Little progress for regulators on LTC rate review standard

Regulators are trying to establish a consistent rate review process.

By John Hilton

Regulators from Minnesota and Texas handle long-term care (LTC) rate review requests very differently, but is one method better than the other?

A National Association of Insurance Commissioners' working group came no closer to deciding that key question Thursday after presentations from both states. The Long-Term Care Actuarial Working Group is trying to deliver a uniform LTC rate review plan.

NAIC regulators have struggled for several years to develop a singular multi-state actuarial (MSA) rate review framework. Texas and Minnesota are recommended rate review approaches, but regulators want to settle on a single process.

"The MSA Team does not want to continue to use the Texas and Minnesota approaches if they produce illogical results and result in untimely rate increase approvals, and the Working Group wants to have a single methodology in use soon," the working group reported in minutes from its August meeting.

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.

The Texas LTC approach

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 premiums. A "contract reserve" is the key.

"The premium that you need in the later years, that's when the claims occur is going to be much greater," explained Michael Markham, senior actuary and director at the Texas Department of Insurance. "That's why you have to have a contract reserve to cover that deficiency. The contract reserve acts as a savings account to offset the higher needed premiums that you have in the later years."

Minnesota approach

Minnesota developed a cost-sharing formula that weighed the impacts on both policyholders and financially vulnerable insurers, said Fred Andersen, chief life actuary for the Minnesota Department of Commerce.

Minnesota regulators worked with attorneys on "cost-sharing" concepts that sought to fairly distribute the cost burden, Andersen said.

"The first few years we used to ask like 50 questions of the companies and one of them was, 'If you have evidence that consumers were alerted, that rates might double or triple overtime, provide that and maybe we won't give you as much cost sharing burden,'" Andersen recalled. "But no companies were able to provide that evidence."

The "if-knew" concept estimates a premium that would have been charged at issuance of the policy if present information on factors such as mortality, lapse, interest rates, and morbidity was available then. The "makeup" concept is for a premium to be charged going forward to return the block to its original lifetime loss ratio.

The working group spent over an hour discussing the two state approaches but ended no closer to any decisions. But regulators left the last word to Bonnie Burns of California Health Advocates.

"What I'm asking you to do is to keep at the top of your thoughts, the people that will end up paying these premium increases," said Burns, an LTC consumer advocate for many years. "Because the effect of that is not just on that individual who has to either pay it or not pay it. It also affects their families."

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.

InsuranceNewsNet Senior Editor John Hilton has 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.