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LTCI Watch: The Price Is Wrong

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California seems to be on its way to getting a new long-term care insurance (LTCI) rate stability law.

Washington state has added a little flexibility to the rules for the consumer price index-linked inflation protection features sold with LTCI policies that qualify for the state’s Long-Term Care Partnership program.

Regulators at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., are looking at wave after wave of LTCI rate increase requests and thinking about putting new and sharper teeth in the NAIC’s rate stability model.

It’s hard for me, a reporter with no paranormal powers, to know what’s really going on at the LTCI carriers. Maybe the LTCI units really are doing fine, and are on track to do fine, and the parent companies are cutting back on selling LTCI simply because of fears about the future, or paranoia about media coverage of competitors in the LTCI market, or some kind of clever plan to kill off the old type of LTCI and bring in a new, more profitable type of LTCI coverage.

But, to me, it doesn’t look as if insurers are flooding into the LTCI market to take advantage of the high new prices. It looks as if rigid restrictions on rate increases are contributing to scaring insurers away from the market altogether.

Certainly, insurers should not charge consumers through the nose to assume risk what the insurers’ privately believe to be hyped-up risk, then, effectively, back out of the deal when it turns out that the “hyped-up risk” has turned out be a real risk that is generating more claims than expected.

If you sell life insurance, be prepared for policyholders to die.

If you sell LTCI coverage, be prepared for the policyholders to get old, hang on to their policies, and have trouble with 2 or more activities of daily living.

But, in the long run, it looks as if LTCI carriers might be facing the same general problem that society as a whole is facing: Rigid, sweet-sounding promises based on overly optimistic projections about the economy.

Governmental employers have promised unsustainably rich pension and retiree health benefits.

The federal government has promised unsustainably rich Medicare hospitalization benefits and given workers the impression that it has committed itself to finding a way to maintain the current level of physician services and prescription drug benefits.

LTCI carriers promised, or seemed to promise, a level of long-term care (LTC) benefits based on assumptions made when no one knew much about how the LTCI market would work.

Making rosy promises sounds very nice, and both salespeople and generous-feeling regulators might egg the underwriters on. Promising that a carrier will maintain steady LTCI prices no matter what and pay claims no matter what sounds so much nicer than admitting that, if the economy really, truly tanks, no one is going to pay much of anything, except maybe a measure of sugar to the guy in the burned out cellar next door who has some extra wild dandelion greens.

But I think that all organizations, including LTCI carriers, have to be more careful about making promises, and that regulators have to be more flexible about letting insurers that made promises and erred adjust prices to compensate for the mistakes.

If LTCI carriers were the only ones who goofed, maybe it would make sense to throw the regulatory book at them. But it seems as if a lot of folks made comparable mistakes.

Instead of going out of our way to punish those horrible folks who made the mistakes, maybe it would be better to adjust what can be adjusted to reflect how the world really is, provide safety nets for the consumers seriously hurt by the adjustments, admit that what’s irreparably broken is irreparably broken, encourage the people directly responsible for foolish policy promises and foolish policy prices to go into other lines of work, and move on.

Focus on bringing a stronger new LTCI market to life instead of whipping what’s left of the old market.


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