July 2014
2014 Long Term Care Insurance Survey
Claude Thau
Dawn Helwig
Allen Schmitz
The 2014 Long Term Care Insurance Survey is the sixteenth 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
• Participants
We are pleased that Mutual of Omaha and United Security Assurance have, as indicated last year, resumed participation in the survey after a one-year hiatus.
The carriers that participated last year are all participating again. Although Northwestern Long Term Care Insurance Company's product is not included in the product display section, Northwestern LTC has, once again, provided background statistical information to help us report on the entire industry.
In addition, New York Life contributed sales totals. Prudential and Unum, although not accepting any new groups, provided sales of new certificates to existing cases. These companies are not reflected in the statistical distribution.
In our 2008 survey article, we reported that there were about 45 insurers selling stand-alone individual or group LTCI. Now there are only 16.
• Sales
• The 15 carriers that reported individual sales to this survey sold 174,775 policies ($403,924,967 of new annualized premium) in 2013, plus 26 single premium policies ($1.5 million of premium). Single premium stand-alone LTCI has been unavailable for nearly two years; these apps were submitted in the summer of 2012, but not placed until early 2013. We estimate that these carriers sold well over 99.9 percent of the stand-alone LTCI industry’s 2013 sales.
• Industry sales were down 26.5 percent from 2012 in terms of premium and 22.9 percent in terms of the number of lives insured with individual policies.
• Thus, the average premium per new sale dropped from $2,424 to $2,311, a surprising change of direction, recognizing that prices are increasing. Two primary factors contributed to the decrease: 1) Consumers purchased less-robust benefit increase features and 2) consumers purchased shorter benefit periods.
• Worksite sales also dropped (28.6 percent less new premium; 6.4 percent fewer policies), partly because some insurers discontinued worksite sales or restricted underwriting concessions and price discounts. Worksite business produced 10.2 percent of new policies, but only 6.8 percent of new annualized premium. The average worksite premium dropped from $2,033 in 2012 to $1,551 in 2013.
• Affinity sales increased, with 27.4 percent more premium and 26.3 percent more policies than in 2012. These figures do not include AARP sales for either 2013 or 2012.
• The sales picture is worse than the numbers indicate. It is striking that sales are down so much despite “fire sales” (such as single women buying before the introduction of gender-based pricing). (See the Market Perspectives section for more comments.)
• Because of the strong persistency of LTCI business, in-force premium for these 15 insurers increased 5 percent (to $6.9 billion) from year-end 2012 to year-end 2013, and the number of insureds increased 2.4 percent (to 3,456,000). Average in-force premium rose from $1,949 to $1,997. However, four carriers had decreases in their number of in-force policies at year-end 2013 compared to year-end 2012, 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 2.7 percent of year-end 2012 in-force policies.
• Genworth, Prudential and Unum collectively sold true group LTCI to 100,379 new insureds ($39 million of new annualized premium, not including additions to in-force certificates). That’s a drop of 12 percent, compared to 2012, in new certificates sold, but 57 percent in new premium sold. The big drop in premium compared to sales seems to reflect a lot of core program additions.
• Two group carriers also reported new annualized premium ($4.9 million) from 20,922 insureds who increased coverage. That’s 15 percent fewer insureds who increased coverage than in 2012, but only 10 percent less premium. Presumably because in-force certificate holders are aging, future purchase options (FPOs) have higher average premiums.
• We estimate that 25 percent of the group FPOs were exercised in 2013. That result is very close to the 24 percent of individual policyholders who exercised such options based on data submitted by four insurers, which is consistent with past results (see Table 9).
• Only 34.4 percent of sales were in the least costly rating classification, compared to 56.3 percent in 2012 and only 3.6 percent had lifetime benefit periods, down from 19.9 percent.
• Claims
Participating insurers paid $3.4 billion in claims in 2013 and have paid nearly $25 billion since inception. Overall, the LTCI industry incurred $7.7 billion in claims in 2012 (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 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 13 insurers, representing 92 percent of the policies sold in 2013.
• 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 21 products displayed, including 7 products that were not displayed in 2013. Several others have changed premiums, design options and/or multi-life parameters since 2013.
