2017 Analysis Of Worksite LTC Insurance

    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; usually the insureds can buy more coverage. 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 2017 issue of Broker World reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Three other participating companies (MassMutual, National Guardian, and New York Life) showed worksite discounts in their displayed “street” products. Mutual of Omaha’s common-employer discount is expressly not a worksite program. 

    Here we compare the survey’s WS sales with individual LTCI policies that are not worksite policies (NWS) and to 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 businesses. Some participants may not report such policies as “worksite” policies. In other circumstances, businesses might sponsor general long term care/LTCI educational meetings, with employees pursuing any interest in LTCI off-site. Such sales are not included here.

    About the Survey
    Five insurers (identified previously), of the 12 whose products are displayed in the 2017 Milliman LTCI Survey, offer discounts for WS LTCI. All, except National Guardian, which did not place sales until late in 2016, contributed data. In addition, Northwestern contributed data. John Hancock discontinued LTCI sales in 2016 and chose not to report its data. Genworth sold true group policies and Unum added new lives to existing group policies. Our data does not include those group sales.

    Highlights from This Year’s Survey

    • In 2016, participants reported sales of 14,929 worksite policies for $23.7 million of new annualized premium, increases of 22.1 percent in the number of WS policies and 12.4 percent in new annualized WS premium. These increases contrast with the declines in total 2016 LTCI sales compared with 2015 (13.6 percent fewer policies and 14.2 percent less new annualized premium).
    • Worksite LTCI sales accounted for 18.5 percent of the policies sold in the industry (up from 12.5 percent in 2015) and 11.9 percent of the annualized premium (up from 8.7 percent).
    • For one carrier, 64 percent of its new premium came from WS sales. Another carrier had 37 percent of its sales from WS. The other three carriers sold seven percent to 11 percent of their new premium in WS.
    • The average worksite premium dropped from $1,740 in 2015 to $1,590 in 2016. Among participants, the average varied from $1,344 to $3,453, so a change in distribution by carrier can significantly affect the overall average premium. Core business drags the average worksite premium down a lot and carve-out business pulls it up, so a change in distribution by core versus carve-out can also have a big impact on average premium.
    • Two insurers reported 25 to 30 policies per group. Two others had two to six policies per case and one insurer did not report average case size. Last year, one insurer reported an average of 56 policies per group.

    Market Perspective
    The WS share of the total market has been increasing for the past three years despite pressures affecting the worksite market. Most of the increase in WS market share reflects the decline in NWS stand-alone LTCI. The popularity of combo products has eaten into the NWS stand-alone LTCI market much more so than in the worksite market. However, the number of policies in the worksite market increased in 2016 and new premium has increased for the past two years.

    Most insurers interpret Title VII of the 1964 Civil Rights Act to require that employer-involved sales use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current (or previous) year.

    When both NWS and WS had unisex pricing, WS business was a more attractive market for insurers because the distribution of sales was more heavily weighted toward males. More males were eligible for executive carve-out programs and single males were probably significantly more likely to buy LTCI when LTCI was presented to them with their employer’s endorsement. Our data indicates that the WS market has become increasingly dominated by female sales, perhaps because females are becoming informed about the attractiveness of unisex premiums and because the WS market charges males a lot more than males are charged in the NWS market.

    Because of the expense involved in having separate pricing for WS sales and NWS sales and partly due to the additional gender risk mentioned above, insurers are less likely to have products in both the WS and NWS market. Furthermore, insurers are more concerned than in the past about having a sufficient number of employees who are likely to be financially able to pay for LTCI, the likely participation rate, and the gender distribution. (Our July article reported on insurers’ answers to specific questions on these issues.)

    In the past, an executive carve-out for two partners of a company with more than 15 employees could have been served by any LTCI company. Increasingly, it is hard to find a carrier for such a group. Thus, it is harder for executives to benefit from the tax advantages of employer-paid coverage.

