The Milliman Long Term Care Insurance Survey has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011. The Worksite multi-life market (“WS”) consists of individual policies sold with discounts and/or underwriting concessions to groups of people based on common employment. “Core” programs involve the employer paying for a small amount of coverage for generally a large number of employees; the employees can buy more coverage. “Carve-out” programs involve the employer paying for more substantial coverage for generally a small number of executives and usually their spouses. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.)
The July 2016 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Four other participating companies (John Hancock, MassMutual, New York Life and National Guardian) showed worksite discounts in their display of their “street” products. Mutual of Omaha’s common-employer discount is expressly not a worksite program.
Here we compare the survey’s WS sales to its individual LTCI policies that are not worksite policies (“NWS”) and to its total individual sales (“Total”). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.
Some business owners buy individual policies and pay for them through their business. Such policies may not be reported as “worksite” policies by our participants. In other circumstances, businesses might sponsor general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site. Such sales are not included here.
About the Survey
Six (identified above) of the 13 insurers whose products are displayed in the 2016 Milliman LTCI Survey offer discounts for WS LTCI. All, except National Guardian who did not start sales until 2016, contributed data. In addition, Genworth, Northwestern and MedAmerica contributed data. Genworth and MedAmerica did not sell new worksite cases in 2015, but new policies were issued on cases sold in previous years. Other than true group sales, our data may represent the entire worksite LTCI industry.
Highlights from this year’s survey
• In 2015, participants reported sales of 12,690 worksite policies for $22.1 million of new annualized premium, an 10.2 percent increase in new annualized premium compared to 2014, despite a 6.0 percent drop in policies. The average worksite premium rose from $1,496 to $1,740. 2014’s average premium had been low compared to $1,684 in 2013. (The amount of core business drags the average worksite premium down a lot and the amount of carve-out business pulls it up. It appears that core business was a lower percentage of worksite sales this year.)
• Worksite market share (See Table 1) continued to concentrate. The top 3 carriers jockeyed positions, but sold 81.7 percent of our new reported premium (78.1 percent in 2014).
• Reported worksite LTCI sales accounted for 12.5 percent of the policies sold in the industry (up from 10.2 percent in 2014) and 7.2 percent of the annualized premium (up from 6.1 percent). For two carriers, about 40 percent of their new annualized premium was from worksite sales and for another two, about 12 percent of their new premium was from worksite.
• One insurer reported an average size of 56 policies per worksite case; another reported 14 and two carriers averaged only three policies per case.
• For the first time, a higher percentage of worksite policies were sold to females (58.0 percent) than of non-worksite sales (55.9 percent). While we initially attributed this statistical change to anti-selection by females eligible for unisex worksite premiums, further analysis suggested that such anti-selection was not primarily responsible.
• The benefit increase features for 2015 WS sales were similar to the benefit increase features for NWS sales, a major difference compared to the past when NWS policies had much more robust benefit increase features. Hence, worksite policies were as likely to qualify for Partnership as non-worksite policies.
• Shared Care became tremendously more popular for employees whose spouse also bought coverage. In 2014, only 27.9 percent of such couples bought Shared Care. In 2015, 49.2 percent did.
In previous survey reports, we’ve signaled that the impact of the industry’s shift to gender-distinct pricing outside the worksite would impact worksite sales too. Insurers worry that worksite sales weight more toward females when females receive a large price discount from “street” prices and males pay more than “on the street.” In previous years, the percentage of female sales in the worksite was 1.4 percent to 8.8 percent lower than the percentage of females in overall LTCI sales, but in 2015 the percentage of female sales in the worksite exceeded the “street” percentage by 2.1 percent. Surprisingly, much of this dramatic change may be a fluke, as explained later in this article.
However, as we anticipated, insurers have responded to their concern by moving worksite unisex prices closer to female “street” prices. As a result, some insurers charge same-age couples in the worksite a higher price than their standard-class “street” price. As the male spouse is generally older and as one or both spouses might qualify for a “preferred health” discount on the “street,” the possibility of a couple paying (perhaps significantly) more through the worksite increases
After the remaining street product with unisex rates is re-priced, it seems likely that single males will pay at least 25 percent to 50 percent more through the worksite than their standard price “on the street.” With one carrier, even single women pay a higher price through the worksite than they pay “on the street.”
As a second precaution, some insurers have based worksite case approval on gender distribution.
Insurers have also raised their minimum age to avoid anti-selection (few people buy below age 40 and many don’t go to the doctor regularly, hence the applicant may know something the insurer does not know) and to reduce exposure to very long claims. Three of the six insurers showing worksite discounts in our July display won’t issue worksite below age 40.
With low participation rates, the risk of a skewed distribution is exacerbated, as is the risk of anti-selection if health concessions are granted. It is not surprising that insurers feel a need to tighten up price and health concessions, particularly for voluntary cases.
