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Massachusetts regulators eye LTCI rate options

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The Massachusetts Division of Insurance is starting to hold meetings on methods for stabilizing long-term care insurance (LTCI) rates.

The division is holding the meetings to implement a law created by state Senate Bill 2359, a LTCI rate stability bill based on the National Association of Insurance Commissioners’ Long-Term Care Insurance Model Act.

The bill — which was backed by a representative of the Massachusetts Association of Health Underwriters during a hearing that took place i 2011 — replaced a homegrown rate rate review law that required LTCI issuers in the state to try to have a loss ratio of at least 60 percent over the life of a policy.

Insurance division regulators are supposed to develop new rate stabilization methods using strategies described in an actuarial report that the division commissioned in 2009 and input from a working group.

In the 2009 report, consultants from Gorman Actuarial L.L.C. concluded that there is significant variation in how states go about reviewing and trying to stabilize LTCI rates. 

About one-quarter of the 30 states studied had formal LTCI rate increase limits, and some states focus on what has happened to date, rather than looking at an insurer’s projections about what seems likely to happen in the future, the consultants said.

One challenge is that claims costs tend to be low for a new, carefully underwritte LTCI policy, and immediate cash profits on a new LTCI policy tend to be high.

“If an insurance company has  been profitable on a policy to date, it makes it difficult for a state regulator to approve a substantial  increase,” the consultants said.

“Finally,” the consultants said, “there is a general consensus among states that long-term care insurance companies need to take responsibility for their actions and that the insurance companies should not pass on all of  the loss to the policyholder.”

Some states think that, “in order to  ensure that long-term care insurance is viable in the future, it is prudent to review an insurance  company’s financials and its ability to absorb losses before making a decision on requested rate  increases,” the consultants said. “Only a handful of states mentioned reviewing company financial reports.”

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