• Premium Rate Details explains the basis for the product-specific premium rate exhibit.
Market Perspective
• In a major change of direction, women’s prices are now generally at least 50 percent more than men’s prices. The premium differential is justified by long-known claims differences. Prior to 2013, insurers priced individual LTCI assuming that most buyers were females. Couples’ discounts reflected that nearly every couple included a male. So, prior to 2013, single males were overcharged. When shifting to gender-distinct pricing, most insurers used more conservative investment yield assumptions. So male prices tended to remain the same, while female prices increased 50 percent or more.
Of the 13 insurers displaying product in this survey, six have gender-distinct pricing. Together, those six carriers accounted for 64 percent of the market in 2013, in terms of both annualized premium and number of policies sold, slightly more than their 60 percent of annualized premium and 62 percent of policies in 2012. Four other insurers indicate that they will probably implement gender-distinct pricing by the beginning of 2015. All insurers are likely to do so eventually, to avoid a higher percentage of their sales being made to single females, an adverse change that would undermine their pricing assumptions.
One carrier uses gender-distinct individual prices, but unisex pricing for couples, an interesting approach that impacts the market differently and leaves different issues for management to consider and watch.
For the six insurers, the average ratio of prices for single females to prices for single males for a 5-year benefit period did not vary significantly by age. For issue ages 40, 50, 60 and 70, the percentage ranged from 50 to 53 percent with a flat benefit and ranged from 57 to 63 percent with 5 percent compounding.
As of April 2014, only California, Florida and Montana have unisex pricing for all LTCI. Montana appears immune from gender-distinct pricing because such pricing is illegal in Montana, and Montana is not part of the Interstate Compact for LTCI. There is a bill in the California legislature that would forbid gender-distinct LTCI pricing in California.
The impact on the individual and couples market should be clearer by next year’s Broker World issue. The move to gender-distinct pricing may also adversely affect the worksite multi-life market, the professional association market and small (non-multi-life) executive carve-out markets, but the impact on those markets might unfold more slowly.
However, civil rights complaints, lawsuits and legislative changes may change the trend toward gender-distinct pricing. On January 16, 2014, The National Women’s Law Center filed a civil rights complaint against four insurers, three Medicaid departments (Kentucky, Minnesota and Washington) and the Center for Medicare and Medicaid Services, alleging that gender-distinct LTCI policies are a violation of the Affordable Care Act and that the states and federal government were complicit because their partnership programs promote policies with gender-distinct pricing.
Some observers wonder whether females who bought policies that were sold with unisex 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 that did not affect original pricing.
• With insurers demanding higher profit margins to compensate for perceived risk, the market is resisting. Some observers believe that, because today’s prices are so much higher, the average applicant is less healthy than in the past, a characteristic that could contribute to a rate spiral. Only 65.8 percent of the applications were placed in 2013, despite more restrictions on high-age product availability.
• Underwriting continues to evolve. As of May 2014, two insurers require paramedical exams. One insurer denies preferred health discounts to young applicants with family history of early dementia, Parkinson’s, stroke or coronary artery disease. For several years, insurers have gathered data to determine whether such underwriting decisions would be justified and have required more evidence of insurability due to family history without making an underwriting determination on that basis. Over time, family history is likely to have an increasingly important effect on underwriting.
• Although no carriers dropped out of the market in the past year (16 insurers currently sell stand-alone LTCI policies in the United States), the market is far from stable. Some major carriers are expressing serious concern about their ability to provide traditional LTCI and make reasonable profits with reasonable certainty. 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. The industry, regulators and consumers must find product solutions for such an economic environment.
• The top 10 insurers, in terms of sales, were the same in 2013 as in 2012, but there was considerable shifting after the top three. Two insurers combined to account for 60 percent of the new individual annualized premium in 2012, but in 2013 (as reflected in Table 4 on page 46), as in 2011, it took three insurers to account for such market share. We expect 2014 sales to be distributed significantly differently than 2013 sales, and 2015 sales to shift further.