For several years, worksite LTCI has been negatively impacted because employee benefit brokers and employee benefit managers have been absorbed with the Affordable Care Act. As those pressures abate, worksite LTCI sales may not rebound significantly, because of the above issues and the higher price of LTCI in general. Voluntary worksite “LTCI” sales may gravitate toward combo products, which have the added advantage of providing valuable life insurance coverage that is viewed as a more immediate potential benefit.
A shift away from worksite voluntary LTCI would be unfortunate because the worksite is a great avenue to reach the middle class which could benefit from LTCI and the State Partnership programs. Historically, however, the industry has not been effective in providing Partnership coverage to the Partnership’s target market through worksite sales. Fewer than 40 percent of worksite sales have Partnership-qualifying designs and worksite policies sold to members of the middle class are less likely to qualify for the Partnerships than worksite policies covering executives. (The July issue of Broker World demonstrated the value of the Partnership and outlined a number of ways to increase Partnership success.)
Employer-paid LTCI is still very attractive because of unique tax advantages. However, Title VII of the 1964 Civil Rights Act requires that employer-involved sales use unisex pricing if the employer has at least 15 employees. When all insurers used unisex pricing (until 2013), an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company. Prospectively, it may be hard to find a unisex product for such clients because fewer insurers offer unisex pricing, because insurers often require minimum participation when they offer unisex pricing and because several insurers don’t offer unisex pricing below issue age 40.
In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the sub-market they serve and how they serve it. Furthermore, our results may vary from year to year due to a change in participating insurers or in market share among insurers. For example, it seems that there were fewer employer-paid core sales in 2015, resulting in higher age distribution, average premium, average benefit period, female percentage and percentage of policies that included compound benefit increases.
WS market share is distributed very differently than the NWS market. The top three worksite carriers in 2015 were the same as in 2014. They sold 81.7 percent of reported 2015 worksite premium, compared to 78.1 percent in 2014. Their combined market share for non-worksite sales was less than half as much, 33.3 percent. .
We expect worksite market shares to change more dramatically in 2017 than in 2016.
Table 2 shows that the WS buyer was older in 2015 vs. 2014 (consistent with our belief that there were fewer core programs), while the NWS buyer trended younger. The average age of purchase in 2015 was 5.9 years younger in the WS market than in the NWS market (50.7 vs. 56.6), compared to 7.5 years in 2014 (49.5 vs. 57.0).
Not surprisingly, despite its younger age distribution, the worksite market has a much lower percentage of policies issued in the best underwriting classification because many worksite programs do not offer “preferred health” discounts.
Table 4 demonstrates that the WS market had a lot more 2-year benefit periods than the NWS market. It also has more 8-year benefit periods due to different carrier market shares. The average benefit period for worksite sales dropped from 4.28 in 2014 to 3.89 in 2015, reverting, after two contrary years, to the traditional pattern of being shorter than the 4.02 average benefit period for NWS sales.
Maximum Monthly Benefit
With a lot fewer sales under $100/day, the average WS initial maximum benefit rose from $124/day to $136/day, compared to $163/day for the NWS market (down from $171/day).
Benefit Increase Features
In 2015, the WS market had a higher percentage of sales with level premiums and three percent and five percent compounding than did the NWS market. It had a lot of step-rated increases (premiums and benefits increase in lock-step each year). In the WS market, 45.8 percent (down from 57.5 percent in 2014) of policies had either no increases, a deferred option or future purchase options (FPO), compared to 44.7 percent of NWS policies (up from 38.3 percent). Historically, the NWS market had much more robust benefit increase features. Please note that the total distribution has a correction (more 3.5 percent compound; less three percent compound) than was published in our July issue.
Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2016 study), the typical worksite sale’s average maximum daily benefit of $136 would cover 6.8 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $163 would cover 8.2 hours of care per day at issue.
According to the American Association for Long-Term Care Insurance’s Sourcebook, about two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age (which was different for WS and NWS) to age 80, using methodology reported in the July article.
We projected the cost of care at age 80 using a variety of inflation rates as shown in Table 7.
Table 7 shows that the average worksite policy gains purchasing power if inflation is only two or three percent, but it does not compound enough to keep up with inflation rates of four percent or more. Using the average worksite issue age, the typical 2015 “street” product provided more hours of home care coverage at issue, but that advantage disappears by age 80 because of the richer compounding that was typical of WS policies in 2015. Based on the average “street” design, the bottom two rows of Table 7 compare age 80 purchasing power using the worksite average issue age (50.7) to the “street” average issue age (56.6). With two percent inflation, the younger issue age generates more purchasing power because the average street product had more than two percent compounding. However, at higher inflation rates, the younger age performed less well over time because its average compounding was insufficient. Overall, worksite market sales in 2015 provided close to the same future purchasing power as did “street” sales. That’s partly because the WS sales were more robust than in the past (fewer core programs, we believe) and partly because the “street” sales were less robust.
