2013 Long Term Care Insurance Survey
Claude Thau, Thau, Inc.
Dawn Helwig, Milliman, Inc.
Allen Schmitz, Milliman, Inc.
This 2013 Long Term Care Insurance Survey is the fifteenth consecutive annual review of long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions, and analyzes the changing marketplace.
Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of future purchase options or other changes to existing coverage. Stand-alone refers to LTCI policies which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits.
The data includes multi-life groups, which are certificates or individual policies sold with discounts and/or underwriting concessions, but not guaranteed issue, to groups of people based on common employment or affinity relationships. Except where true group is specifically mentioned, comments and data do not include sales of certificates to groups on a guaranteed issue basis.
Comparisons of worksite sales characteristics to overall sales characteristics will be discussed in the August issue of BROKER WORLD magazine.
Highlights from This Year’s Survey
LifeSecure and Thrivent are new participants in the survey, and Northwestern, while not displayed, contributed statistical data.
Mutual of Omaha/United of Omaha did not participate this year because the company is in the midst of a product change which includes gender-distinct pricing. New pricing was not complete and the company did not want gender-neutral pricing to appear in a publication that has a shelf-life to July 2014. United Security Assurance also is taking a one-year hiatus, but is still committed to the market and is filing its product in a new jurisdiction. In both cases, their products displayed last year are still available as this article is being written, except that Mutual of Omaha/United of Omaha discontinued its worksite program.
• The 12 carriers that contributed statistical data to this survey sold 190,353 policies for $466,167,460 of new annualized premium in 2012, plus 188 single premium policies with $9.78 million of premium. No carriers currently sell stand-alone LTCI on a single premium basis.
• We estimate that the entire stand-alone LTCI industry, including insurers which discontinued sales, sold 232,800 policies (0.7 percent more than in 2011) for $564.3 million of annualized premium (5.0 percent more than in 2011).
• Ignoring single premium sales, the reporting insurers sold 9.1 percent more policies in 2012 than in 2011 and 14.3 percent more annualized premium.
• Genworth, Prudential and Unum collectively sold true group LTCI to 114,410 new insureds, resulting in $90.039 million of new annualized premium, not including exercised future purchase options or other additions to in-force certificates.
Note: true group sales include cases transferred from other insurers. Hence reported sales may significantly exceed the number of new insureds for the industry. The average premium increased from $537 per certificate to $787, as we had anticipated, due to the shift toward insurers selling fewer core programs. In addition, Genworth and Prudential reported $5.4 million of new annualized premium from 24,735 insureds who increased coverage.
• A higher percentage of applications (69.3 percent) were placed than in the past, at least partly due to lower maximum issue ages.
• Market Consolidation
As of April 2013, 17 insurers sell stand-alone LTCI in the United States (down from 20 a year ago), and only one insurer (down from two a year ago) sells in the true group guarantee issue market. As reflected in Table 4 (on page 6) two insurers combined to account for 60 percent of the new individual annualized premium in 2012. In 2011, it took three insurers to account for 61 percent of new premium.
Financial strength of the carriers remaining in the industry is improving. Every carrier reported an increase in assets with an average 7.8 percent increase. All but two insurers reported an increase in statutory capital and surplus, with an average 8.5 percent increase.
• Ten participants reported individual claims for 2012 and two reported true group claims. Their total claim payments rose to $3.035 billion in 2012, 18 percent higher than their 2011 figures, whereas their total in-force premium rose only 5.8 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. These insurers have paid more than $20 billion in LTCI claims through 2012.
• The LTCI industry has made a much bigger difference than the above numbers indicate because a lot of claims are paid by insurers who no longer sell LTCI. According to the NAIC’s report for 2011 (the most recent report available when this was written), the industry incurred $6.8 billion in claims in 2011, boosting the industry to $73.6 billion of claims incurred since 1991. Industry incurred claims increased 9.0 percent in 2010 and 9.6 percent in 2011.
