LTC ‘Moderately Adverse’ Rate Recommendation Advanced By Regulators

Orlando, Fla.
A motion to advance rate guidance for long-term care business that is deemed ‘moderately adverse’ was advanced so that regulators at the National Association of Insurance Commissioners, Kansas City, Mo., could consider whether changes need to be made to existing LTC regulation.

The motion which passed unanimously after considerable discussion among states defines 'moderately adverse' as being 20 percent of the experience of both the present value of lifetime claims experience and the present value of future lifetime claimes experience.

The vote took place during the October 17 meeting of the Accident & Health working group at the NAIC fall meeting here. It will be considered later today by the Long-Term Care (EX) Task Force.

The discussion among regulators and actuaries underscored the delicate balance of establishing rates that are neither too low nor too high.

Minnesota regulator Julia Philips said that a number of companies she has worked with came up with their own definition of ‘moderately adverse’ experience in the 10 percent range so that the 20 percent rate in the motion would be much higher. She noted that if consumers pay a higher rate and there are fewer increases later that would be a good thing but that if claims experience improves, then they would be paying too much.

Alabama regulator Steve Ostlund, chair of the A&H working group, said that by setting the rate at 20 percent, companies are receiving profit if the moderately adverse claims experience does not materialize.

Florida regulator Dan Keating said that while he did not know if 20 percent was the right rate, he did know that 5-10 percent increases for most companies is too low. Everyone who bought these policies is paying more than 20 percent of what they paid initially were charged for them, he noted.

The motion and the discussion in general reflect the struggle regulators have had with defining ‘moderately adverse’ and putting a number to it, said John Rink, a Nebraska regulator. “Is 20 percent correct? I don’t know but it mirrors the struggle we have had in trying to determine what it is. My feeling is that it may continue to be a struggle.”

California regulator Perry Kupferman said that companies are breaking through the 10 percent rate very quickly.

Bill Weller, representing America’s Health Insurance Plans, Washington, said that while initially a company’s future morbidity claims experience compared with current morbidity may not be 20 percent, if a company waits four to five years until it reaches 20 percent, rate increases will actually be higher. But, he continued, if the increase is allowed sooner, rate increases are likely to be lower.

Bonnie Burns, an NAIC funded consumer representative, said that regulators need to consider “real world effects to consumers.” She offered an example in which a person aged 60 buying a $100 a day tax qualified long-term care insurance contract with a 30-day waiting period could pay a range of premium ranging from $1,123 to $5,548 a year. “That’s an astonishing range for similar benefits,” she said. If that same person was looking for a lifetime policy with the same benefits, the rates range from $962 to $9,725 a year, she added. A lifetime policy is less than the three-year policy of $1,123, she added. The NAIC needs to look at this issue and find out why rates are so diverse, Burns asserted.

California’s Kupferman suggested that Burns read policies for differences, check underwriting standards and check for any differences in contract administration. Burns said that even so, there is still a huge disparity and added that consumers buy long-term care insurance based on price and are not going to look at claims administration or what policy says. She asked what administering a claim means to a consumer.

“The NAIC needs pay attention to fact that there may be companies building in rate increases at the front end through this moderately adverse standard,” Burns cautioned.