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Long-Term Care Insurance

Last Updated 10/5/2020

Issue: The long-term care insurance (LTCI) market has evolved significantly since the introduction of LTCI in the 1960s. In the past decade, the market has grown from covering fewer than three million lives to now covering approximately 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, the number of insurers offering LTCI coverage has decreased from slightly over 100 in 2004 to about a dozen in 2018. Additionally, premium rates for newly-issued policies have risen as the remaining writers have refined their pricing.

LTCI policies incorporate a number of long-term care (LTC) 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 limited LTC services. As our population ages, the need for LTC support and services will increase and require innovative new approaches. More on this topic and other issues related to the aging population can be found in the presentation videos for the CIPR's June 16, 2015 symposium, Boom or Bust? A Look into Retirement Issues Facing Baby Boomers.

The decision to purchase LTCI and the premium charged may be influenced by one's age and life expectancy, gender, family situation, health status, income and assets.

  • Age and Life Expectancy: The younger you are when you purchase an LTCI policy, the lower your premiums will be. The longer one lives, the more likely the need for LTC.
  • Gender: Women are more likely to need LTC, because, on average, they have longer life expectancies than men.
  • Family Situation: If a family member is not available to provide care, paid care, provided inside or outside the home, may be the only alternative.
  • Health Status: A family history of chronic or debilitating health conditions could indicate a greater probability of requiring LTC in the future.
  • Income and Assets: An LTCI policy may be used to protect accumulated assets. Some experts recommend LTCI premiums should not exceed five percent of income.

There are several ways to purchase coverage in the LTCI market:

  • Individual Policies — Most LTCI policies are purchased by individuals through insurance agents. Benefits provided by individual policies can vary among different insurers. Each insurer may also offer policies with different combinations of benefits.
  • Group Policies — Some employers offer group LTCI coverage to their employees. Employer group plans generally offer a base plan of benefits with less stringent underwriting than for individual policies, and sometimes offer enhanced benefits contingent upon additional underwriting.
  • Association Policies — Many associations let insurance companies and agents offer LTCI to their members.  Benefits and underwriting for association policies are generally more like those for individual policies than for group policies.

The primary challenges for insurers and state insurance regulators in LTCI markets come from older issue year policies. These policies were initially priced when LTCI experience used to calculate rates was not fully developed. As experience developed, it became apparent that the initial pricing assumptions for the number of policyholders qualifying for LTC benefits, and the length of time claimants would remain on claim, were understated. Additionally, actual policy lapse rates proved to be much lower than initially assumed, resulting in higher insurer exposure to claims payments. Misestimation of initial pricing assumptions has made it necessary for insurers to increase LTCI rates to ensure their future solvency.

The analysis of decades of experience generated by older issue year policies has enabled LTCI insurers to more accurately price newer issue year policies, making rate increases to them far less likely, and of a lesser magnitude.

Status: State insurance regulators are working to improve LTCI rate increase review and approval processes, enhance insurer reserve adequacy, and facilitate innovative product offerings.

The NAIC formed the Long-Term Care Insurance (EX) Task Force in 2019 under the Executive Committee, with a focus on nationwide LTCI rate increase coordination and consistency. The Task Force is charged to : 1) develop a consistent national approach for reviewing LTCI rates that results in actuarially appropriate increases being granted by the states in a timely manner and eliminates cross-state rate subsidization; and, 2) Identify options to provide consumers with choices regarding modifications to LTCI contract benefits where policies are no longer affordable due to rate increases. Three subgroups, the Long-Term Care Insurance Financial Solvency (EX) Subgroup, the Long-Term Care Insurance Multistate Rate Review (EX) Subgroup, and the Long-Term Care Insurance Reduced Benefit Options (EX) Subgroup, were formed in Summer 2020 to assist the Task Force in completing its charges.

The Long-Term Care Actuarial (B) Working Group, Long-Term Care (B) Pricing Subgroup, and Long-Term Care Valuation (B) Subgroup are evaluating proposals related to LTCI rate stability for existing policies; developing a new mortality standard for LTCI reserves based on the 2012 Individual Annuity Reserving Tables; developing new tabular voluntary lapse standard for LTCI reserves; 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 took 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. In 2020, the Task Force will consider a review of the NAIC Long-Term Care Insurance Model Act (#640) and Model Regulation (#641).

The LTCI benefit obligations 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, 2019 on The State of Long-Term Care Insurance. The current state of the LTCI market, new product and funding innovations, and regulatory initiatives were discussed at the event.