About the Survey
This article is arranged in the following sections:
• Highlights provides a high-level view of results.
• Market Perspective provides insights into the LTCI market.
• Claims presents industry-level claims data.
• Sales Statistical Analysis presents industry-level sales distributions reflecting data from 12 insurers, representing 82 percent of the policies sold in 2012. Seven other insurers (some of which no longer sell LTCI) contributed to our estimate of total 2012 individual LTCI sales.
• Multi-Life Programs provides information about sales sponsored by employers and affinity groups. More information about worksite sales will appear in the August issue of Broker World magazine.
• Partnership Programs discusses the impact of the state partnerships for long term care.
• Product Details provides a row-by-row definition of the product exhibit. We have 18 products displayed, including 5 products that were not displayed in 2012. Several others have changed premiums, design options and/or multi-life parameters since 2012.
• Premium Rate Details explains the basis for the product-specific premium rate exhibit.
• The biggest news in 2012 was the industry’s initiation of gender-distinct pricing. Two major insurers initiated gender-distinct pricing in April 2013 and two others intend to do so in 2013. Together, those carriers accounted for 57 percent of the market in 2012. Most other carriers report that they are considering gender-distinct pricing. Between the two carriers, gender-distinct pricing was implemented in 43 jurisdictions, all but CA, CT, DC, FL, HI, IN, MT and NY. CO laws forbid gender-based pricing for LTCI, but as a member of the compact, CO has ceded to the compact the right to approve sound actuarial filings even if they violate CO laws.
Gender-distinct pricing is being implemented in different fashions by different carriers and will evolve over time. For example, some insurers are not using gender-distinct pricing for couples, perhaps partly because they don’t want to offend females by showing a much higher price for them than for their husbands (females drive most decisions to purchase LTCI).
Insurers are concerned that the Supreme Court’s Norris decision might make gender-distinct pricing illegal at the federal level for both voluntary and employer-paid LTCI in the worksite. Therefore, only some insurers will be creating gender-neutral pricing for worksites. Because of the fear of anti-selection, insurers will likely require significant participation to qualify for such gender-neutral products. It will be interesting to see what, if anything, small employers will be able to obtain as the industry evolves.
In addition to the above-mentioned issues, insurers identify the following challenges involved in shifting to gender-distinct rates:
• How much of the expected gender difference should be reflected in the premiums?
• How can gender-distinct pricing be implemented in a way that minimizes anti-selection?
Many observers wonder whether females who bought policies which were sold with gender-neutral pricing are exposed to large future increases. We believe that state regulators will not permit insurers to differentiate a rate increase based on a parameter which did not affect original pricing.
• The market continues to consolidate. American General, COPIC (a physicians-owned company in Colorado), Guarantee Trust, Humana, and Physicians Mutual discontinued individual sales. Prudential and Unum discontinued writing new group policies in 2012, after having discontinued individual sales in the past.
An encouraging sign: Thrivent recommenced selling LTCI in 2012. LifeSecure and Thrivent are new participants in this year’s annual survey.
As stated before, Mutual of Omama/United of Omaha and United Security Assurance are taking a one-year hiatus, but are still committed to the market. In both cases, the products displayed last year are still available, except that Mutual of Omaha/United of Omaha discontinued its worksite program.
• Multi-life business produced 10.7 percent of new annualized premium (13.1 percent of policies). Our reported percentage of multi-life sales is much lower than for 2011, because we were unable to include AARP business in the 2012 multi-life sales. Nearly 60 percent of the 2012 multi-life sales were worksite sales. There are fewer insurers than before in the worksite market and the participation requirements for underwriting concessions have toughened.
• Existing policyholders are continuing to see large rate increases. A major carrier announced an intended 95 percent increase, following the 2011 announcement of a 90 percent increase by another major carrier. There have been increases as large as 60 percent on business priced under rate stabilization. More recent blocks are clearly substantially more stable and a strong case can be made that insurers will see favorable deviations overall, in the future, relative to today’s pricing assumptions.
