-term care insurers will really perform the way they are supposed to over the long haul.
The skepticism may be hurting industry efforts to expand the deductibility of LTC insurance premiums, according to Dallas Salisbury, president of the Employee Benefit Research Institute, an influential, nonpartisan Washington think tank.
Before members of Congress give up sorely needed tax revenue to encourage the purchase of private LTC insurance, they want to know, “Will the promises being made be promises that are kept?” Salisbury told 350 insurance industry executives who were here for two conferences organized by LIMRA International, Windsor, Conn.
LIMRA was the sole host of a group insurance and health care conference, and the co-host with LOMA, Atlanta, and Milliman USA, Seattle, of a meeting for disability income and long-term care insurers.
Six months ago, Salisbury said, members of Congress were wondering how to spend federal budget surpluses on social issues of great interest to conference participants, such as establishing private Social Security investment accounts, improving pharmacy benefits for the elderly, and finding ways to finance long-term care for the baby boomers.
Today, as a result of the recession and the Sept. 11 attacks, “every one of those issues is firmly back in the closet,” Salisbury said.
Members of Congress who used to focus on social issues are now focusing on national security, and Salisbury said the retirement of Sen. Phil Gramm, R-Texas, and House Majority Leader Dick Armey will eliminate two of the strongest supporters of proposals for privatizing social programs.
Asking Congress for protection against future mammoth terrorism claims is costing insurers some of the political capital they still have, Salisbury added.
Insurers may feel as if they are asking for help because of national security problems that are entirely outside industry control.
But many members of Congress see the insurance company protection legislation as an “insurance industry bailout” package, and that influences their views of insurers ability to handle many different types of claims, including future LTC claims, Salisbury said.
Salisbury said people on Capitol Hill are especially concerned because of the lack of detailed, comprehensive reports on past failures of LTC insurance companies to meet claims obligations.
Skeptics worry about the possibility that some smaller insurers may become insolvent, and the possibility that insurers of all sizes will force policyholders to drop coverage by dramatically increasing rates, Salisbury said.
Salisbury also hears worries that sketchy evidence suggesting private disability insurers may be far tougher on claimants than the Social Security Disability Insurance program has been.
If disability insurers want to persuade Congress that they are tougher simply because they do a better job of ferreting out waste, abuse and fraud, they have to find ways to show that they are really being fair, Salisbury said.
Meanwhile, even though the collapse of Enron Corp., Houston, has nothing to do with private LTC insurance, it “simply reinforces the feeling of being justified for being paranoid,” Salisbury observed.
Edward Berube, president of Bankers Life and Casualty Company, Chicago, an LTC insurer, said at a separate DI/LTC session that sellers of LTC insurance must be prepared to fulfill their promises to their customers.
“We need to get this product moving from adolescence to adulthood,” Berube said.
Private LTC insurance can and must play an important role in reducing the enormous pressure facing government LTC finance programs, but insurers need to be cautious in the way they design and price policies, to ensure that they can deliver the goods, Berube said.
“Weve got to resist the urge to put in benefits that we simply cant price for,” Berube said.
Rich home health care benefits, easy-to-meet definitions of eligibility for benefits, and “limited pay” options are all examples of provisions that can increase claims rates, or decrease predictability of claims rates, Berube said.
A “limited pay” option gives the policyholder a chance to secure a permanent right to LTC benefits after paying premiums for a certain specified length of time.
A 50-year-old policyholder, for example, might be able to pay premiums for 20 years, stop, then file a claim at age 80.
Claims rates are likely to be far higher for limited pay policies than for ordinary policies, because the lapse rates will fall to zero for policyholders who have locked in the right to benefits, according to an analysis by Andy Perkins, an actuary in the Stamford, Conn., office of General & Cologne Life Reinsurance.
Phyllis Shelton, a Nashville-based LTC insurance marketing expert who attended the DI/LTC meeting, said she sees signs that the bigger, stronger LTC carriers are doing whatever they can to avoid underwriting and pricing problems.
But, for the most part, carriers “are spending very little on agent training,” Shelton said.
Agent training is the best defense against unrealistic pricing and underwriting practices, Shelton said.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 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.