• Existing policyholders continue to see large rate increases. However, insurers seem likely to experience favorable deviations in the future, relative to today’s pricing assumptions, because interest rates are likely to rebound, adverse persistency seems unlikely with typical assumptions of 0.5 percent to 1 percent per year, and improved underwriting should favorably impact claims. Thus, newer blocks are clearly more stable.
• Independent Review (IR) should be increasing distributors’ and consumers’ confidence. More than 80 percent of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. If insurers conclude that a claimant is not chronically ill, the claimant can appeal the decision to binding IR. Our participants report only 30 cases in which insureds have taken their claims to IR, and the insurers’ denials have been upheld 80 percent of the time.
Claims
Eleven participants reported individual claims for 2013, and three reported true group claims, which is one more insurer in each category than last year. Their total claim payments rose to $3.359 billion in 2013, 11 percent more than 2012, whereas their total in-force premium rose only 5 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 are increasing due to various 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 insurers have paid nearly $25 billion ($24.5 billion) in LTCI claims through 2013.
The LTCI industry has had a much bigger impact than indicated above because many claims are paid by insurers who no longer sell LTCI. According to the NAIC’s report for 2012 (the most recent report available when this was written), the industry incurred $7.7 billion in claims in 2012, boosting the industry to $81.2 billion of claims incurred since 1991. Incurred claims increased 9 percent in 2012, 9.6 percent in 2011 and 14.7 percent in 2012.
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), because home care and ALFs are increasingly available and because new sales are nearly entirely comprehensive policies (covering home care, adult daycare, 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. The average total claim, all venues combined, is large compared to the averages by venue because 31.6 percent of individual policy claimants and 26.5 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.
These average claims may be misleadingly low because:
1. A lot of very small claims drive down the average. The purpose of insurance is to protect against experiencing a non-average result. The potential deviation is more relevant than the average.
2. People who recover, then have another claim, are counted twice. It appears that more than 30 percent of claimants recover. Their claims were presumably quite short, on average, but many of them may have a second claim.
3. Older policies typically had lower maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time.
4. Twenty-seven percent of the inception-to-date individual claims included 2013 payments, as did 23 percent of the corresponding group claims. Thus, a meaningful percentage of the inception-to-date claims are still open. Our data does not include any reserve estimates for future payments on open claims.
To the degree that policy maximums do not increase automatically and that people do not exercise FPOs, claims can be significantly lower than service costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.
Group claims are less mature than individual claims because group LTCI has not been sold as long and is sold to younger people who have yet to go on claim. The group average claim is 78 percent as high as the individual average claim. Group claims have a younger age distribution, hence may last longer, but have had shorter benefit periods and may have lower maximum daily (monthly) benefits. Core programs are particularly likely to insure only a small portion of the eventual need, but perhaps they have not yet turned into claims because people who have only core coverage tend to be younger.
ALF claims have high individual LTCI claims averages partly because 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 and many cognitive claimants use ALFs. Third, nursing home claims are less likely to be fully covered.
Statistical Analysis
Twelve insurers contributed to this 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.
• Market Share
Table 4 lists the top 10 carriers in terms of 2013 new premium, ignoring single premium sales.
• Characteristics of Policies Sold
Average Premium. Ignoring single premium sales, participants’ average premium per new policy was $2,311, down from $2,424 for the same insurers in 2012. The lowest average size premium among participants was $1,273, while the highest was $2,729 (compared to $3,341 in 2012). Eighty percent of the insurers had a lower average premium in 2013. Most were slightly lower, the maximum drop being 20 percent and the maximum increase being 16 percent. The average premium per new purchasing unit (i.e., one person or a couple) dropped 8.4 percent, from $3,689 to $3,378. The average in-force policy premium for participants increased 2.5 percent, from $1,949 to $1,997.
Issue Age. The average issue age rose to 56.8, higher than 2012’s 56.25 but still lower than the 57.7 to 58.1 range from 2007-2011. Part of the change is due to changes in survey participants. Table 5 shows that the concentration at ages 55-74 increased. Prices have increased more at younger ages than at older ages.