• Lower interest rates continue to cause price increases for new sales and existing policies. If interest rates rise substantially, actuaries won’t feel comfortable projecting those interest rates, without, perhaps, expensive hedging strategies. Thus, non-participating LTCI might lose market share to participating insurers, combo products and self-insurance. A 2012 product innovation uses a low interest rate assumption and grants paid-up additions based on a formula related to excess interest. Regulators and industry professionals have an opportunity to find ways to help existing and new premiums reflect higher interest rates.
• Independent review (IR) is starting to take root, now being required by 37 jurisdictions. Nine of 12 participants have implemented IR beyond legal requirements, by extending it to in-force business and/or offering it (sometimes contractually) in states where it is not required and/or initiating it rather than waiting for the client to do so. IR can help protect an insurer from a subsequent lawsuit. So far, we are aware of 22 cases that have gone to IR and the insurer’s denial was upheld on 18 of those cases (82 percent), which speaks well of the industry while also demonstrating the value of the process.
• There are many efforts underway to try to help solve our nation’s long term care funding issues. The fiscal cliff deal in February instituted a 15-member federal commission on long term care which is supposed to make recommendations at about the time this article is printed. (See Mark Warshawsky’s article in this issue.)
The report seems likely to be delayed as the commission members were named late and because it is a daunting task. Meanwhile, the Heritage Foundation, Urban Institute, Jewish Federation of North America and others have convened a group of individuals with different perspectives in an attempt to find solutions. The Society of Actuaries has also created a Delphi Study group to try to find solutions. The authors of this survey are among the approximately 40 people (including many non-actuaries and some non-insurance people) involved in the Delphi Study group.
A tremendous amount of LTCI claims are paid by insurers that no longer sell LTCI and, hence, are not included in this survey. Their claims might differ significantly from data reported below because their claimants might be more likely to have facility only coverage; be older (thus, less likely to still be married); have smaller policies; etc.
Ten insurers reported individual claims for 2012 and two reported true group claims.
Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. The data is biased toward facility claims because more than half of the claims in the study were fully allocated to the last venue utilized. Nonetheless, each table reflects a decreasing percentage of claim payments for nursing home confinement. However, nursing home confinement still dominates group claims.
Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs), because home care and ALFs are increasingly available and because new sales are nearly entirely comprehensive policies (covering home care, adult day care, ALFs and nursing homes), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider type.
Table 3 shows the average size individual and group claim since inception. These average claims may mislead because:
1. A lot of very small claims drive down the average. People who recover, then have another claim, are counted twice.
2. Older policies typically had lower maximum benefits and were sold to older people, hence result in smaller claims.
3. Twenty-nine percent of the inception-to-date individual claims included 2012 payments as did 25 percent of the corresponding group claims. It appears that a meaningful percentage of the inception-to-date claims will have more claim payments in the future. The data does not include reserve estimates of such future payments.
4. Insurers reported some claim payments that could not be identified as to venue. Most of the individual claimants receiving these payments appeared to have received other payments which were identified as to venue, but that did not seem to be the case for group claims. Thus it was hard to determine how many claimants there were in total. As the footnote indicates, we may have overstated the average individual claim and understated the average group claim.
5. The data was adjusted in order to make the total average claim reflect the sum of an individual’s home care, ALF, and nursing home claims. (Venue-specific average claims do not need such an adjustment.) Because some data attributed the full claim to the last venue, the by-venue average claims might all be overstated.
To the degree that policy maximums do not increase automatically and to the degree that people do not exercise future purchase options, claims will generally be low relative to the service costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.
ALF claims have high individual LTCI claims averages. Perhaps ALF claims are more recent and from more recently-issued policies, hence have higher costs and higher limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims. Third, nursing home claims are less likely to be fully covered.
