July 2015

Claude Thau

Dawn Helwig

Allen Schmitz

2015 Long Term Care Insurance Survey

The 2015 Long Term Care Insurance Survey is the seventeenth consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions and details available products.

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.

Note: Comparisons of worksite sales characteristics to overall sales characteristics will appear in the August issue of Broker World magazine.

Highlights from This Year’s Survey

• Participants

Fifteen carriers participated broadly in this survey, including all of last year’s participants except United Security Assurance, which intends to resume participation in 2016.

We are pleased that New York Life has resumed contributing product and sales distribution data and that a new entrant in the market, LifeCare Assurance, is participating.

Although not displaying product, Country and Northwestern LTC provided background statistical information. United Security contributed to the sales total, and Genworth and Unum provided sales of new certificates.

• Sales Summary (more details in other parts of this article)

 • The 15 carriers that reported individual sales to this survey sold 133,660 policies ($316,522,515 of new annualized premium) in 2014. We estimate that these carriers sold more than 99 percent of the stand-alone LTCI industry’s 2014 sales.

 • Five insurers increased sales, three of them by 50 percent or more. However, continuing past trends, stand-alone LTCI sales dropped 23.8 percent from 2013 in terms of lives insured and 21.8 percent in terms of annualized premium.

 • The average premium per new sale increased slightly from $2,311 to $2,368. Unit prices generally increased, but the trend continued of policies having shorter benefit periods and less-robust future increases.

 • Worksite sales dropped less than total sales, even though two carriers discontinued worksite sales. Our 2013 base for comparison has been adjusted to include New York Life and to correct overstated sales by one of the carriers last year. The number of new worksite policies dropped 3.9 percent, and new annualized worksite premium dropped 14.6 percent. Worksite business produced 10.2 percent of new policies, but only 6.1 percent of new annualized premium. The average worksite premium dropped from $1,664 in 2013 to $1,496 in 2014.

 • Affinity annualized premium sales dropped 25 percent, and the number of policies dropped 24.7 percent.

 • Because of the strong persistency of LTCI business and in-force policy price increases, in-force premium increased 2.6 percent from year-end 2013 to year-end 2014 , and the number of insureds increased 0.8 percent, despite low sales. Average in-force premium was $2,038, $34 more than last year. Strikingly, six carriers had decreases in their number of in-force policies at year-end 2014 compared to year-end 2013, and two others saw their number of in-force policies grow less than 1 percent.

 • Deaths, normal lapses and lapses in response to rate increases totaled about 3.1 percent of year-end 2013 in-force policies compared to 2.7 percent a year ago.

 • Genworth and Unum collectively sold true group LTCI to 87,108 new insureds ($22.7 million of new annualized premium, not including additions to in-force certificates). That’s a drop of 13 percent, compared to 2013, in new certificates sold but 42 percent in new premium sold. The big drop in premium compared to sales seems to reflect a lot of core program additions. CNA also accepted new policies on existing cases, but did not report sales to us.

• Claims

Participating insurers reported $3.7 billion in claims in 2014 and nearly $30 billion since inception. Carriers that participated this year and last year reported a 13 percent increase in claims since inception. Overall, the LTCI industry incurred $8.2 billion in claims in 2013 (the most recent year reported in NAIC reports), much paid by insurers that no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

 • Highlights (on page 34) provides a high-level view of results.

 • Market Perspective (on page 36) provides insights into the LTCI market.

 • Claims (on page 40) presents industry-level claims data.

 • Sales Statistical Analysis (on page 42) presents industry-level sales distributions reflecting data from 14 insurers, representing 99 percent of the policies sold in 2014.

 • Multi-Life Programs (see page 50) 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 (see page 50) discusses the impact of the state partnerships for long term care.

 • Product Details (see page 53) provides a row-by-row definition of the product exhibit. We have 20 products displayed, including 8 products that were not displayed in 2014. Several others have changed premiums, design options and/or multi-life parameters since 2014.

 • Premium Rate Details (on page 90) explains the basis for the product-specific premium rate exhibit.

Market Perspective (more details in other parts of this article)

 • LTCI sales have surged temporarily on the eve of price increases (including shifts to gender-distinct pricing) and benefit discontinuations. Absent those surges, sales would have been lower.

