Regulators debate who would pay and how much in LTC rate review plan
One of the biggest hurdles to setting long-term care rate review policy is how to fairly assess the increases, regulators say.
The Long-Term Care Actuarial Working Group went back to work at the issue Tuesday, meeting again to try and find common ground on a uniform LTC rate review policy. The National Association of Insurance Commissioners have struggled for several years to develop a singular multi-state actuarial (MSA) rate review framework.
Regulators are now working off a list of eight recommendations developed with “apparent consensus.” The group spent more than half of Tuesday’s call on the first item: “Generally have lower rate increases for those at very advanced ages with high-duration policies that have had substantial past rate increases.”
William Leung is a life and health actuary with the Missouri Department of Insurance, Financial Institutions & Professional Registration. He took issue with the explanation for recommendation one.
“Just because a policyholder is a high duration and we put out a statement, which appears to say that just because they are high duration [policyholders] they deserve to have a high rate increase,” Leung said. “I think that’s not fair to those policyholders.”
LTC insurance is needed but has a long and troubled history of inaccurate assumptions. Many carriers have either left the LTC business entirely, are seeking repeated rate hikes, or both.
What is ‘advanced age?’
Just determining what constitutes an “advanced age” could be difficult to assess, some regulators said.
“I would prefer not to create a cliff and have a situation where 84-year-olds are getting much higher rate increases than 85-year-olds,” noted Fred Anderson, chief life actuary for the Minnesota Department of Commerce. “So if possible, I’d like something to be gradual.”
In December, the working group heard presentations by Texas and Minnesota regulators about their very different approaches to LTC rate hike requests.
The Texas approach relies upon a formula intended to prevent the recoupment of past losses by calculating the actuarially justified rate increase for premium-paying policyholders based solely on projected future claims and premiums.
The approach ensures that active policyholders do not pay for the past claims of policyholders who no longer pay premium. A “contract reserve” is the key.
Minnesota developed a cost-sharing formula that weighed the impacts on both policyholders and financially vulnerable insurers, Anderson said in the December meeting. Minnesota regulators worked with attorneys on “cost-sharing” concepts that sought to fairly distribute the cost burden, he added.
Rate review pacing
A big reason the working group formed is to address the inconsistency and unfairness creeping into the LTC insurance premiums being set by states using wildly different processes. Many of those LTC products that are failing actuarily were sold nationally.
The working group pondered how to handle the inconsistent state rate actions to this point, debating the possibility of a “catch-up provision.”
“The current goal is to just get every state at the same rate if that’s justifiable,” Anderson said. “It still leads to a lot of strain in the states where there have been low rate increases in the past. If your neighboring state has approved 200% rate increases in the past and you approved only 50[%], obviously, you’re going to have a lot of catching up to do.”
Michael Muldoon is chief actuary for the Nebraska Department of Insurance. His state is “in great support” of the catch-up provision, he said.
“If my state’s policyholders for the last 10 years have been paying 200% higher rates than another state, just moving that other state up to my rate level fixes things going forward,” Muldoon said, “but it doesn’t do anything about the fact that policyholders in my state have been paying way more.”
Tomasz Serbinowski, actuary with the Utah Insurance Department, said he favors letting the big states take the lead. Smaller states should accept the average of whatever rate increases LTC insurers get in the 10 states where they do the most business, he said as an example.
“If Florida, Texas, California, and New York are willing to agree on anything I’ll sign off on it. I won’t even review it,” Serbinowski said. “I don’t see why Utah policyholders should be treated differently than those in New York, California, Florida and Texas.”
InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.
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