    We are also seeing a trend toward the unisex WS premium approaching the NWS female price level. As a result, WS couples may also pay more than NWS couples, particularly as male spouses are generally older and one or both spouses might qualify for a “preferred health” discount “on the street.” 

    Insurers have also raised their minimum ages to avoid anti-selection (few people buy below age 40) and, to reduce exposure to very long claims, stopped insuring people who don’t go to the doctor regularly. Two of the five insurers showing worksite availability in our July display won’t issue worksite below age 40. An age 40 minimum makes sense in the NWS market, but it hurts sales to people over age 40 as well as under age 40 in the WS market because employers don’t want to exclude under-age-40 employees, especially in the executive carve-out market.

    Uncertainty related to the Patient Protection and Affordable Care Act (ACA) continues. The waves of confusion and work for employee benefit brokers and employee benefit managers continue to make it hard for brokers and clients to consider WS LTCI.

    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 need.

    A shift away from worksite voluntary LTCI would be unfortunate because the worksite is a great avenue to reach the middle class. These potential buyers could benefit from LTCI and the state Partnership programs that also provide relief to Medicaid programs. Unfortunately, only 30.7 percent of WS sales in 2016 had characteristics that would qualify for Partnership programs. (The July issue of Broker World demonstrated the value of the Partnership programs and outlined a number of ways to increase Partnership success.)

    Statistical Analysis
    In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the submarket 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. 

    Sales and Market Share
    Table 1 shows historical WS sales levels and Table 2 shows market share (WS as a percentage of total sales). The WS market had much more stable sales than the total market, thereby driving up the WS share of total sales. The NWS market has been more affected by the growing popularity and flexibility of combo products. Also, the increase in unit premiums is less detrimental in WS executive carve-out sales to the degree that premiums are pre-tax.

    But the worksite market has been hampered because our nation’s health insurance gyrations have consumed the attention of employee benefit professionals and employers. In addition, since the advent of gender-distinct “street” prices, fewer insurers have been attracted to the worksite market and the criteria for acceptance of worksite cases has tightened, as noted earlier. Furthermore, many people believe that employers with more than 15 employees expose themselves to civil rights complaints if they use gender-distinct pricing. It has grown increasingly difficult to serve that market. Given such headwinds, the WS sales have been very impressive, especially as fewer very large groups appear to have been written.

    As shown in Table 3, the five top worksite carriers were the same in 2016 as in 2015, with only one insurer causing rank changes. WS market share among carriers is distributed very differently from the NWS market. The top two WS carriers combined for 70.4 percent of the market (compared with 63.3 percent for the top two in 2015), while collectively producing 16.7 percent of total LTCI sales.

    Issue Age
    Table 4 shows that the WS buyer continues to draw nearer to the NWS market in average age. In 2014, the average age difference was 7.5 years (49.5 vs. 57.0), dropping to 5.9 years in 2015 and 5.3 years in 2016. For each market, the most common age range is 50 to 59, but 34.9 percent of WS sales were under age 50, compared with only 16.6 percent of NWS sales.

    Rating Classification
    Not surprisingly, as Table 5 shows, despite its younger age distribution, the worksite market has a much lower percentage of policies issued in the best underwriting (UW) classification because many worksite programs do not offer “preferred health” discounts. This difference between the markets broadened in 2016.

    Benefit Period
    Table 6 demonstrates a sharp reversal from 2015. For the third time in the past four years, the average WS benefit period (BP) was longer than the average NWS BP. Prior to 2013, that had not occurred. The difference in 2016 was a little greater than in 2013 and 2014. One carrier sells a lot of eight-year BP policies, which had a large impact on the data.

    Furthermore, as reported in the “couples” section below, WS buyers were more likely to purchase shared care, which can increase an individual’s benefit period.

    Maximum Monthly Benefit
    Table 7 shows that the difference in average initial monthly maximum benefit narrowed between the WS and NWS markets in 2016, dropping from $810 ($4,890 in NWS vs. $4,080 in WS) to $645 ($4,924 in NWS vs. $4,279 in WS), as the WS average increased more than the NWS average.

