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Long-Term Care Insurance

Last Updated 12/6/2019

Issue: The long-term care insurance market has evolved significantly since its introduction in the 1960s. In the past decade, the market has grown from covering less than three million lives to now covering more than seven million lives. According to the U.S. Department of Health and Human Services (HHS), about 12 million of America's senior citizens will require long-term care by 2020.

Despite the growing need, stand-alone individual LTCI policies have fallen from 372,000 in 2004 to only 60,000 in 2018. Likewise, the number of insurers offering the coverage has diminished from slightly over 100 to about a dozen today. Additionally, premium rates for newly issued policies have risen as the remaining writers have refined their pricing.

LTCI policies incorporate a myriad long-term care service alternatives, including home health care, respite care, hospice care, personal care in the home, services provided in assisted living facilities, adult day care centers and other community facilities. Public programs, such as Medicare and Medicaid, also cover certain long-term care services. As our population ages, the need for long-term care support and services will become increasingly important and require innovative new approaches. More on this topic and other issues related to the aging population can be found by watching the presentation videos for the CIPR's recent symposium, Boom or Bust? A Look into Retirement Issues Facing Baby Boomers, held June 16, 2015. 

As illustrated in the CIPR Study on long-term care insurance, there are two key factors driving life insurance product development: 1) mortality risk; and 2) longevity risk. In recent years, product focus has shifted to address longevity risk as baby boomers reach retirement age at a time when defined benefit pension plans are vanishing. People are now living longer, making the need to pay for long-term care necessary.

The decision to purchase long–term care insurance depends on one's age and life expectancy, gender, family situation, health status, income and assets.

  • Age and Life Expectancy: The longer one lives, the more likely the need for long-term care. The younger you are when you buy the insurance, the lower your premiums will be.
  • Gender: Women are more likely to need long-term care because they have longer life expectancies and often outlive their husbands.
  • Family Situation: If family care is not available, paid care outside the home may be the only alternative.
  • Health Status: Family history of chronic or debilitating health conditions could indicate a greater risk than another person of the same age and gender.
  • Income and Assets: A long-term care policy could protect accumulated assets. Some experts recommend long-term care premiums should not exceed five percent of income.

There are several avenues to pursue purchasing coverage in the long-term care insurance market:

  • Individual policies — Most long-term care insurance policies are sold to individuals by insurance agents. Individual policies can be very different from one company to the next. Each company may also offer policies with different combinations of benefits.
  • Employee policies — Some employers offer a group long-term care insurance plan. The employer-group plan may be similar to an individual policy, with the possible exception of having to meet medical requirements to get a policy.
  • Association policies — Many associations let insurance companies and agents offer long-term care insurance to their members. Like employer-group policies, association policies usually give their members a choice of benefit options. Members can usually keep their coverage after leaving the association.

The primary challenges for insurers and state insurance regulators in LTCI markets relate to unknowns. Longevity and persistency actuarial assumptions on early LTCI products have proven to be inaccurate. Insurers underestimated how long people would live. As it became apparent the actuarial longevity estimates were wrong, the solution of choice seemed to be to raise rates. Another assumption made by actuaries related to persistency—actuaries assumed many people would drop their coverage over time. This proved not to be the case, as dropping a policy meant the consumer would receive nothing in return for premiums paid over time. An additional unknown was the extent of the incidence of cognitive memory disorders such as Alzheimer's disease. People can live for a long time with Alzheimer's disease and similar memory challenges.

Status: State insurance regulators are working to enact protections related to changes in product design and facilitate innovative product offerings. They are also working to respond cohesively to historical problems related to insurer reserve adequacy and solvency. To accomplish this, the NAIC formed a new task force in 2019 under the Executive Committee focused on rate coordination and consistency. The Task Force is charged to : 1) develop a consistent national approach for reviewing LTCI rates that result in actuarially appropriate increases being granted by the states in a timely manner; and, 2) to focus on ensuring consumers are provided with meaningful options to reduce their benefits in situations where premiums are no longer affordable.

In addition, the Long-Term Care Insurance (B/E) Task Force coordinates many aspects of the NAIC's work regarding the LTCI market. In 2019, the Task Force is charged to: 1) evaluate the sufficiency of actuarial valuation standards; 2) evaluate the sufficiency of current financial reporting; 3) assess regulatory considerations on rate increase requests on blocks of business to identify common elements for achieving greater transparency and predictability; and, 4) consider product innovations and potential state and federal solutions for stabilizing the LTCI market.

To achieve these charges, the Task Force and its associated working groups are evaluating proposals related to LTCI rate stability for existing policies; developing a new mortality standard for LTC reserves based on the 2012 Individual Annuity Reserving Tables; developing new tabular voluntary lapse standard for LTC reserves; working with interested parties to determine the appropriateness of a principle-based framework for LTCI valuation; developing regulatory guidance for premium deficiency reserve calculations; and reviewing the newly required filings prescribed by Actuarial Guideline LI–The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51).

Additionally, the Senior Issues (B) Task Force is taking a broad look at recent changes in the LTCI market, including shifts in purchaser profiles, the evolution of products being sold and regulatory goals. The Task Force appointed the Long-Term Care Innovation (B) Subgroup in 2016 to examine the future of LTCI. The Subgroup developed two documents: 1) a list of federal policy changes the U.S. Congress could consider in order to increase private LTC financing consumer options; and 2) a list of private market options for financing LTC services to provide regulators, consumers and others. The Task Force has also updated the NAIC's A Shopper's Guide to Long-Term Care Insurance.

The LTCI benefits of insolvent insurers are covered under the Life and Health Insurance Guaranty Association Model Act (#520). The NAIC membership modified Model #520 in 2017 to allow for the expansion of the guaranty fund assessment base.

The CIPR held an event on December 6th on The State of Long-Term Care Insurance. The current state of the LTCI market, new innovations, and regulatory initiatives were all discussed at the event.


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