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5 regulator questions about long-term care insurance prices

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A Minnesota insurance regulator is trying to help colleagues around the country improve the way they talk about the painful, controversial process of reviewing requests for long-term care insurance rate increases.

Related: Regulators consider fast LTCI rate review process

The regulator, Fred Andersen, is the chief life actuary at the Minnesota Department of Commerce. Before he joined the Minnesota department, in 2014, he spent 16 years inside New York state’s notoriously tough insurance regulation operation. He is now a member of the Long-Term Care Pricing Subgroup at the National Association of Insurance Commissioners.

He has prepared a list of questions to guide regulators’ LTCI rate review discussions.

The subgroup is using the list to prepare for a conference call meeting set to take place Wednesday.

The subgroup is continuing efforts to resolve the difference between the LTCI rate increase accepters and the LTCI rate increase resisters.

LTCI issuers, and the state regulators who support them, say that the LTCI issuers have a desperate need to increase rates on old blocks of in-force LTCI business, by 50 percent or more, to keep LTCI units stable. The insurers and regulators on that side say interest rates and investment earnings have been lower than issuers could have expected when they wrote the business, and that policyholders turn out to use the benefits much more than insurers had expected.

The resisters argue that big increases cause hardship for consumers who were responsible enough to insure themselves against long-term care risk, have been paying policy premiums for many years, and may now be retirees with little budget flexibility. The resisters say many issuers knew they were underpricing the coverage when they sold the policies, and that big, giant insurers should be the ones to bear the brunt of interest rate and claim cost surprises, not the policyholders.

States that have gone their own way on LTCI rate reviews include LTCI market giants such as California, Florida and New York.

Because of the state-to-state variations in LTCI rate review processes, some LTCI issuers now treat their success at getting LTCI rate hike requests approved almost as if it were the performance of a hot new insurance product. Genworth Financial Inc., for example, publishes detailed LTCI rate hike request status data every quarter.

The Interstate Insurance Production Regulation Commission, a Washington-based group for state insurance regulatory agencies, tries to cut insurers’ compliance headaches by moving states toward adopting the same requirements for products. Only 33 of the 43 Interstate Insurance Compact member states have adopted the IIPRC standards for LTCI rate change filings, and even some of the states that have adopted the IIPRC standards take their own approach to handling requests for big LTCI rate increases.

Long-term care insurance agents and brokers are in the middle. If you have sold LTCI coverage, you want insurers to treat your customers well, partly because that’s the right thing to do, and partly because you want your customers to have confidence in the insurance products you sell them today. If you bought LTCI coverage yourself, you may have a personal stake in LTCI premium stability.

At the same time, you may see that premiums for other health-related products have increased steadily (or rapidly) over the years; that the impact of having access to private LTCI benefits on quality of life can be enormous; and that the solvency of some LTCI issuers appears to be a major concern.

Related: UnitedHealth to take $350 million LTCI guaranty fund charge

Andersen hopes to encourage productive conversations between the accepters and resisters, by getting them to describe the principles behind their LTCI rate review strategies.

Here’s a look at some of the questions Andersen wants regulators to consider. 

Regulators wonder what they should do when actuarial consultants look inside blocks of long-term care insurance business and find new reasons for despair. (Image: Thinkstock)

Some insurers say consultants have found grim evidence of extra morbidity risk hidden inside blocks of LTCI business. (Image: Thinkstock)

1. New morbidity studies

“Morbidity” is the word actuaries use when they talk about how often people insured by a health-related insurance policy develop the covered health problems.

In recent years, actuarial consulting firms and groups such as the Schaumburg, Illinois-based Society of Actuaries have published new, detailed LTCI insured morbidity data.

Some insurers have added cash to their LTCI reserves because of the morbidity studies. Some have pointed to the studies when applying for LTCI premium increases. Some regulators have wondered about the possibility that the studies might exaggerate LTCI morbidity risk problems.