In addition to the carriers’ products displayed, Northwestern contributed to this statistical analysis. Some insurers were unable to contribute data in some areas.
Sales characteristics vary significantly among insurers. Thus, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.
• Market Share
Table 4 lists the top 10 carriers in terms of new premium for 2012, ignoring single premium sales. As mentioned earlier, two insurers accounted for 60 percent of the market in 2012.
• Characteristics of Policies Sold
Average Premium. Ignoring single premium sales, participants’ average premium per new policy was $2,449, an increase of 5.5 percent compared to $2,322 in 2011. The lowest average size premium among participants was $1,293, while the highest was $3,341, with three carriers showing a lower average premium than in 2011. The average premium per new purchasing unit (i.e., one person or a couple) rose more (by 8 percent to $3,689), reflecting that several carriers reduced couples’ discounts. The average in-force policy premium for participants increased 2.5 percent, from $1,920 to $1,968.
Issue Age. The average issue age dropped dramatically—to 56.25—after having fluctuated between 57.7 and 58.1 since 2006. Only 16.5 percent of the reduction was due to changes in survey participants. Table 5 shows that the percentage of policies in each age group from 18-54 was the highest during the displayed five-year period.
Benefit Period. Table 6 shows that the percentage of lifetime benefit period (BP) sales jumped from 12.7 to 19.9 percent. One carrier sold 72 percent of the lifetime benefit period policies in 2012. A bigger percentage of its 2012 sales were lifetime benefit period than in 2011 and it had a much bigger market share in 2012.
The average length of fixed-benefit period policies dropped from 4.32 years to 4.14 years, which undervalues the coverage because of the shared care considerations discussed below. Most shared care policies allow a claimant to dip into the spouse’s policy, after exhausting his own policy. If two four-year BP policies are shared, each is counted as a four-year BP policy in this study. While the combined benefit period is limited to eight years, either insured could use more than four years, added value not reflected in our 4.14 statistic.
Some shared care policies maintain independent coverage for each insured, but add a third pool that either insured can use. If the base coverage is four years, the survey classifies them as four-year policies, but either person has access to eight years of benefit—and the total maximum is 12 years.
Maximum Daily or Monthly Benefit. As indicated in Table 7, the average maximum daily benefit increased from $156 per day to $160. The $100-$199 range had its lowest percentage of sales in a long time, with more sales below $100 and $200+. The below $100 sales result from securing a small policy to supplement an existing policy or to qualify a spouse for a both-buy discount, from purchasing two policies to have more flexibility, from covering meaningful home care expenses while either co-insuring the cost of facility home care or relying on Medicaid to cover that exigency, etc. Although Table 7 displays maximum daily benefit, 73.5 percent of 2012 policies were sold with a monthly or weekly maximum, which is superior.
Benefit Increase Features (Table 8). There was a strong shift toward future purchase options—partly because of different distribution among insurers—and 3 percent compound also increased its market share, both at the expense of 5 percent compound.
Applying the distribution of benefit increase features (and making some assumptions as to CPI and election rates) to project the age 80 maximum benefit for a 58-year-old purchaser, we conclude that 2012 purchasers will have the same benefit available at age 80 as will 2011 purchasers, despite having started with a higher initial benefit. In other words, the purchasing power of the average 2012 policy at age 80 will be lower, compared to a 2011 policy, by that year’s inflation rate..
The age-adjusted benefit increase feature typically increases benefits by 5 percent through age 60, by 3 percent compound or 5 percent simple from 61 to 75, and by zero percent after age 75.
The deferred compound option allows purchasers to add a level premium compound benefit increase feature (based on its price at the age when they add the rider) within five years of issue if they have not been on claim. If clients exercise those options, policy benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies become no benefit increase policies.
Indexed level premium policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).
Several insurers provided data regarding future purchase options, but only three insurers were able to provide both the number of available options and the number exercised. Based on their data, 25.5 percent of insureds exercised future purchase options that were available in 2012. As shown in Table 9, this percentage has held fairly steady since we started reporting it. However, election rates are likely to decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.
