A common objection to buying and selling long-term care insurance (LTCI) policies concerns rate stability. Fortunately, much of this fear is unfounded and misunderstood. In fact, I believe the rates on LTCI policies sold today will prove to be more stable than they’ve ever been before.
LTCI policies are considered to be guaranteed renewable contracts. This means that the carrier does have the right to request a rate increase on an existing block of policies through the state department of insurance. Any increase granted must apply equally to all policy owners from the requested class of policies and the carrier must keep the policy in force if the premium payments are made. Changes in age or health have no bearing on the contract premiums once issued; the policy may only be cancelled if premiums are not paid.
Nearly all existing LTCI policies — and some developed as late as 2002 — have had one or more rate increases granted. For contracts created after 2002, only a select few policies have requested rate increases. The year 2002 has special meaning.
Under the National Association of Insurance Commissioners (NAIC) model act for LTCI (also referred to as rate stability legislation) initiated in March 2002, rates for LTCI policies were more strictly and uniformly protected.
See also: LTC Rate Model Adopted By NAIC
First, policy rates for all LTCI products had, for the first time, conservative standards for pricing based upon experience gleaned from the previous 25 years of data. Actuarial standards were then required to be met by all carriers going forward.
A second aspect of this sweeping legislative change was that new policies had to meet — for the first time — strict standards to be granted a rate increase. So while it did take several months to be fully adopted by all states (and in some cases policies were still being offered under pre-NAIC model designs until 2004) the “modern” policies offered today have an entirely different standard in pricing to uphold.
See also: LTCI: A Changing Market
Interestingly, rate stability legislation also had a few unintended consequences. Some carriers were uncomfortable about the legislative oversight imposed under the new law and chose instead, to exit the marketplace completely.
One must also remember that the policies sold prior to the enactment of this NAIC model act did not have any legislative oversight or guidelines to be met regarding rate increases. As a result, virtually all of those “old” policies have experienced significant rate changes. Lastly, those companies that no longer sold new policies were under no pressure from their sales department to maintain a positive presence in the marketplace. In short, rate increases became commonplace.
The question then becomes, what about the future risk of rate increases on “modern” LTCI policies, those under the aegis of the model act? Certainly it must be stated unequivocally that rate increases are still possible. However the reasons for rate increases, specifically lower than needed prices on the policy, are greatly diminished by the new pricing standards.
In addition the amounts of future rate increases to be as high as what has been seen recently are far less likely due to restrictions imposed within the law. The universe of carriers that now offer LTCI contracts are now more limited. Those that are currently offering policies have weathered the past and are more committed to the future given the new standards.