Regulators agree on single LTC rate review, punt cost-sharing details

Image shows the letters LTC and people in shadows — Regulators say long-term care rate hikes need to be shared between insurers and insureds.

By John Hilton

A state regulator working group agreed Thursday on a single long-term care rate review process based on the Minnesota method. It includes a cost-sharing component to spread the burden of LTC rate hikes.

The vote by the Long-Term Care Actuarial Working Group comes after months of vigorous discussions about how to better harmonize LTC rate requests across state lines. Still, the Minnesota method has critics.

Regulators opted to set aside the cost-sharing details for future meetings. The rate-review strategy will need several more approvals before it is sent to the states for consideration.

"We've known for over a year that the current set of methodologies weren't working," said Fred Andersen of the Minnesota Department of Commerce. "We've kind of seen that also from the industry side. We haven't received any filings in over a year. These blocks are aging and I think people are waiting for something improved and more transparent, more understandable to rely on."

LTCi has a big market but has a long and troubled history of inaccurate assumptions. Many carriers have either left the LTCi business entirely, are seeking repeated rate hikes, or both.

The Minnesota method for evaluating and approving rate hikes tries to strike a balance between not unfairly punishing longtime contract holders and forcing insurers to bear some of the burden as well, Andersen has said.

Minnesota regulators developed its formula in 2015 to keep rate hikes from hitting policyholders 85 and older, those who held contracts 25 years or longer, or from hitting a cumulative 400% or more.

Likewise, regulators do not want new LTCi policyholders paying for the poorly priced products of the past, Andersen has said.

Show us the details

Life insurers are concerned about the rate review details and don't want a hard cap on rate hikes, said Jan Graeber, senior actuary for the American Council of Life Insurers.

"You know that those caps don't really allow us to make any kind of adjustments that are necessary for the future sustainability in the block," she said. "I think it's important to recognize that cost sharing is a compromise. It's a path forward, and we recognize that there are some difficult decisions that states are making when it comes to these higher increases, and the cost-sharing is really meant to address those challenges."

Paul Lombardo is director of the Life & Health Division at the Connecticut Insurance Department. He co-chairs the working group with Andersen.

"We're being asked to ... generate a process that is predictable and consistent and generate a almost a formulaic result that the industry can count on," he said. "That's the balancing act that we're continuing to work with and we'll continue to work with the industry going forward."

Cost-sharing questions

Members of the working group were some of the sharpest critics of the Minnesota approach. William Leung, life and health actuary with the Missouri Department of Insurance, Financial Institutions & Professional Registration, submitted an alternate approach earlier this year.

Tomasz Serbinowski, actuary with the Utah Insurance Department, also found consistent fault with the cost-sharing aspect.

"You can create tons of cost-sharing schemes that are arbitrary, and the choice between one versus the other is not based on [sound principles]," he said. "People are voting for a proposal strictly based on maybe gut feeling, or maybe what rate increases they think it's going to allow. I don't think that's a very good process to go by."

Serbinowski did make the motion to adopt the Minnesota approach after being assured that the cost-sharing details will be finalized in future meetings.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.