    Benefit Increase Features
    Different carriers offer different benefit increase features. As a result, the difference in distribution of NWS sales versus WS sales by carrier explains why the WS market has more step-rated, deferred, and age-adjusted benefit increase features, as shown in Table 8. In addition, WS has a little more five percent compounding and a lot more future purchase options (FPO).

    In the WS market, 60.0 percent of policies had either no increases, a deferred option, or future purchase options (FPO), compared with 53.8 percent of NWS policies.

    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 monthly benefit of $143 would cover 7.1 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $164 would cover 8.3 hours of care per day at issue.

    To determine the coverage at age 80, we project, 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 the methodology reported in the July article.

    As shown in Table 9, we project the cost of care at age 80 using various inflation rates to determine how many hours of home care would be covered at age 80. The worksite line shows about 20 percent fewer non-professional home care hours than we projected last year, because the WS market had a higher issue age this year and less robust compounding. From the table, we can infer that the average compounding on WS sales is 2.1 percent, as home care purchasing power increases from 7.1 hours at issue to 7.3 hours at age 80 if the inflation rate turns out to be only two percent.

    Projecting the average NWS design at the WS average age and at the NWS average age shows that the younger age of the WS market hurts age 80 coverage if the inflation rate is three percent or higher. From the table, we can infer that the average NWS compounding is about 2.4 percent. Thus, if average home care cost inflation exceeds 2.4 percent, NWS sales will have decreasing purchase power on average.

    It is important to remember that:

    • The 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.
    • It is important to educate buyers that their purchasing power may deteriorate over time.
    • Table 9 does not reflect the cost of professional home care or a facility. According to the 2016 Genworth study, the average nursing home private room cost is $253/day, which is comparable to 12.5 hours of non-professional home care. Readers can use this fact and the above data to determine what percentage of typical nursing home costs might be covered.
    • Table 9 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 the 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 consumer price index (CPI) increase is required for ages 60 or less. For ages 61 to 75, five percent simple increases also qualify, and for ages 76 or older policies qualify without regard to the benefit increase feature. We presumed that age-adjusted compound policies would also qualify. Table 10 identifies the percentage of policies that would have qualified for Partnership if Partnership programs existed with those rules in all states. However, if Partnership programs were available in all states (with the rules cited in this paragraph), the percentage of Partnership policies would exceed the percentages shown in Table 10, because Partnership programs could 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, employees and relatives 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 and hit a new low of 30.7 percent in 2016. Our July survey article identified several ways to improve these percentages. 

    Elimination Period
    About 90 percent of the NWS market buys 90-day elimination periods (EPs). For that reason, most WS programs offer only a 90-day EP and 97.8 percent of 2016 WS sales had a 90-day EP. Every other EP became less common in the WS market in 2016. In the NWS market, EPs longer than 100 days became a bit more popular in 2016.

    Because of a shift in sales distribution between insurers, a zero-day home care (HC) elimination period (in conjunction with a longer facility EP) was less common in WS sales in 2016 than in 2015, yet still 50 percent more common than in the NWS market.

    For the same reason, calendar-day EPs surged in the WS market in 2016, nearly doubling, while the NWS market was similar to 2015. As we have noted in the past, a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. When receiving facility care, a service-day EP is effectively the same as a calendar-day EP. If that carrier’s EP was classified as “calendar-day,” 83 percent of WS sales would show up as “calendar-day” EP, compared with 75 percent in 2015.

    Sales to Couples and Gender Distribution
    In 2015, for the first time, the WS market had a higher percentage of sales to females than the NWS market (2.1 percent higher). Table 12 shows that, in 2016, this difference broadened to 3.2 percent, as the percentage of females among WS sales ticked up by 0.1 percent of buyers while the percentage of females in the NWS market dropped by one percent of buyers.

    Reflecting insurers’ fears, 74.2 percent of single WS buyers were female. Fortunately for the insurers, the percentage of WS couples who both buy increased from 50.7 percent to 52.1 percent.