 • Furthermore, as only one insurer offers a true group LTCI program, group business should have gravitated to multi-life policies, thereby increasing sales included in this survey. Part of the problem in worksite sales seems to have been that implementation of the Affordable Care Act has distracted the market from considering LTCI.

 • Sales of 5 percent compound increases dropped from 32.7 percent of 2012 sales to 22.0 percent in 2013 and plunged to 9.3 percent in 2014. Consequently, 2014 sales to a 57-year-old project an average maximum benefit of $295/day in 2037. For the same person (age 56) in 2013, the 2037 benefit was $333 and the corresponding 2012 figure was $352. The value of coverage has dropped 16 percent over the past two years.

 • The drop in sales with compound increases negatively impacted partnership sales, particularly in the original partnership states where only 18.2 percent qualified. In jurisdictions participating in the Deficit Reduction Act LTC Partnership program, 55.4 percent of policies qualified. Partnerships seem to encourage stronger benefit increase features to be purchased. But no state had more than 78.5 percent of its sales qualify under the partnership, compared to 2013 when six states topped 80 percent.

 • Nonetheless, there are hopeful signs for stand-alone LTCI. A major insurer that has been relatively inactive in LTCI the past couple of years is aggressively marketing an innovative new product. Another insurer will enter the market later this year with lifetime benefit period, a single premium alternative and term life insurance riders.

 • Beyond the stand-alone LTCI market, an increasing number of insurers offer alternative approaches to help address long term care. For example, many life insurance policies include the right to accelerate the death benefit if long term care is needed. These accelerated death benefit (ADB) designs have typically been limited to using 2 percent of the face amount per month for long term care, which may cover relatively little cost by the time long term care becomes necessary. However, more policies now seem to allow up to 4 percent of the face amount per month and more allow the greater flexibility of indemnity or “cash” benefits.

 • An increasing percentage of such ADB provisions are chronic illness (CI) provisions under Section 1.01(g), rather than LTCI under Section 7702. Benefits under Section 1.01(g) are supposed to be de ­minimus, so CI provisions have typically covered only permanent need for long term care. However, the Interstate Compact now approves CI riders covering temporary as well as permanent long term care needs, which should stimulate more attractive CI features. Forty-four states require brokers to have LTCI certification to sell a Section 7702 policy, but none require certification for CI. Unfortunately, regulators have put financial advisors in a tough position if the advisor thinks a CI provision will help his client address long term care needs. While making CI a more meaningful tool for long term care planning, regulators forbid financial advisors from referring to it as LTCI.

 • Combo policies with extension of benefit (EOB) provisions provide significantly superior long term care coverage compared to ADB provisions. These policies are a “better way to self-insure,” as the first two or three years of long term care are funded by the heir’s death benefit (hence the recipient’s care comes at the expense of the beneficiaries), but then the insurer provides a type of stop-loss coverage. Today’s combo products are not limited to single premiums and are sold more often with compound benefit increases than in the past.

 • ADB provisions are expanding in the worksite as well, including 4 percent benefits per month and EOB.

 • Some critical illness policies also provide long term care benefits. There are also some short term long term care policies and policies that cover some types of care but not custodial care.

 • The shift to gender-distinct pricing has continued, as expected. Last year, seven insurers still had unisex stand-alone LTCI pricing for single people “on the street” in most states. By the beginning of 2016, we may have only one insurer with such unisex LTCI pricing. Gender-distinct pricing exists in every jurisdiction except Montana.

While the dust is settling, gender-distinct pricing has begun to adversely affect the worksite, business association and small (non-multi-life) executive carve-out markets. In the past, in many multi-life programs, no one paid more than they would “on the street.” We’re now seeing more programs in which all males and many couples pay more in the worksite than on the street. In the business association market, business people are offered gender-distinct pricing which may preclude their ability to get an attractive tax break by paying for the coverage through their business. Small executive carve-outs may be unable to use gender-distinct pricing, yet not include enough buyers to qualify for insurers’ unisex pricing.

