One of the quirks of the market for stand-alone long-term care insurance (LTCI) is that LTCI hold on to their policies with an iron grip, even when the issuers impose big rate increases.
LTCI policy persistency rates have been much higher than insurers assumed when they set the rates for the prices sold before 2000.
In some cases, LTCI issuers have implemented big rate increases without getting much public attention for the increases, let alone big spikes in policy lapse rates.
In Virginia, however, the Virginia Bureau of Insurance has received more than 60 responses to a request for public comments about LTCI rates.
The bureau has received nine separate LTCI rate change requests so far this year, for blocks of policies ranging in size from 45 policies to 8,645 policies. The minimum rate changes requested in the nine filings would actually be a decrease of 30% to 40%, but the average changes requested would be increases of 25% to 105%.
The comments were due April 22. The bureau plans to hold a public hearing on LTCI premiums at 10 a.m. May 21 at its offices, in Richmond, Virginia.
Most of the commenters appear to be ordinary state residents with little knowledge of how LTCI and LTCI rate reviews work. In some cases, they ask for responses to the rate increase requests that are already common in Virginia or in other states. But the comment letters may show a little of what might be in the backs of regulators’ minds as they’re reviewing the rate change applications.
Here are seven things people are saying in the comment letters.
1. The real problem is the underlying cost of care.
Robert Whittaker, a resident of Providence Forge, Virginia, wrote to say that he believes an LTCI rate increase request for, for example, 339.6% is understandable, given how high the cost of nursing home care is.
“Not that I want to have to pay it, but they [insurers] have little or no way of controlling the never ending rising cost any more than I do from the health care providers,” Whittaker writes.
2. ‘Please do not allow this injustice.’
Many more commenters have written to say simply that letting insurers impose large LTCI rate increases is wrong.
Aileen Weber, a resident of Williamsburg, Virginia, writes that she and her husband are now 78 and bought their LTCI coverage when they were in their 50s.
“Never did we think there would be a BREACH of TRUST such as is being proposed,” Weber writes.
3. The rising cost of long-term care services shouldn’t matter.
Charles Ford of Virginia Beach writes that the argument that LTCI premiums are rising because of the rising cost of long-term care services is absurd.
Ford notes that LTCI is structured so that the policy benefits depend only on the premiums and inflation adjustments, not on the underlying cost of LTC services.
4. Insurers ‘knew the costs and risks.’
Some of the commenters, such as Clinton Vollono of Virginia Beach, Virginia, say LTCI issuers should take responsibility for the pricing problems.
The insurer “knew the costs and risks,” Vollono writes.
5. The issuers knew they were going to ask for rate increases from the beginning.
Bob Woods, a financial planner in Chesapeake, Virginia, says he has been selling insurance since 1976 and always resisted calls from his carrier to sell LTCI. He says the pressure to exaggerate the threat of catastrophic long-term care costs “got so onerous and obvious that some of us took to calling the product and the tactics ‘long term scare’ insurance.”
Woods recalled that he was assured by the company that the company had done extensive research on LTCI, and that the rates would be stable.
“But the thing that really raised a red flag to me was there were no guarantees in the policies,” Woods writes. “The companies left the back end of the contracts open… in other words the premiums could be raised at the company’s whim. The reason this gave me pause is in my 43 years of experience that every single type of product from the insurance industry that has had an open ended premium clause ultimately exercises that clause. This tells me that the company had, in it’s mind, that that clause WOULD BE exercised… from the get-go!”
6. Make insurers use profits from profitable lines to hold LTCI rate increases down.
Insurers often follow the principle that customers with an insurance product of one type should not have to subsidize customers with other types of insurance products.
Some Virginia residents have told regulators that regulators should require LTCI insurers with profitable products to use money from those products to hold down LTCI rate increases.
William Johnson of Arlington, Virginia, is one of the commenters who makes that case.
“Why should the State allow a bail out without consideration of the total corporate picture, including profits above expectations on other product lines (eg, life insurance),” Johnson writes.
7. At least give the issuers’ ‘skin in the game.’
In the health insurance market, policymakers refer to sharing some of the actual cost of care with the insureds as giving the insureds “skin in the game.”
Frank and Jean Palmieri, who are residents of Virginia, say regulators should give LTCI issuers that are seeking LTCI rate increases share in the pain related to the increases.
Regulators “could grant premium increases, but require the insurance companies to cover part of their shortages from reserves,” the Palmieris write.
Links to the Virginia LTCI rate increase comment letters are available here.
— Read Agents Optimistic About LTCI Sales: AALTCI, on ThinkAdvisor.