    In 2016, WS purchasers were a little more likely to also insure their spouses than in the NWS market. In the past, marketing and core programs often insured the employee but not the spouse. When WS marketing is directed toward securing spouse applications, the percentage of both spouses buying should be higher than for the NWS market because there should be fewer declines, as at least one spouse/partner is employed and the age distribution may be younger.

    Surprisingly, for the second straight year, couples who both purchased coverage were more likely to include shared care in the worksite market than in the NWS market, with the difference increasing substantially compared with 2015. 

    Table 13 shows the percentage of females in each market annually since 2011. When unisex pricing applied in both markets, the WS market had a higher percentage of males than the NWS market, perhaps because males were more likely to be eligible for executive carve-out programs and because single males (who might not normally consider buying in the NWS market) were solicited with their employers’ endorsements in the WS market. As mentioned earlier, insurers are concerned that single males will be less likely to buy in the WS market now, as their prices are typically significantly higher than “street” prices.

    Type of Home Care Coverage
    Table 14 summarizes the distribution of sales by type of home care coverage. Historically, the WS market sold fewer policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, policies with the same maximum for home care and facility care are now almost always sold and are more common in the WS market than the NWS market. WS policies were more likely to include monthly determinations in 2016 than in 2015 because of a shift in distribution among carriers.

    Other Features
    Return of Premium (ROP) regressed from 2015’s 54.7 percent of WS policies to 37.2 percent, still more common than in 2014 (29.3 percent) and more common than in the NWS market (24.3 percent). In both the WS (94.3 percent) and NWS (92.4 percent) markets, the vast majority of ROP features were embedded automatically. In the WS market, 82 percent of the embedded ROP sales had death benefits that expired (such as expiring at age 67). Such ROP is an inexpensive way to encourage more young people to buy coverage. 

    In a shift from 2015, partial cash alternative was slightly less common in the WS market (29.6 percent) than in the NWS market (30.5 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 82.5 percent of WS sales compared with 34.7 percent of NWS sales.

    For the third straight year, shortened benefit period was less common in 2016 in the WS market (0.3 percent) than in the NWS market (1.5 percent).

    Restoration of Benefits was also less common in the WS market (11.5 percent) than in the NWS market (13.6 percent) but was twice as likely to be purchased for an extra premium in the WS market (38.6 percent vs. 17.3 percent).

    Limited Pay
    Table 15 shows that limited pay policies accounted for less than one percent of the market in 2016. 

    We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Derek Montgomery 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.

    Claude Thau is president of Thau Inc., and works to help build a sound long term care insurance industry. Thau wholesales long term care-related products for brokers nationwide as National Brokerage Director of USA-BGA. In addition to his duties at USA-BGA, Thau consults for insurers, consulting firms, regulators, etc., creates unique software to help advisors educate clients, and does LTCI and long term care pro bono work, as LTCI’s value relies on quality long term care being available.

    He also sells a little LTCI himself, as current sales experience is important to be a good wholesaler and consultant.

    Thau’s LTCI experience is unusually broad and deep. After a career as an actuary, he led a major insurer’s LTCI division, which then grew five times as fast as the rest of the LTCI industry for each of three consecutive years. Since setting up Thau, Inc. in 2000, he has consulted for the Federal government’s LTCI program, chaired the Center for Long-Term Care Financing, and, since 2005, led the Milliman LTCI Survey, published annually in the July and August issues of Broker World.

    A former inner-city public school teacher, Thau enjoys mentoring brokers individually to help them grow their business.

    Thau can be reached by telephone at 913-707-8863. Email: claude.thau@gmail.com.

    Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

    He can be reached at 15800 Bluemound Road, Suite 400, Brookfield, WI 53005. Telephone: 262-796-3477. Email: allen.schmitz@milliman.com.

    Chris Giese, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

    He can be reached at 15800 Bluemound Road, Suite 100, Brookfield, WI 53005. Telephone: 262-796-3407. Email: chris.giese@milliman.com.