Civil rights complaints, lawsuits and/or legislation could impact gender-distinct pricing. In January 2014, The National Women’s Law Center filed a civil rights complaint against four insurers, three state Medicaid departments and the Center for Medicare and Medicaid Services, alleging that gender-distinct LTCI policies violate the Affordable Care Act and that state and federal governments are complicit because their partnership programs promote policies with gender-distinct pricing. We have heard no news about the status of that civil rights complaint since.

 • Underwriting continues to evolve, using more stringent requirements. Insurers have started making underwriting decisions based on family history. Standards are also tougher, with more than 25 percent of issued policies placed in the third-most-favorable risk classification, or worse. Most insurers no longer accept people age 80 or above, and a growing number don’t accept people below age 30 or 40.

 • The placement rate dropped to an all-time low (60.9 percent, including work-site cases which sometimes permit easier qualification), despite a significant drop in cases above age 70. Thirty-three percent (32.9 percent) of such applications were declined, withdrawn or suspended. Many observers feel that higher prices result in a less healthy pool of applicants and that insurers have tightened underwriting.

 • As we have discussed in the past, when interest rates increase, actuaries will be appropriately reluctant to project such higher interest rates into the future, after experiencing our recent unprecedented period of extremely low investment returns. Mutual companies will be able to share favorable experience through dividends. Combo products can do so through current (as opposed to guaranteed) factors. People who consider self-insuring will assume higher yields. Stock companies issuing non-participating products are at risk of being unable to compete. A new product tries an innovative way to solve this dilemma, by determining annual credits based upon experience. It will be interesting to see whether the market responds favorably to the product.

 • Nine of the top 10 insurers, in terms of sales, were the same in 2014 as in 2013, with LifeSecure cracking the top 10, ranking eighth. State Farm dropped out of the top 10. The top five carriers were the same as in 2013, but their market share dropped from 76.5 percent to 71.3 percent.

 • Existing policyholders continue to see large rate increases. However, insurers should experience favorable deviations on new sales if interest rates rise in the future. Adverse persistency seems unlikely with today’s low lapse assumptions, and improved underwriting should favorably impact claims.

 • If a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers are increasingly opting to discontinue sales in that jurisdiction.

 • If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). More than 70 percent of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 43 cases which insureds have appealed to IR, and the insurers’ denials have been upheld 86 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

 • Wellness programs are increasing in the insurance industry in general. They may have an incidental side effect on LTCI claims, which could be increased if the LTCI industry promotes wellness.

Claims

 • Twelve participants reported individual claims for 2014, and three reported true group claims (one more insurer in each category than last year). Their total claim payments rose to $3.7 billion in 2014, 9 percent over 2013, whereas in-force premium rose only 2.6 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Claims rise from year-to-year mostly because existing insureds get older. In addition, monthly maximums increase due to benefit increase features, long term care costs are going up, claims are shifting to more-recently-issued policies which have larger maximum benefits, etc.

 • These 12 insurers have paid nearly $30 billion in LTCI claims from inception through 2014.

 • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that no longer sell LTCI. According to the NAIC’s report for 2013 (the most recent report available when this was written), the industry incurred $8.2 billion in claims in 2013, boosting the industry to $89.4 billion of claims incurred since 1991.

LTCI claims paid by insurers that no longer sell LTCI might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc.

Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. In the distribution of the number of claims, if someone received care in more than one venue, they are listed more than once. Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs) and because new sales are nearly entirely comprehensive policies (covering home care and adult daycare, as well as facilities), 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 (on page 42) shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 34.2 percent of individual policy claimants and 24.7 percent of group claimants receive benefits in more than one venue. The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

 1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

 2. It appears that more than 30 percent of claimants recover. Their claims were presumably quite short on average. Furthermore, their second claims are treated as though they were a different insured, instead of being added to the original claim.

 3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s new policies.

 4. Twenty-seven percent (26.9 percent) of the inception-to-date individual claims included 2014 payments, as did 21.1 percent of the corresponding group claims. Some of those closed in 2014, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 71 percent as high as the average individual claim, probably because of shorter benefit periods, lower maximum daily (monthly) benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to be in place when long term care is needed.

Individual ALF claims have high averages partly because ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

• Market Share

Table 4 lists the top 10 carriers in terms of 2014 new premium.