Elimination Period. As Table 10 indicates, elimination period (EP) selections were pretty similar to 2011 except that EPs of more than 100 days increased in popularity.
The percentage of policies with zero-day home care EP (but a longer facility EP) increased from 31.0 percent in 2011 to 37.6 percent in 2012. Calendar day EP was included in 17.9 percent of the policies. One of the major non-participants issues all of its policies with calendar EP.
Sales to Couples and Gender Distribution. Table 11 shows that sixty-seven percent of buyers were part of couples who both bought in 2012, 12.9 percent were reported as one-of-a-couple purchasers, and 19.9 percent were reported as single. Tighter underwriting would tend to depress the percentage of couples who both buy, especially as the industry seems to be improving at conserving the well spouse’s policy (up to 75.8 percent based on limited data in 2012). Some insurers also lowered couples’ discounts in 2012. Nonetheless, the percentage of both-buy couples increased, perhaps due to fire sales before the reductions in couples’ discounts, as well as a change in mix of contributing insurers and a change in reporting methodology by one participant.
One-of-a-couple sales are understated because 4.8 percent of sales were reported by insurers that could not identify such sales and some insurers may not be able to identify all such sales. Hence, although the carriers reported that 12.9 percent of buyers were one-of-a-couple in 2012, the true percentage may be 14 percent, with a corresponding decrease in single insureds. Overall, 27.7 percent of the couples in 2012 were reported to insure only one person.
Overall, our analysis suggests that 54.9 percent of buyers are women, but 69.1 percent of single people who buy are female. That should change somewhat with the shift to gender-distinct pricing.
Shared Care and Other Couples’ Features. Last year, we reported that the percentage of couples who both bought limited BP policies (eligible couples) and selected shared care was surprisingly low. This year it bounced back to 39.8 percent (Table 12). Among insurers that offer shared care, 47.7 percent of eligible insureds purchased it.
Some products offer (or include automatically) joint waiver of premium (premium waived for both insureds if either qualifies) and/or survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met. In 2012, 31 percent of policies sold to couples both buying included joint waiver of premium (46.4 percent for carriers that offer that feature, because it is often automatic) and 36 percent included survivorship (53.7 percent for carriers that offer that feature).
This year we queried, for the first time, about shared care sales by BP. Table 13 combines traditional and third-pool shared care features, counting each person’s coverage based on that person’s core BP, prior to shared care.
Column A adds up to 100 percent, reporting how many shared care policies are in each BP. It shows that the highest percentage of shared care policies had three-year or four-year BPs.
Column B, on the other hand, shows for each BP, what percentage of those policies had shared care. Because each BP can have up to 100 percent shared care, the sum of the percentages in Column B is not meaningful. The BP that has the highest percentage of shared care is the eight-year BP. Readers might think that eight-year BP is sold largely by carriers that offer shared care, but that was not the case.
Existence and Type of Home Care Coverage. Two participants reported home care only policies, which accounted for 2.5 percent of sales. Five participants reported sales of facility only policies, which accounted for only 1 percent of total sales.
More than 99 percent of the comprehensive policies included home care benefits at least equal to the facility benefit. Most (73.5 percent) policies use a weekly or monthly reimbursement design, while 23.9 percent used a daily reimbursement home care benefit. Thus, 97.4 percent used a reimbursement method. Two percent used a disability or cash definition, paying benefits fully regardless of whether qualified care is purchased. Indemnity accounted for 0.6 percent of sales, but the insurer that produced the bulk of those sales has dropped its indemnity feature.
In addition to the 2 percent cash policies, 5.8 percent included a partial cash alternative, a significant drop due to a major proponent having discontinued sales and another not participating in the survey this year. If the non-participant’s data were reflected, cash alternative would have continued its dramatic increase, from 9.6 percent of the policies in 2010 to 13.3 percent in 2011 to 23.1 percent in 2012. Such features allow people to use (in lieu of any other benefit that month) a percentage of their benefits (between 33 and 35 percent) for whatever purpose they wish.
