Group Calls Illinois Bill Capping Premium Hikes ‘Ridiculous’

An insurance group is opposing new legislation under consideration by the Illinois state House that would impose a 15% annual cap on premium rate increases on new and existing long-term care insurance regardless of age or benefit configuration.

The bill, HB 2333, was proposed by the Illinois Department of Insurance. Rep. Robyn Gabel is the lead sponsor of the bill, which has been sent to the House Rules Committee.

Long-term care insurance is typically purchased by the elderly and disabled, as well as those suffering from chronic physical illnesses. The department estimates there are 10 million people who need long-term care nationwide, as many as 6 million of those being 65 or older. The department argues that despite such policies being sold at “level” premiums that would not increase based on age or health situation, policyholders in Illinois who have been paying for more than a decade find their premiums have jumped dramatically.

“State regulators have no discretion to limit premium increases if the rate filing meets standards, so we set out to change the law to further protect consumers,” said DOI Director Andrew Boron in a written statement. While insurance companies did not break the law when they raised long-term care insurance rates, “it seems unconscionable to charge such exorbitant amounts of consumers who are often retirees living on a fixed income,” his statement said. Policyholders are left with either paying now or facing the possibility of having no long- care coverage when it is needed, he said.

The bill would take effect immediately upon being signed into law.

Some insurance industry officials were upset by the cap proposal being applied to both existing and future long-term care premiums. “It’s ridiculous,” said Jesse Slome, executive director at the American Association for Long-Term Care Insurance, a California-based group representing agents and brokers. “It’s forcing insurance companies to lose money.”

Regulations on new policies approved by the National Association of Insurance Commissioners make new policies less exposed to rate increases, Slome said. Older policies tend to be the ones where rate increases are necessary, he said. “Companies will only stay in the business if they can generate some sort of acceptable return. And when states force more regulations and limitations onto insurance companies, insurers exit the market and turn the risk for long-term care over to taxpayers,” he said.

Long-term care insurance rates typically do not increase annually, but after a policy has been in force for years, Slome said. The bill as written could result in rate increases for those not normally subject to them as insurers try to comply with the annual cap, he said. The bill does not give insurers an option of enabling consumers to pay the same rate in the short-run in exchange for future increases, Slome said.

Slome said he understands states' responsibility to protect consumers. "No politician has ever lost an election by attacking an insurance company," he said. "It's easy to look and say 'Look at how we're protecting the consumers.' But at the end of the day, free businesses are not obligated to provide products that are significantly unprofitable. [Passing this bill] would have repercussions, and ultimately the long-term burden would be placed on taxpayers."

Attempts to reach officials at the American Council of Life Insurers were not immediately successful.

Despite the Illinois concerns about long-term care rates, increases are sought in other states. Allianz Life Insurance Company of North America asked Pennsylvania insurance officials to approve a 25% premium rate increase on individual long-term care insurance policy forms and riders, policies the company has stopped marketing (Best’s News Service, Dec. 28, 2012).

(By Thomas Harman, associate editor, BestWeek)