Fourteen insurers contributed to the following statistical analysis, but some were unable to contribute data in some areas.

Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.

• Characteristics of Policies Sold

Average Premium. Participants’ average premium per new sale increased 2.5 percent from $2,311 to $2,368. The lowest average size premium among participants was $1,263, while the highest was $2,995. Only three insurers had a lower average premium than in 2013, and one was only 1 percent lower while another was only 2 percent lower. The average premium per new purchasing unit (i.e., one person or a couple) dropped 1.5 percent, from $3,378 to $3,328, even though the average premium per sale went up. The average in-force premium increased 1.7 percent, from $2,003 to $2,038.

Issue Age. The average issue age dropped to 56.3, matching 2012’s record low. Part of the change is due to changes in survey participants. Table 5 shows that 4.7 percent of buyers were under age 35. Two carriers with a lot of worksite sales both reported 14 percent of buyers below 35. The trend toward an increasing percentage of sales below age 40 may reverse, as three of our products limit sales to ages 40 or older and three limit sales to ages 30 and older.

Benefit Period. The average length of fixed-benefit periods increased slightly from 4.05 years to 4.07 years because the lack of lifetime benefit periods shifted sales to 6-year benefit periods (see Table 6 on page 44). All lifetime benefit period sales were by two small insurers that discontinued lifetime benefit periods, causing a fire sale. One carrier sold more policies of less than 2-year benefit period than any other benefit period, and another sold nearly 20 percent of its business with less than a 2-year benefit period. Coverage was better than the 4.07 average suggests because of shared care and lifetime sales.

Maximum Monthly Benefit. Seventy-nine percent (79.6 percent) of 2014 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum.

The percentage of policies with a maximum benefit equivalent to $7,500 or more has increased from 7.0 percent in 2011, to 9.6 percent in 2012, to 10.4 percent in 2013 and to 11.6 percent in 2014. (See Table 7.)

 The average maximum benefit increased slightly from $4,830 per month to about $4,853 per month.

Benefit Increase Features. Sales of 5 percent compound held strong through 2012, then dropped from 32.7 percent of sales to 22.0 percent in 2013 and plunged to 9.25 percent in 2014. Many 2014 sales shifted to no increases or increases of less than 5 percent, sometimes for a limited period. Surprisingly few shifted to 3 percent or 4 percent compound.

The no benefit increase and future purchase option features were both the highest for the seven years shown in Table 8 on page 46.

We project the age-80 maximum benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2037) for our average 57-year-old purchaser in 2014 will be $295/day. Also looking at buyers who would be age 80 in 2037, we found the corresponding figures for buyers in 2013 (issue age 56, $333) and 2012 (issue age 55, $352). Thus, the average maximum daily value at age 80 dropped more than 5 percent in 2013 and more than 11 percent in 2014, for a cumulative 16 percent drop in two years. The drop in coverage is significantly greater because data suggests that the average claim payment (as opposed to start) year is greater than age 80.

The deferred compound option allows purchasers to add a level premium compound benefit increase feature within five years of issue if they have not been on claim.

The age-adjusted benefit increase features typically increase 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.

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).

Seven insurers provided both the number of available future purchase options in 2014 and the number exercised. Based on their data, 27.8 percent of insureds exercised future purchase options that were available in 2014. As shown in Table 9 on page 46, this percentage has held fairly steady since we started reporting it. However, election rates may 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 on page 46 indicates, facility elimination period (EP) selections were similar to recent years. The percentage of policies with zero-day home care EP (but a longer facility EP) dropped from 38.9 percent in 2013 to 30.5 percent in 2014, partly due to change in sales distribution among carriers. As in 2013, 32.2 percent of the policies had a calendar-day EP definition. Each of these features is offered by six insurers.

Sales to Couples and Gender Distribution. As shown in Table 11 on page 48, the percentages of buyers and single buyers who were female dropped in 2014, further indicating that, to a small degree, women opted to buy in 2013 to secure unisex pricing while able to do so.