Benefit Period. Table 6 shows the dramatic drop in lifetime benefit period (BP) sales to 3.6 percent. Increasingly, insurers are unwilling to cover this risk at any price. Sixty-one percent of those sales came from insurers that no longer offer lifetime BP. Only three participants offer lifetime BP.
Six-year BP sales increased because six-year BP is the longest offering of some insurers that dropped lifetime BPs. A huge jump in 3-year BP sales, which accounted for more than 35 percent of all sales, caused the average length of fixed-benefit periods to drop from 4.14 years to 4.05 years. Coverage is better than the 4.05 average suggests because of shared care.
Maximum Monthly Benefit. Seventy-nine percent of 2013 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum.
Surprisingly, despite increasing costs for long term care, the percentage of policies with a maximum benefit less than $3,000/month increased noticeably for the second consecutive year, as indicated in Table 7. Even excluding worksite cases, 13.4 percent of the policies had a maximum lower than $3,000/month. However, the percentage below $4,500/month dropped from 43.5 to 39.9 percent.
In general, maximum monthly benefit increased, perhaps to help offset reduced BPs and less robust benefit increase features. The average maximum benefit increased from $4,800/month to $4,830/month.
Benefit Increase Features. Sales of 5 percent compound increases finally plummeted, dropping from 32.7 to 22 percent under continued pressure from increasing prices. Carriers and consumers appropriately favor 3 percent compounding over 5 percent simple increases; 3 percent compounding grew to 29.1 percent of sales. (See Table 8)
The percentage purchasing policies with no benefit increase feature or with FPOs dropped, but the percentage with a deferred compound option, which is usually not exercised, increased significantly.
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 feature typically increases benefits by 5 percent through age 60, by 3 percent compound or 5 percent simple, from age 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).
Applying the distribution of benefit increase features (and making some assumptions as to CPI and election rates) to project the age 80 maximum benefit, we conclude that the maximum benefit at age 80 for a 58-year-old purchaser in 2013 will be $311.84/day, which is 5 percent lower than 2012’s $328.14/day at age 80 for a 58-year-old purchaser. The 2013 purchaser will be age 80 in 2035, whereas the 2012 purchaser will be 80 in 2034. So in addition to their average benefit being 5 percent lower, their purchasing power will slip by the percentage increase in average long term care cost between 2034 and 2035.
Several insurers provided data regarding FPOs, but only four insurers were able to provide both the number of available options and the number exercised. Based on their data, 24 percent of insureds exercised FPOs that were available in 2013. 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 2012, with the 84-100 day EP gaining, partly at the expense of longer EPs.
The percentage of policies with zero-day home care EP (but a longer facility EP) increased from 37.6 percent in 2012 to 38.9 percent in 2013. Calendar day EP was included in 32.2 percent of the policies. Each of these features is offered by six insurers.
Sales to Couples and Gender Distribution. As shown in Table 11, the percentages of buyers and single buyers who were female increased compared to 2012, but not compared to prior years. Single females comprised 15.5 percent of sales of insurers that moved to gender-distinct pricing and 13.8 percent of sales of other insurers.
Overall, single people were a lower percentage of buyers in the past six years (18.5 percent) and one-of-a-couple sales hit a new high, 18.3 percent, even though only 58.7 percent of applicants bought their policy if their spouse was declined.
Shared Care and Other Couples’ Features. About 40 percent of couples who both purchase limited BP opt to buy shared care (51 percent for insurers that offer shared care). With lifetime BP disappearing and as popular as shared care is, it seems surprising that the percentage is not higher.
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 2013, 30.3 percent of policies sold to couples-both-buying included joint waiver of premium but only 16.3 percent included survivorship because one major company that sold a lot of survivorship in the past discontinued the feature in 2013. (See Table 12.)
Table 13 on page 52 shows that the most common shared care sale (combining the traditional and third-pool designs) has a 3-year BP chassis, but the BP with the highest percentage of shared care sales is the 4-year BP. Above we stated shared care is selected by 40 percent of couples who both buy limited BP. Table 13 shows that shared care does not comprise 40 percent of any BP; that’s because Table 13 includes BPs for single buyers in the denominators.