Even with six percent inflation, the average policies would cover three or more hours of daily home care at age 80. Table 7 suggests strongly that “something is better than nothing” because three hours of commercial home care can be a huge help to someone who is in need of care! However, it is important to remember that:
1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs. A lot of buyers would have lower purchasing power than the averages shown above.
2. Buyers might not understand that their purchasing power at age 80 might be less than it was at issue. It is important to educate purchasers so they have reasonable expectations.
3. The above does not reflect the cost of professional home care or a facility. If work-site buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.
4. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each size policy is as likely to exercise benefit increase options and that everyone buys a home care benefit equal to their facility benefit.
Partnership Qualification Rates
The benefit increase requirement to qualify under the state Partnership programs varies by age. Generally a level premium with a permanent annual three percent or higher compound increase or an otherwise similar CPI increase is required for ages 60 or less. For ages 61-75, five percent simple increases also qualify and for ages 76 or older, policies qualify without regard to the benefit increase feature. We also presumed that age-adjusted compound policies would qualify. Table 8 identifies the percentage of policies which would have qualified for Partnership if Partnership programs had existed with those rules in all states. However, if Partnerships were available in all states (with the rules cited in this paragraph), the percentage of Partnership policies would exceed the percentages shown in Table 8, because Partnership programs would cause the distribution of sales to change in those states that don’t currently have Partnership programs.
The WS market provides an opportunity to serve less-affluent people efficiently, people who would most benefit from Partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet Partnership qualifications fell from 56.6 percent in 2012 to 41.7 percent in 2014. The NWS dropped off more in 2015 than the WS market. In 2015, approximately 39 percent of the policies would have qualified in either market. Our July survey article identified several ways to improve these percentages.
Nearly 90 percent of the “street” market buys 90-day elimination periods (EP). For that reason, most worksite programs offer only a 90-day EP and 97.1 percent of 2015 worksite sales had a 90-day EP.
Zero-day home care elimination period (in conjunction with a longer facility EP) was almost twice as common in the WS market than in the NWS market in 2015 because a carrier that always provides zero-day home care had a large market share. Calendar-day EP was less common in the WS market than in the NWS market, but that is misleading because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. If that carrier’s EP was classified as “calendar-day," over 75 percent of WS sales would show up as “calendar-day” EP.
Sales to Couples and Gender Distribution
As mentioned earlier, for the first time, the WS market had a higher percentage of sales to females (58.0 percent) than the NWS market (55.9 percent). Table 10a shows that data and other related data and Table 10b shows historical female percentages in the WS and NWS market.
Although insurers fear that WS sales might tilt toward females to a degree that would jeopardize profitability, our detailed analysis causes us to believe that the change was primarily attributable to a change in distribution among carriers selling in the WS and to a reduced amount of core policies being sold in 2015.
The WS market continues to be more likely to insure only one partner and more likely to insure single people, but these differences between the WS and NWS market are smaller in 2015 than in the past (we believe there were fewer core programs). Surprisingly, couples who both purchased coverage were more likely to include Shared Care in the worksite market than in the NWS market. The increase in Shared Care was primarily due to one carrier reporting a big change.
Type of Home Care Coverage
Historically, the worksite market sold fewer policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, such policies are now almost always sold and are more common in the WS market than the NWS market. WS policies were less likely to include monthly determination in 2015 than in 2014 because of a shift in distribution among carriers.
Return of Premium (ROP) was much more common in the WS market (54.7 percent) than in the past (29.3 percent) and more common than in the NWS market (20.6 percent). In both the WS and NWS market, about 95 percent of the ROP sales were embedded provisions that are limited (such as expiring at age 67). Such ROP is an inexpensive way to encourage more young people to buy coverage.
Partial Cash Alternative was also more common in the WS market (49.8 percent) than in the NWS market (23.1 percent). One major WS carrier has a provision similar to partial cash alternative but it is limited to purposes listed in the plan of care. If that feature is included here, such alternatives were included in 75.1 percent of WS sales and 26.0 percent of NWS sales.
For the second straight year, Shortened Benefit Period was less common in 2015 in the WS market (0.3 percent) than in the NWS market (1.4 percent).
On the other hand, Restoration of Benefits was more common in the WS market (12.5 percent) as in the NWS market (10.8 percent) and was more likely to be purchased for an extra premium in the WS market (unlike the past).
Limited pay policies account for less than one percent of the market in 2015. We should see some single premium policies in the 2017 survey.
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt of Milliman for managing the data expertly.
We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey, please contact one of the authors.