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Long-Term Care Insurance

Background

Last Updated: 5/9/2024

Issue: The long-term care insurance (LTCI) market has evolved significantly since the introduction of LTCI in the 1960s. In 2010 U.S. spending on long-term care (LTC) services was about 1% of gross domestic product, but by 2050 that is expected to grow to 3%. According to the U.S. Department of Health and Human Services (HHS), at least half of elderly Americans will need LTC at some point. 

There are now more than 100 companies that offer LCTI nationally, but only 15-20 insurers sell most policies. Additionally, premium rates for newly issued policies have risen as the remaining writers have refined their pricing. 

LTCI policies incorporate several 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. You can find more on this topic and other issues related to the aging population in the presentation videos for the Center for Insurance Policy and Research’s (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 you live, 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, then 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 that LTCI premiums should not exceed 5% 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. Sometimes they 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. 

Actions

State insurance regulators are working to: 1) improve LTCI rate increase review and approval processes; 2) enhance insurer reserve adequacy; and 3) facilitate innovative product offerings. 

The NAIC formed the Long-Term Care Insurance (EX) Task Force in 2019 under the Executive (EX) Committee. Its focus is on nationwide LTCI rate increase coordination and consistency. The Task Force’s mission is to: 

  • monitor and evaluate the LTCI rate review process;
  • monitor and evaluate options to help consumers manage the impact of rate increases; and
  • monitor work performed by other NAIC groups to review the financial solvency of LTCI insurers.

In 2020, the Task Force developed and adopted guidance for the evaluation and communication of reduced benefit options associated with LTCI rate increases. In 2022, the Task Force adopted the Long-Term Care Insurance Multistate Rate Review Framework as a consistent national approach for reviewing LTCI rates that result in actuarially appropriate increases being granted in a timely manner and to eliminate cross-state rate subsidization.

Additionally, the Long-Term Care Actuarial (B) Working Group will: 

  • Provide recommendations, as appropriate, to address issues and provide actuarial assistance and commentary with respect to model requirements for appropriate LTCI rates, rating practices, and rate changes.
  • Continue to develop health insurance reserving requirements (VM-25, Health Insurance Reserves Minimum Reserve Requirements) using a PBR framework.
  • Develop LTCI experience reporting requirements in VM-50 and VM-51.

 Furthermore, 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. In 2016, the Task Force appointed the Long-Term Care Innovation (B) Subgroup to examine the future of LTCI. The Subgroup developed two documents:  

The Task Force has also updated the NAIC's A Shopper's Guide to Long-Term Care Insurance. The NAIC wrote this guide to help you understand LTC and the insurance options that can help you pay for LTC services.

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 Dec. 6, 2019, titled “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. A summary of the event is available here. In 2022, CIPR also issued a report titled "Long-Term Care Insurance Rate Increases and Reduced Benefit Options: Insights from Interviews with Financial Planners".

Long-Term Care Insurance was announced as a 2023 regulatory priority by the NAIC. The NAIC announced that it will examine a transition to a longer-term strategy for LTCI, which will include implementing the Multistate Actuarial (MSA) Review Framework, coordinating with industry to create a more consistent regulatory environment. As a part of this plan, State insurance regulators will also consider additional possibilities for increasing consumer awareness of “reduced benefits options,” to help guarantee consumers receive the benefits they were promised.

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