Regulators take heat from all corners on new LTC rate review proposal

Long-term care insurance rate hike requests represent a longstanding headache for state insurance regulators who desire consistency.

To paraphrase Francis Bacon, sometimes debating the cure can be worse than the disease. It might have seemed so at times on Monday when the Long-Term Care Actuarial Working Group met to discuss a proposal to harmonize LTC rate requests across state lines.

The National Association of Insurance Commissioners has struggled for several years to develop a singular multi-state actuarial (MSA) rate review framework.

The working group heard a proposal from Fred Andersen of the Minnesota Department of Commerce based on what his state is doing to distribute the cost burden for LTCi rate hikes.

It landed among critics that included other regulators, actuaries and the industry it is intended to regulate.

“This is what we believe is a first draft of an ability to come to some level of compromise,” said Paul Lombardo, director of the Life & Health Division at the Connecticut Insurance Department. “Fred and I don't believe and I don't think a lot of people believe that there's a single solution out there that every single company in the industry and every regulator would be supportive of. I don't think that's available right now. No one has come up with that.”

Lombardo and Andersen co-chair the working group. After a lengthy discussion, the group exposed for comment the Minnesota proposal, along with a new counter-proposal made by William Leung, life and health actuary with the Missouri Department of Insurance, Financial Institutions & Professional Registration.

Comments on the two proposals are due to Eric King at [email protected] by Sept. 27.

LTCi rate review formula

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 explained.

Minnesota regulators developed its formula in 2015, Andersen said, with an eye toward keeping 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 added.

"We don't want other peoples' past losses to turn into something that current policyholders need to subsidize. Through the blending, through the explicit cost sharing, we address that issue," he explained.

"The way I see it is the companies, for various reasons, are expected to take a pretty substantial hit," Andersen said. "They currently are with the Minnesota approach, and in most cases, the companies priced this to at least make a little money, and instead, they're losing a lot of money. With the rate increases, they're losing less money for the most part."

Leung was joined by Tomasz Serbinowski, actuary with the Utah Insurance Department, in criticizing what they see as flaws in the Minnesota approach. Insurers could come with "extreme" rate hike requests, Leung said, and the cost-sharing concept would leave policyholders on the hook for their share.

Leung's Missouri proposal includes a couple of key caveats:

1. The cumulative rate increase should be no more than 600% after all the adjustments and cost sharing.
2. Each rate increase filing should not increase the cumulative rate increase by more than 100% from that of the current rate. In other words, the increase should not be more than 100% of the original rate.

Andersen pointed out that Minnesota has handled more than 250 filings using its approach without any issues.

"I think we're trying to find something that reasonably works a vast majority of the time, as opposed to always covering everything all the time," he added.

A math problem

Serbinowski hit on an issue that bothered the actuaries in the room.

"The cost-sharing was always the most arbitrary part of the Minnesota approach," he said. "If it's a non-actuarial public policy issue, I'm not quite sure why the technical actuarial task force is the best place to tackle this."

Regulators proceeded down the LTCi rate-review path agreeing to use "non-actuarial" aspects in an approach that would be considered " actuarial in nature even if historically they were not," as described in meeting minutes from February 2024.

That raised the ire of the American Academy of Actuaries, which submitted a July comment letter on the working group's creative actuarial approach.

"We do not believe that applying retrospective modifications to existing rate regulation of in-force policies, solely for the purpose of reducing actuarially determined rate increases on certain subsets of insureds, can be considered a purely actuarial approach," wrote Andrew Dalton, chair of the AAA's LTC Committee. "We believe that designation of an item as being 'actuarial' in nature should be based on mathematical principles of actuarial science, not policy or pragmatic considerations."

Insurers not happy either

Perhaps not surprisingly, the American Council of Life Insurers was not supportive either. After all, the Minnesota formula requires insurers to share in the financial pain of necessary LTCi rate hikes.

"Consider that companies have been absorbing these additional costs for years, and it's important to be transparent in understanding how much cost sharing is actually taking place," said Jan Graeber, senior actuary for ACLI. "Each time there's a cap on a rate increase, a phase-in of a rate increase, delays, there is an additional cost that companies are absorbing. Despite all the cost-sharing that is already taking place, we are still being asked to share more."

Regulators are doing the difficult work that should have been done 15 to 20 years ago, Lombardo said. Connecticut Insurance Commissioner Andrew Mais, Lombardo's boss and president of the NAIC for 2024, wants more insurers in the LTCi market, he said. That's why the rate-review work must be done.

"We need this market. We need the private sector to start selling," Lombardo said. "We need more entrants into the market, but we can't do that right now, until we get some type of more cohesiveness among the states."

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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.