Existence and Type of Home Care Coverage. Two participants reported home care only policies, which accounted for 2 percent of sales. Five participants reported sales of facility only policies, which accounted for only 1.1 percent of total sales.
Nearly 98 percent of the comprehensive policies included home care benefits at least equal to the facility benefit.
Most policies (79 percent) use a weekly or monthly reimbursement design, while 21 percent use a daily reimbursement home care benefit. Only one company sold indemnity, and it was so few policies that it did not amount to even 0.1 percent. The only company that sells a full cash benefit did not report the breakdown of its sales this year. Last year that carrier caused 2 percent of the industry’s sales to use a disability (also known as cash definition), but the impact would have been lower this year because it discontinued its policy which had a built-in cash benefit.
In addition to the cash policies, 17.7 percent included a partial cash alternative, which allows people, in lieu of any other benefit that month, to use a percentage of their benefits (between 30 and 40 percent) for whatever purpose they wish.
Other Characteristics. Policies with return of premium features accounted for 6.4 percent of all policies. They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies, sometimes only after a defined number of years or before a particular age. Approximately 79 percent were embedded automatically; embedded features are designed to cost little, so the death benefit decreases to $0 generally by age 75.
A bit more than eight percent (8.1 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 44 percent of the ROB features were embedded.
A bit more than 1 percent (1.1 percent) included a shortened benefit period (SBP) non-forfeiture 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 0.6 percent.
Limited Pay. Twenty-six single premium stand-alone LTCI sales were placed in 2013, but all were applied for before September 2012.
Only four insurers will sell either 10-year-pay or paid-to-65 policies. In 2012 when these alternatives were being pulled off the market by most insurers, 7.5 percent of the policies issued were limited pay, triple the 2011 percentage. In 2013, the percentage dropped to 1.6 percent. Eighty percent of the 10-year-pay sales in 2013 were sold by companies that no longer offer such an alternative.
Multi-Life Programs
Reported affinity business amounted to 7.8 percent of the 2013 new insureds and 6.4 percent of the premium, up from 5.7 percent and 4.3 percent respectively. Please note that AARP sales are not included in these affinity figures but are included in the total sales figures. Worksite business produced 10.2 percent of new insureds (up from 7.4 percent in 2012), but only 6.8 percent premium (up from 6.4 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 may damage the worksite market in the future.
Partnership Programs
When someone applies for Medicaid to provide 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 41 states in 2013, as one insurer reported sales in Delaware’s new program. In 2014, partnership may commence in Illinois. Alaska, Hawaii, Massachusetts, Michigan, Mississippi, New Mexico, Utah, Vermont and the District of Columbia have not established Partnership programs.
One participant sold partnership policies in 40 states, two in 39 states and one in 38 states. The average participant offered partnership policies in only 30 states because some participants don’t sell LTCI in all jurisdictions; few sell partnership in California (1), New York (4) and Connecticut and Indiana (7 each) because those original partnership states require separate products and fees; and some insurers have not secured partnership approval where available. Six insurers participate in 93 percent or more of their available partnerships. One sells partnership in 85 percent (all but the original four states, not yet in Delaware and Kentucky). Three participate in about 75 percent of their states’ partnerships, two in about 66 percent, one in only 39 percent, and one participant does not do partnership at all.
In jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership Program, 66.7 percent of the policies issued were partnership policies, up from 65.4 percent in 2012 and slightly above 2011’s 66.6 percent. However, we estimate that if partnership regulations had applied in all states and all carriers had certified their products, only 60 percent of the policies issued in the United States would have qualified (down from 64 percent in 2012 and 69 percent in 2011). This deterioration is attributable to less robust benefit increase options being sold.
Wyoming led all states with 89.8 percent of participant policies being partnership-qualified. Minnesota, Wisconsin, Nebraska, North Dakota and Maine all topped 80 percent.
The original partnership states increasingly lag in this regard—California (27.9 percent), Connecticut (37.3 percent), Indiana (47.9 percent) and New York (16.3 percent).
One carrier issued 90.4 percent of its policies as partnership-qualified in