Five participants shifted to gender-distinct pricing in 2013; they showed fairly typical percentages of single female buyers in 2014. Four carriers shifted to gender-distinct pricing during 2014; they have had a surprisingly low percentage of female buyers. Four participants had unisex pricing throughout the year; they had four of the five highest female concentrations, with three of these companies having more than 60 percent sales to females in 2014. One carrier using gender-distinct pricing showed more than 60 percent female sales because the insurer sells to the senior market which has a higher percentage of females. The other carriers ranged from 48 percent to 58 percent female buyers.

With one-third of applications declined, suspended or withdrawn, it is not surprising that one-of-a-couple sales hit a new high, 21.7 percent. However, the extremely high statistic that 77.5 percent of applicants buy their policy if their spouse was declined jumped this year because only three carriers contributed such data.

Shared Care and Other Couples’ Features. The percentage of couples who purchase limited benefit period and opt for shared care hit new highs (43.0 percent in total; 54.6 percent for insurers that offer shared care). It would not be surprising for these percentages to continue to grow.

Some products offer or embed joint waiver (both insureds’ premiums are waived if either qualifies) and/or survivorship, which waives a survivor’s premium after the first death if specified conditions are met. In 2014, 32.5 percent of policies included joint waiver of premium if both partners bought coverage (50.4 percent for those buying from companies which offer the feature). But only 5.3 percent of policies included survivorship if both partners bought (10.3 percent for those buying from companies which offer the feature). The major seller of survivorship discontinued such sales during 2013. (See Table 12)

Table 13 (on page 50) shows that the most common shared care benefit period (combining the traditional and third-pool designs) is three years. It also shows that three years is the benefit period that is most likely to add shared care. Above, we stated that shared care is selected by 43.0 percent of couples who both buy limited benefit period. Table 13 shows that shared care does not comprise 40 percent of any benefit period; that’s because the Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage. One participant reported home-care-only policies, which accounted for 1.4 percent of industry sales. Six participants reported sales of facility only policies, which accounted for 2.0 percent of total sales.

Ninety-seven percent (97.2 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.

Most policies (79.6 percent) use a weekly or monthly reimbursement design, while 20.4 percent use a daily reimbursement home care benefit. Only one company sold indemnity, which comprised 0.02 percent of all policies. The only company that sold a full cash benefit did not report the breakdown of its sales this year and is discontinuing that feature.

Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 14.2 percent of sales, down from 17.7 percent in 2013.

Other Characteristics. Return of premium features were included in 10.5 percent of all policies (up from 6.4 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 87 percent were embedded automatically. Embedded features are designed to cost little, so the benefit is more likely to decrease to $0, generally by age 75 or after a defined number of years.

Almost 10 percent (9.8 percent) of the policies with limited benefit periods 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 63 percent of the ROB features were embedded.

A bit more than 1 percent (1.1 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 was 1.3 percent.

Captive (dedicated to one insurer) agents accounted for 44.4 percent of the policies sold.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay. Only 4 insurers reported sales of 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies. Those limited pay policies combined to account for 1.25 percent of the policies sold.

Multi-Life Programs

Reported worksite business produced 10.2 percent of new insureds (up from 8.0 percent in 2013), but only 6.1 percent of premium (up from 5.8 percent). Worksite sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. The shift to gender-distinct pricing “on the street” may reduce worksite sales in the future. Reported affinity business amounted to 7.8 percent of the 2014 new insureds (same as 2013) but only 6.2 percent of the premium (versus 6.4 percent in 2013).

Partnership Programs

When someone applies to Medicaid for long term care services, states with partnership programs disregard assets up to the amount of benefits received from a qualified LTCI policy. Partnership sales were reported in 42 jurisdictions in 2014, all but Alaska, District of Columbia, Hawaii, Illinois, Massachusetts, Michigan, Mississippi, New Mexico, Utah and Vermont.

One participant sold partnership policies in 41 states, and two sold partnership in 38 states. Few currently sell partnership in the original partnership states—California (2), Connecticut (6), Indiana (7) and New York (4)—because those programs require separate products and fees. One participant has never filed for partnership approval, and another files only in states that do not require a retroactive offer of exchange.

Less robust benefit increase selections reduce the percentage of policies that qualify for partnerships. This is particularly problematic in the original partnership states, wher