On January 20, 2017, the Division of Insurance (Division) placed on file amended rate requests from 16 long-term care insurance carriers. The amended rate requests replaced previously filed requests for more than 30 long-term care insurance products issued to individual policyholders that the Division would not approve.
The Division’s action, which covers policies that insure roughly 55,000 long-term care insurance policyholders, limits carriers to rate increases significantly below those that some carriers involved in the agreement with the Division had originally requested.
Rate increases capped at 40% and phased in over multiple years
The agreement reached by the Division with these 16 long-term carriers resolves the dispute over rate increases previously requested by the carriers that ranged from a low of 10 percent to a high of over 300 percent.
Under the terms of the understanding agreement between the Division and the carriers, no carrier will be permitted a rate increase of higher than 40 percent. All increases above 10 percent will be spread over multiple years with annual increases limited to 10 percent. Additionally, the carriers have agreed to new, enhanced consumer protections and options for long-term care insurance policyholders facing rate increases.
“The rates we are placing on file today advance the Division’s dual mission of protecting consumers and ensuring the solvency of the insurance marketplace,” said Daniel Judson, Commissioner of Insurance. “Consumers across the country are facing significant long-term care insurance rate increases. Through extensive and collaborative negotiations with insurance carriers, we’ve been able to place reasonable limits on long-term care insurance rate increases, and empower policyholders with new coverage flexibility and new consumer choices.”
The “conundrum” posed by long-term care insurance policies to the DOI
The agreement on rate increases announced by the Division was a long time coming. In October 2015, the Commissioner, in a speech to the Hampden County Agents’ Association, described the nettlesome problems he faced in balancing the interests of policyholders and insurers on long-term care insurance policies.
At that meeting, he shared with the audience his “brief education on long-term care products” and of how they had been created in the late ’70s, early ’80s, to address an obvious market need. But, because carriers had no prior experience with a long-term care product, they borrowed policy provisions from other products, such as disability and term life, as well as policy persistence and lapse rate estimates.
The original target market for these products are now in their 80s and are incurring long-term care costs substantially higher than originally estimated. As a result of the length of time that consumers are now living, many insurers have huge legacy blocks of business that are actuarially underpriced.
While calling the long-term care rate problem: “a conundrum,” the Commissioner said the Division was, “going to try to resolve the long-term care conundrum before the end of the year  …”
For a more complete report of the Commissioner’s statements, see Agency Checklists’ November 3, 2015 article, Mass. Commissioner Recaps First Six Months On The Job For Hampden Agents
Division’s long-term care insurance information sessions for policyholders
As part of the ongoing process to resolve the “conundrum” of long-term care insurance the Division also had conducted consumer information meetings in Worcester, Hyannis, and Boston in November 2016. See Agency Checklists’ November 8, 2016 article, “Mass. DOI Sets Long-Term Care Information Sessions for November 16th, 17th & 18th”
The stated purpose of these informational meeting was, per the Commissioner, to gain the important, “…input from long-term care insurance policyholders.”
Additionally, the informational meetings, perhaps in anticipation of an agreement with the carriers, was to provide long-term care insurance policyholders, “the opportunity to understand why high rate increases are being requested and what their options are for funding long-term care when they may need it in the future.”
Policyholder protections and options designed to offset rate increases
As part of the Division’s lengthy negotiations with the carriers, Massachusetts policyholders will gain enhanced, uniform consumer protections and policy options for all newly-issued and renewal individual LTCI policies.
These new consumer protection options include:
- Carriers must send policyholders a Division-approved rate increase notice letter and a Division-approved ‘Question and Answer’ document at least 90 days before new rates take effect.
- Carriers must offer LTCI policyholders options to lessen the impact of a rate increase through changes to policy benefits.
- Consumers may choose to alter their LTCI benefits by increasing the period before benefits begin, by reducing their policy’s maximum benefit period, by reducing or eliminating their policy’s inflation protection, and by reducing their policy’s daily benefit amount.
- Carriers must provide a paid-up coverage should a policyholder choose not to renew due to a rate increase.
- Carriers must establish dedicated toll-free phone numbers for their LTCI policyholders to answer consumer questions about the new rates and benefit choices.
Carriers limited by agreement on new rate requests
The Division of Insurance has communicated to the carriers that they may not make another rate increase request for products covered by today’s action before the end of the one-to-four-year rate change period, which varies by carrier. They must also submit a report of their actuarial experience to the Division one year following the rate increase. If a carrier’s claims experience does not justify the rate increase the Division has approved for filing under the agreement, the carrier must reduce premiums to meet that experience.