NAIC Considers LTCi Policyholder ‘Buyout’ Options

By John Hilton

Offering long-term care insurance policyholders a buyout option in lieu of rate increases might be a short-term answer, but regulators are not sure it's the best long-term solution to burdensome rate increases.

The Long-Term Care Pricing Subgroup conducted a call Wednesday to hear a presentation by trade groups on how such a buyout option might work. The subgroup was given the charge to look at LTCi pricing issues by the National Association of Insurance Commissioners.

Historically, buyouts have not been offered policyholders facing a rate increase, said Jan Graeber, senior actuary with the American Council of Life Insurers.

The idea emerged when buyouts were approved by a judge overseeing the insolvency liquidation of two long-term-care insurance units of Penn Treaty American Corp., based in Allentown, Pa. Since then, at least one other carrier is proposing what could be viewed as a buyout option, the Society of Actuaries reported earlier this year.

If used as regular policy, it's "unclear" how a buyout option would affect the carrier risk associated with LTCi policies, Graeber told the subgroup.

"What is clear is that the risk will be different for each company and potentially between different blocks of business within the same company," she explained. "So as a result, any decision to offer a buyout option to long-term care policyholders should really be made at the block of business level by each carrier."

Rate increases have been a controversial aspect to LTCi products. According to data collected by S&P Global Market Intelligence, regulators approved at least 243 LTCi rate hikes during the fourth quarter of 2019, which could lead to insurers collecting an additional $119.6 million in calculated written premiums across the country.

Graeber was joined by Ray Nelson, consultant with the America's Health Insurance Plans trade group. They discussed issues such as guiding principles, morbidity risks, legal and tax considerations and anti-selection potential in a short presentation.

Legal and discrimination considerations are real concerns with offering LTCi buyouts, Graeber said.

A slide from a presentation by the American Council of Life Insurers and America's Health Insurance Plans shows risks association with offering LTCi buyouts.

"One of the thoughts that's been discussed is that the buyout should be a return of premium," she explained. "But if this is the case, then you have to take into account what happens if a carrier had policyholders that actually purchased a return of premium rider."

Someone who takes a buyout and then suffers an event soon after that would have triggered benefits could also create an issue, Graeber said.

"Could a family member come back and say 'Hey, you know, my parent was not cognitively aware enough, was impaired, and was not in a position to understand the buyout and what that meant?'"

Only One Size?

Paul Lombardo, director of the life and health division at the Connecticut Insurance Department, said regulators actually prefer one size fits all, or close to it. So presenters' suggestions that no one answer would apply across companies and policies "will cause concern," Lombardo said.

"We like to have things somewhat consistent," he added. "We like to have a general recipe for what we're looking at and what we can determine to be fair and what's not fair to an existing policyholder that maintains their contract and a policyholder that chooses the cash buyout. There needs to be fairness on both ends."

The subgroup needs to take a step back and make sure it is considering all of the important variables, Lombardo said. More calls are planned, possibly inviting carriers in to provide input.

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.