Introduction and Purpose
This In Brief summarizes the findings of the AARP Public Policy Institute issue paper, Long-Term Care Insurance: An Assessment of States' Capacity to Review and Regulate Rates. When consumers purchase a long-term care insurance (LTCI) policy, their premiums (for a given set of benefits) are determined by their age at time of purchase; younger purchasers pay smaller premiums than older purchasers. Insurers cannot raise premiums for specific individuals, but generally may raise premiums for an entire age block of policyholders (e.g., everyone who bought a given policy at age 55) a concept that is not always understood by purchasers.
Large rate increases, or a series of rate increases over time, raise concern among regulators and consumer advocates because, among other things, they: (1) threaten consumers' ability to continue paying for coverage; and (2) erode confidence in the products being offered by the industry. Accurate pricing ensures consumers do not pay too much or too little for a policy. Underpricing may be even more dangerous than overpricing because subsequent rate increases become necessary to compensate for an inadequate initial price. These rate increases may cause consumers to drop policies in which they have invested substantial resources, often at a time when they will need the coverage the most and have the least ability to absorb an increase in premiums.
State regulation of LTCI premiums may be the only mechanism ensuring accurate pricing, by striving to ensure reasonable premiums and a minimum of rate increases. However, several reports in the last decade question the adequacy of state regulatory efforts, citing insufficient regulatory efforts to protect consumers and chronic shortages of staff and resources.
To address these concerns about price stability in the LTCI market, The Lewin Group was commissioned to conduct a survey of state insurance departments' current practices relating to the regulation of LTCI rates and to assess their ability to effectively regulate the LTCI market.
- All but a few states report reviewing premiums for LTCI, but many states do not require prior approval of premium rates, and the statutory authority for initial and subsequent reviews varies across states.
- Most states fail to gather all the information necessary for a comprehensive review of the factors that affect LTCI premiums.
- Only six states collect all the information needed for justifying rate increases. More states do a thorough job of evaluating initial premium filings: seventeen states request all the necessary actuarial information for initial filings.
- Most states have only limited ability to track trends in LTCI premiums.
- Consumers have little ability to assess the accuracy of LTCI pricing themselves. The survey found that it would be very difficult for the typical consumer to determine whether a premium might increase in the future.
- Only a small number of states exercise their regulatory authority to disapprove premium increases. Only seven states had objected to 10 percent or more of all rate increase filings.
Current practices for regulating LTCI cannot ensure appropriately priced premiums. Therefore, the authors made the following recommendations:
- Require review by an actuary with training specific to LTCI.
- Develop standards for assumptions used to price LTCI that would alert regulators when a new policy has set premiums too low to support the eventual claims.
- Periodically review pricing on all policies being sold, regardless of whether a rate increase has been requested. This would allow regulators to identify under- or overpriced policies and make necessary adjustments sooner, decreasing the probability of escalating rate increases.
- Develop comparative rate guides to help consumers assess available policies.
- Make information regarding an insurer's history of rate increases or the possibility that a rate increase will occur more available to the public.
- PPI Issue Paper #2002-02 February 2002.
Written by Enid Kassner, AARP Public Policy Institute
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
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