Regulators Eye Rules for 600% Long-Term Care Insurance Rate Increases

What You Need to Know

For some policyholders, current premiums may be five or six times higher than what they were originally.
Insurers say they have an obligation to keep blocks of LTCI business solvent.
Texas regulators say big rate increases may do more to cause policy lapsation than to improve block solvency.

State insurance regulators are trying to develop multi-state rules for responding to long-term care insurance pricing meltdowns.

The Long-Term Care Actuarial Working Group, an arm of the National Association of Insurance Commissioners, is trying to come up with one approach that one team could use to review long-term care insurance rate increase requests for many different states.

One question is how a multi-state review team should proceed if an insurer will end up charging rates today that are many times higher than the original rates.

The regulators are looking at proposals that show what would happen if the new rate increase requested by an insurer and the insurer’s previous rate increases add up to 400%, 600% or even 1,000%.

A 400% cumulative increase means that the current premiums will be five times higher than the original premiums.

A 1,000% cumulative increase means that the current premiums will be 11 times higher than the original premiums.

The history: U.S. insurers predicted correctly in the 1970s that the baby boomers would eventually need help paying for long-term care.

The insurers got almost everything else wrong when they priced the long-term care insurance policies sold in the 1970s through the early 2000s, ranging from how likely the policyholders were to keep their policies, to how often insureds would file claims, to how much the investment portfolios that support the benefit obligations would earn.

LTCI issuers once said they would work to hold premiums steady, but critics argued that the issuers were underpricing their coverage.

State regulators imposed rate stabilization rules around 2000 that were supposed to reduce the need for rate increases.

Since then, insurers have responded to discoveries about incorrect pricing assumptions and inadequate prices by asking regulators for wave after wave of rate increases.

The NAIC is trying to set up one central body that would speed up and standardize the LTCI rate increase process, by having one multi-state panel handle rate change requests for all of the states that would be willing to use the multi-state review process.

The actuarial working group trying to develop a standard rate review strategy has focused on a strategy used by Minnesota, with a specific formula, and a strategy proposed by Missouri that effectively caps cumulative rate increases at 600%.