Andersen asks regulators to describe the kinds of evidence an insurer should have to provide to justify a rate increase based on a consultant’s new LTCI morbidity study.

Related: Why that new LTCI experience study matters

 When the number of a lives in a very old closed block of business dwindle, performance may look much worse. (Image: Thinkstock)

Even an insurer that got out of the LTCI busines years ago might have a small old block of LTCI business on its books. (Image: Thinkstock)

2. Shrinking blocks

Even many insurers that got out of the long-term care insurance business when Bill Clinton was president have small blocks of LTCI business on their books. Small, older LTCI blocks are different from big, relatively new blocks.

An insurer might have shrunken LTCI blocks either because it left the LTCI market, or because it has gone through several different generations of LTCI policies, and it has put holders of the old, discontinued policies in separate blocks of business for accounting purposes.

The insurer might have sold each type of policy to tens of thousands of consumers, but it might now have just a few hundred, or a few dozen, holders of some types of policies. Because those blocks of policies are old, most of the people insured by the policies are old. If a block of old LTCI policies sold before 1995 now has only 50 policyholders, and most of those policyholders are over the age of 80, the cost of LTCI benefits for the people covered by the policies might be much higher than the revenue coming from the block, simply because of the nature of a shrunken old block.

Andersen asks colleagues to talk about how they think regulators should handle the ‘shrinking block’ issue.

He asks whether states should cap rate increases, or set special rate rules when an insurer combines a shrunken block of LTCI business with a bigger block.

“What criteria should be used to defend similarities among forms that would allow or disallow combinations?” Andersen asks.

Related: Humana faces $401 million loss, and Medicare headaches

One open question in the minds of regulators is whether everyone is better off with one big rate increases, or a series of individually reviewed rate increases. (Photo: Thinkstock)

Some regulators think issuers should phase in big LTCI rate increases in stages, and go through a separate review process for each stage. (Photo: Thinkstock) 

3. Stages

One hot topic among insurers and regulators is how to handle requests for very big long-term care insurance rate requests.

If, for example, an insurer says it needs to increase rates by an average of 60 percent, should it simply increase rates 60 percent all at once, or get firm preapproval to increase rates by 20 percent per year for three consecutive years?

Or, should a state approve an increase of only 20 percent, then tell the insurer to keep coming back to justify requests for any additional increases?

If a state anticipates the possibility of an insurer phasing in a big LTCI rate increase in stages, “how should this approach be communicated with policyholders?” Andersen asks.

Related: Florida works out LTCI rate agreement and Massachusetts makes long-term care insurance rate deal

In some cases, issuers of long-term care insurance and their regulators have to think about what conditions might be like in 2067. (Image: Thinkstock)

Issuers of long-term care insurance and their regulators have to think about what conditions might be like decades in the future. (Image: Thinkstock) 

4. 50-year projections

Insurers that sell ordinary individual major medical insurance think mainly about what will happen to claims for flu and diabetes in the coming calendar year.

Insurers that sell deferred annuities, disability insurance or long-term care insurance have to think about benefits payment streams that might start many years after a product is sold and last for many years.

The trustees of the Social Security program, for example, try to come up with projections for what investment returns and other important variables might be like in 2090.

Andersen notes that, in requests for long-term care insurance rates, insurers often point to serious concerns about what conditions might be like decades in the future, even though the actual policy claim rate has been lower than originally expected.

“How can states get comfortable with 40- or 50-year projections to justify a rate increase?” Andersen asks.

Related: Medicare trustees look ahead to the year 2090

Traditionally, some regulators have expected insurers to eat investment losses. (Image: Thinkstock)

Traditionally, some regulators have expected insurers to eat investment losses. (Image: Thinkstock) 

5. Investment returns

Andersen puts a spark to regulators’ explosive views on this issue with one simple question: “Should lower-than-expected investment returns factor into the justification for a rate increase?”


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