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Jerry Brown signs long-term care insurance rate bill

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California Gov. Jerry Brown, D., has signed state Assembly Bill 999, a long-term care insurance (LTCI) rate regulation bill that has been in the works for years.

State lawmakers signed off on A.B. 999 in August. 

The law is set to take effect Jan. 1, 2013.

In the past, California business groups have sometimes succeeded with efforts to go to court to block implementation of new state laws, such as a law that would have required large employers in the state to provide health coverage or else pay a penalty.

California has been using an LTCI rate law that was adopted in 2000. The state’s current LTCI rate law sets minimum loss ratios for LTCI policies and requires insurers to get insurance commissioner for LTCI rate increases.

 An actuary working for the insurance commissioner must certify that a requested rate increase is likely to eliminate the need for future rate hikes.

If the law based on the new bill takes effect on schedule and works as bill drafters expect, the new law will require an insurer to get the commissioner’s permission to use low returns on invested assets to justify an increase.

The insurer will have to show the commissioner either that its investment return “is lower than the maximum valuation interest rate for contract reserves for those policies,” or that retroactive changes in laws or regulations have justified a change in interest rate assumptions, according to the bill text.

The law based on A.B. 999 also would limit the ability of an LTCI carrier to use the claims for one group of policyholder to justify a rate increase request. An insurer would have to use the experience for all similar LTCI policy forms issued and retained by an insurer and its affiliates to justify requests for rate increases.

Another provision would put a limit on LTCI rate increases that would be tied to a policy’s lifetime expected loss ratio.

If the lifetime expected loss ratio were “less than the highest lifetime expected loss ratio for the policy form in the initial filing or for requested premium rates” in any filing made after Jan. 1, 2013, the insurer would have to cut the premiums to get the expected loss ratio to be greater than or equal to the highest loss ratio in forms already on file.

Consumers would get a chance to see the LTCI policy language before they bought the policy, and an insurer would have to make a copy of a policy form or certificate form available within 15 calendar days after the consumer asked to see the document.

The state would create an annual LTCI consumer rate guide that would include descriptions of each LTCI product marketed.

A.B. 999 was introduced by Assembly member Mariko Yamada, D-Davis, Calif., and sponsored by California Insurance Commissioner Dave Jones.

Jones put out a statement welcoming the signing of A.B. 999. 

“The rising cost of long term care insurance is one of the most pressing issues facing well-intentioned consumers today,” Jones said in the statement. “What’s most disturbing is the size of long-term care rate increases. They threaten the ability of many seniors, especially those on fixed incomes, to maintain or purchase long-term care insurance.”

Jones has argued that the carriers that created the state’s LTCI market in the 1980s used inaccurate assumptions to develop their rates and set their initial rates too low. 

Long-term care insurance was first sold in California in the early 1980s. Since it was a new product, insurers had no historical experience upon which to rely when setting initial premium rates. As a result, pricing of LTC policies was often based upon what were later found to be inaccurate assumptions. As insurers gained more experience in the market, premium rates increased to compensate for those initial inaccuracies.

Other LTCI market watchers, including analysts at Fitch, have suggested that tight state LTCI rate regulations may have caused a shortage of LTCI, by encourage insurers to leave the market altogether rather than struggling to increase rates to what they believe to be sustainable levels.

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