New Research Warns Consumers On Long-term Care Insurance Policies

A new survey of long-term care insurer rate increases offers a rare glimpse into an insurance sector with a history of problems for consumers.
Long-term care insurance (LTCI) is a relatively new type of insurance. For most of its 50-year history, insurers made overly optimistic assumptions about key factors in the price of their policies, including:

• how much to charge for policies
• how many policyholders would keep their policies in force
• how long policyholders would live
• how many policyholders would need long-term care during their lives and for how long
• the yield insurers would earn on their investments

Because the insurers’ assumptions turned out to be wrong so often, they have gone to state insurance regulators to request approval for price increases, as allowed by the policy contracts. Milliman, a national actuarial firm, recently released the results from a voluntary survey of 20 insurance companies that have asked for a rate increase. A few highlights:

• Most rate hike requests received full or partial approval.
• The average approved increase was 29%, with a range from 5% to more than 60%.
• Companies that request a rate increase also provide reduced benefit options, including reduced daily benefits, reduced benefit periods, increased elimination periods, and reduced inflation protection. Only about 11% of policyholders elected a reduced benefit option.
• Many companies also offer a reduced paid-up benefit, with no further premiums due, but fewer than 5% of policyholders elected this option.
• Cash buyouts are under discussion but are not yet common.
• The review process and the results vary by state. A National Association of Insurance Commissioners task force is developing a multi-state process to encourage uniformity and efficiency.

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