Other Characteristics. Nearly 5 percent (4.8 percent) of the policies included return of premium features, which return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies—sometimes after only a defined number of years or before a particular age. Approximately 80 percent were embedded automatically; embedded features are designed to cost little, so the death benefit decreases to zero by age 75.
Nearly 9 percent (8.8 percent) of the policies with limited BPs included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 42 percent of the ROB features were embedded. Only 0.7 percent included a shortened benefit period (SBP) nonforfeiture option. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.
The percentage of non-tax-qualified (NTQ) policies dropped to 0.4 percent, partly because of a change in carriers. Only 2.3 percent of our participants’ in-force policies are NTQ.
Limited Pay. Single premium sales increased from 123 policies to 188 policies, but sales were discontinued in the third quarter of 2012.
As it was being pulled off the market by most insurers, 10-year-pay policies soared in popularity also. In 2012, 6.5 percent of policies were issued on a 10-year-pay basis and 1 percent were issued on longer limited pay bases, compared to 1.9 percent and 0.6 percent in 2011.
Reported affinity business amounted to 5.7 percent of the 2012 new insureds and 4.3 percent of the premium. Please note that AARP sales are not included in these affinity figures, but are included in the total sales figures.
Worksite business produced 7.4 percent of new insureds (up from 7.0 percent), but only 6.4 percent of the premium (up from 5.6 percent). Worksite sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. Worksite sales might be challenged in the future as several carriers have discontinued such programs, others have increased participation requirements, and the shift to gender-distinct pricing may damage the worksite market.
Forty states have partnership programs which disregard assets up to the amount of benefits received from a qualified LTCI policy, when someone otherwise qualifies for Medicaid to provide long term care services. Participants sold partnership products in an average of 29 states in 2012. One participant did not sell partnership policies anywhere. At the other extreme, two participants sold partnership policies in 38 states.
In jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership Program, 65.4 percent of the policies issued were partnership policies, down slightly (from 66.6 percent)—probably due to reduced sale of required benefit increase features. We estimate that if partnership regulations had applied in all states and all carriers had certified their products, 64 percent of the policies issued in the United States would have qualified (down from 69 percent).
Minnesota led all states with 84.5 percent of participant policies being partnership-qualified, followed by RI (83.9 percent), WI (83.0 percent), NE (82.8 percent) and WY (80.1 percent). ME, ND and VA dropped below 80 percent in 2012. They and IA, GA, OH and TN all exceeded 75 percent.
The original partnership states lagged in this regard—CA (29.1 percent), CT (45.7 percent), IN (53.1 percent) and NY (22.7 percent)—largely because their laws inhibit participation. Of the 12 insurers that participated in this year’s survey, only three sell partnership policies in CA, four in NY, six in IN and seven in CT.
One carrier issued 87.6 percent of its policies as partnership-qualified in states with DRA partnerships. Another carrier reached 82.1 percent. The highest partnership percentages for any insurers in original partnership states were CA (51 percent), CT (88 percent), IN (84 percent), and NY (46 percent). Thus, besides the smaller number of insurers involved in the original partnerships, the original partnership designs also reduce the percentage of policies that qualify. The original states might increase partnership sales significantly by adopting the DRA partnership regulations.
Many people are concerned that with today’s higher prices, state partnerships are having less success in encouraging LTCI purchases by the middle class. A $1,500 initial maximum monthly benefit would allow someone to get approximately four hours of home care every two days and may maintain that buying power with 5 percent compound benefit increases. For many middle-class citizens, such care could be very helpful and would be even more appreciated if, thanks to the partnership, they were able to accumulate some asset disregard, despite the fact that they may ultimately need Medicaid.
Case Disposition. In reviewing this section, please note that th