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Life Health > Long-Term Care Planning

New Long-Term Care Insurance Rate Pact May Speed Rate Hikes

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What You Need to Know

  • The NAIC posted a draft of the LTCI Multistate Rate Review Framework a year ago.
  • The framework drafting group included representatives from Connecticut, Minnesota, Nebraska, Texas, Virginia and Washington.
  • The ACLI says many insurance department staff members in states testing the voluntary program continued to go their own way.

Insurance regulators in some states are using a new, voluntary strategy for speeding up reviews of insurers’ requests for long-term care insurance premium increases.

Members of the National Association of Insurance Commissioners voted earlier this month to adopt the Long-Term Care Insurance Multistate Actuarial Review Framework.

States that use the framework get help from a team of experienced LTCI actuaries with analyzing rate increase applications. The review team gives each participating state an analysis of the increase application and a set of recommendations, based on the LTCI rate review strategies established by regulators in Minnesota and Texas.

LTCI issuers will still have to file rate increase applications in the participating states, and state insurance regulators will be able to decide whether to accept the review team’s recommendations, according to officials with the Long-Term Care Insurance Multistate Rate Review Subgroup, the body that created the framework.

Although an insurer will still have to seek approvals from each state, the new approach may speed up the process of the application reviews and increase the consistency of the final results, rate review subgroup officials say in the framework introduction.

What It Means

If some LTCI issuers have been waiting until the framework was out to ask for premium increases, and many states move to the framework approach, the birth of the framework could lead to a flurry of new LTCI rate increases.

The framework could also lead to new, more visible battles over LTCI rate increase principles, with the framework states emphasizing the need to keep LTCI issuers solvent, and consumer groups and regulators in other states talking more about whether policyholders with policies from big, multiline, stable insurers should bear the brunt of insurers’ bad policy design and pricing decisions.

For insurance, financial and retirement advisors, the framework could also increase the number of clients asking them what they should do when policy premiums will be increasing by 100% or more.

The Background

Insurers once saw selling long-term care insurance as a way to make money by providing a critical service: helping Americans pay for nursing home care, home care and other forms of care in old age, or when they suffer catastrophic, severely disabling illnesses or injuries before the normal retirement.

LTCI issuers invested the premium payments in high-grade bonds and similar instruments, and they assumed that earnings on the bonds would help cover much of the cost of paying the benefits.

Interest rates fell sharply and stayed down.

Policyholders proved to be more likely to keep policies and use the benefits than the issuers had expected.

Some issuers have failed, and most of the issuers have received permission from state insurance regulators to impose large rate hikes.

Some insurers include statistics on state LTCI increase approvals as a performance measure in their quarterly and annual earnings reports.

Insurers have argued that setting premiums high enough to keep blocks of LTCI business solvent is critical.

LTCI is regulated as a health insurance product, and an LTCI issuer typically belongs to a state health insurance guaranty association, or a life and health guaranty health association. If an LTCI issuer fails, the surviving association members are supposed to make good on the benefits obligations by paying assessments to the association.

When guaranty associations take over an LTCI issuer, they themselves can raise the LTCI premiums, and program rules may limit benefit protection to as little as $100,000 in some states.

Circuit breaker mechanisms limit the size of the assessments the surviving insurers pay each year, to keep assessment costs from causing new insurer failures.

The guaranty system rules mean that a large wave of LTCI issuer failures could lead to delays in access to benefits.

The rules also mean that, in at least some cases, letting an issuer end up in the hands of a guaranty association could lead to worse outcomes for the policyholders than if regulators had approved enough premiums increases to keep the issuer solvent.

Over the years, typical policyholders have kept coverage in place even after premium increases have been implemented.

But, when states hold public hearings on the LTCI rate increases, policyholders often ask why they must cover the premium shortfall, when they believed premiums would hold steady and had no say over the original prices.

Policyholders and consumer groups have also asked why the LTCI issuers that are large, highly rated companies, with relatively small blocks of LTCI business, should be able to pass so much of the burden of pricing shortfalls onto the policyholders.

The Framework Effort

The United States leaves most regulation of the business of insurance to the states.

The NAIC — a Kansas City, Missouri-based group for state insurance regulators — set up the rate review subgroup in 2018, as part of a general, high-level effort to improve LTCI regulation and address the concerns about LTCI issuer solvency.

The team that developed the framework included representatives from Connecticut, Minnesota, Nebraska, Texas, Virginia and Washington. The group could be considered bipartisan: Four of the states have had Democratic governors in recent years, and two have had Republican governors.

The subgroup posted a framework draft about a year ago.

Some states have participated in a framework testing pilot program.

Reactions

The Center for Economic Justice, which has an official role in representing consumers in NAIC proceedings, has questioned the fact that the framework calls for the rate review team reports to be confidential. The group has asked that the reports be made available both to the insurers involved and to members of the general public.

Jan Graber, an American Council of Life Insurers representative, told members of the NAIC’s Long-Term Care Insurance Task Force earlier this month, at an in-person meeting in Kansas City, Missouri, that insurers have reported getting mixed results from the pilot program.

Regulators now seem to know more about the problems LTCI issuers face, and many seem to support the framework goals, but states continue to conduct their own actuarial reviews, and the multistate reviews simply seem to be adding another step  to the review process, Graber said, according to draft meeting minutes.

Graber notes that there is no mechanism pushing states to participate. She said the ACLI would like to see state insurance commissioners start by stating whether they intend to use the framework process, and to see any commissioners that support the framework process ask staff members to support the framework process.

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