Consumers Use Up Washington State's Private LTCI Capacity

Washingston state policymakers tried to protect the private long-term care insurance (LTCI) market when they designed the new WA Cares Fund long-term care benefits program.

Instead, implementation of the program has crashed the state’s private LTCI market.

Most, and possibly all, of the companies that could sell stand-alone LTCI policies, or life insurance policies with long-term care riders, have stopped taking applications from Washington state residents, according to local press reports and the insurers’ own sales suspension notices.

Many insurers began pulling out of the state’s long-term care products market this past spring.

Insurers Try to Avoid Collision With State LTCI Program

One of the last major sources of LTCI coverage in the state was Lincoln Financial’s MoneyGuard program, which combines a long-term care rider with life insurance. Lincoln announced earlier this month that it has stopped accepting MoneyGuard applications in Washington state.

“At this time, there is no set date for the future availability of Lincoln MoneyGuard products in Washington,” the company told agents in a notice. “However, we will continue to monitor the environment and assess next steps as the situation evolves.”

Acacia Insurance Services, which distributes stand-alone LTCI coverage and long-term care hybrid products, has posted a notice at the top of its long-term care products quotes page, in red, capital letters, stating that “***WE ARE NOT ACCEPTING QUOTE REQUESTS FOR WASHINGTON STATE.***

The WA Cares Fund Program

Washington state lawmakers set up the state’s WA Cares Fund program in response to concerns that about one-quarter of people will eventually need long-term care, and that many people end up depending on Medicaid nursing home benefits to pay for nursing home care.

State officials worry about rising Medicaid nursing home spending, because states account for a large share of Medicaid funding. Officials fear that spending on nursing home bills will crowd out spending on acute health care for low-income children and adults.

Executives at some private LTCI issuers have said they would like to see the government work with private insurers to protect more people against long-term care risk.

Lawmakers and state regulators have designed a system that is supposed to use a 0.58% payroll tax to provide up to $36,500 in long-term care benefits for eligible program participants starting in 2025.

The state plans to begin collecting the payroll tax in January 2022.

State lawmakers approved a provision that lets residents opt out of the public long-term care benefits program, and avoid paying the payroll tax, if they buy private long-term care coverage by Nov. 1.

The Application Surge

Insurers have observed that the opt-out provision has led to a big increase in applications that clogged underwriting programs and forced some issuers to communicate in a different way, simply to manage the workload.

Insurers have suggested that much of the business may be low-quality business, and that some of the applicants may intend to drop their LTCI coverage as soon as they can get away without paying for either private LTCI coverage or the new public program.

The Future

When lawmakers and regulators are designing other efforts to combine private insurance with public program benefits, the WA Care Funds story may highlight the need for analysts to assess the risk of new programs sending private insurers too many customers, as well as the risk that the new programs will take away the private insurers’ customers.

(Image: USGS)