Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.
He can be reached at 17335 Golf Parkway, Suite 100 Brookfield, WI 53045. Telephone: 262-796-3477. Email: allen.schmitz@milliman.com.
The 2022 Milliman Long Term Care Insurance Survey, published in the July issue of Broker World magazine, was the 24th consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzed product sales, reported sales distributions, and detailed insurer and product characteristics.
From 2006-2009, Broker World magazine published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank. In 2011, Broker World magazine began this August annual analysis of worksite (“WS”) sales to complement the July overall market analysis.
The WS market consists of individual policies and group certificates (“policies” comprises both henceforth) sold with employer support, such as permitting on-site solicitation and/or payroll deduction. If a business owner buys a policy for herself and pays for it through her business, participants likely would not report her policy as a WS policy because it was not part of a WS group. If an employer sponsors general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site, sales would not be reported as WS sales.
We limit our analysis to US sales and exclude “combination” products, except where specifically indicated. (Combination products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
About the Survey Our survey includes WS sales and statistical distributions from National Guardian Life, New York Life, and Northwestern, and WS sales data from LifeSecure. We estimated sales from four other stand-alone LTCI insurers and compare WS sales to individual LTCI policies that are not WS policies (NWS) and to total sales (Total).
Highlights from This Year’s Survey
As we reported in our July 2022 article, results are heavily influenced by the state of Washington’s “Washington Cares Fund” (WCF, see the “Market Perspective” section for more info). To study the impact of the WCF, we surveyed combination product life insurers in addition to our typical survey of stand-alone LTCI companies. Approximately 60 percent of sales in each line occurred in Washington (“WA”). The industry sold more than 90 times as many stand-alone LTCI policies sales in WA in 2021 than in 2020 and, based on a significant sampling of combination (life and LTCI) policies, that product line also experienced in WA more than 90 times as many sales in 2021 than in 2020.
Driven by WCF’s exemption for private LTCI coverage, we estimate about 9.3 times as many stand-alone WS sales in 2021 (approximately 90,000 in 2021) compared to 2020, while NWS sales increased 47 percent. However, we estimate that new annualized premium grew at a slower pace compared to policy counts—WS premium tripled in 2021 (approximately $60 million in 2021), while NWS premium increased by six percent. The smaller growth in premium arises because the 2021 sales had a higher mix of younger age individuals and a higher mix of less-expensive policies, which was driven by WA sales where individuals sought lower cost policies that would earn exemption from WCF. Our data does not allow us to estimate how much stand-alone LTCI WS sales increased in WA.
Our WS stand-alone statistical distributions can vary significantly from year-to-year because insurers focusing on particular WS markets may be over- or under-represented. We estimate that our statistical distributions reflect only about five percent of WS policies. The carriers providing 2021 statistical data had an average WS annual premium of $2,077 (less than half as much as last year, due to WA sales), whereas the others had an estimated average WS premium of $600, which indicates that our statistical analysis continues to be overly weighted toward executive carve-out programs.
Ten insurers contributed combination sales data: AFLAC, John Hancock, Mass Mutual, New York Life, Nationwide, Northwestern Mutual, OneAmerica, PacLife, Securian, and Trustmark. 64.9 percent of their national combined 300,000 sales and 13.4 percent of their national $1.1 billion of new annualized premium were WS sales. Of national WS combined Life/LTCI sales, 73 percent of both the new policies and new premium were in WA. Within WA, 79 percent of new policies and 50 percent of new premium came from WS sales.
Although we have a significant sample, full industry life/LTCI combination sales may differ significantly if our data is over-weighted (or under-weighted) toward WS business, as the WS market grew in WA much more than the NWS market did.
MARKET PERSPECTIVE The three segments of the WS market (which may apply to different employee classes in a single case):
In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees. Employees can buy more coverage. “Core” programs generally have low average ages, short benefit periods, low daily maximum benefits and a small percentage of spouses insured.
In “carve-out” programs, employers pay for robust coverage for key executives and usually their spouses. Generally, executives can buy more coverage for themselves or spouses. Compared to “core” programs, a higher percentage of insureds are married, more spouses buy coverage, the age distribution is older and average premium is higher.
In “voluntary” programs, employers pay none of the cost. The typical coverage is more robust than “core” programs, but less robust than “carve-out” programs. Voluntary programs tend to be most weighted toward female purchasers.
National Guardian, New York Life, and Northwestern write mostly executive carve-out programs and are the only insurers that contributed to our statistical distributions; therefore, our data is heavily-weighted to the executive carve-out market.
Because of tax savings, small executive carve-out issue dates are weighted toward the end of the year. On the other hand, large voluntary cases are traditionally weighted toward fall enrollments with January 1 effective dates. Large voluntary cases are probably more evenly distributed through the year than in the past, but differences remain.
Carrier and product shift: The future of the non-executive carve-out LTCI market is unpredictable with Transamerica’s departure. Even if LifeSecure, Mutual of Omaha, and National Guardian pick up market share, WS stand-alone LTCI sales might drop, at least temporarily because it takes time for competitors to fill in after an insurer drops out.
Particularly for young and less-affluent groups, voluntary programs may gravitate toward products that include life insurance, which is viewed as a more immediate potential need by young employees with families. The possibility of guaranteed issue also draws employee benefit advisors and employers to such products. Such products can allow 100 to 300 percent of the death benefit to be used for LTC, at a typical rate of four percent of the death benefit per month. Unfortunately, combination WS products’ LTCI benefits can lose substantial purchasing power by retirement years because the benefit typically does not increase.
WCF: WA state’s “Washington Cares Fund” imposes a 0.58 percent employee-paid payroll tax to fund a $36,500 lifetime pool (intended to inflate according to the WA consumer price index) for care received in WA as defined in the Revised Code of WA 50B.04. However, people who purchased qualifying private stand-alone or combination LTCI by November 1, 2021 could file to be exempt from the tax. (Note: WCF had received 478,173 applications for exemption as of June 13, 2022.1)
Other jurisdictions may create state-run LTCI programs, but they may not create a window for people to become exempt by buying insurance after the law has passed.
COVID: COVID-19 (COVID) continues to impact the employee benefit market in many ways. As LTCI is generally not perceived to be an urgently-needed benefit, LTCI may be more impacted than some other benefits. Employers potentially have various existential issues that may take precedence over offering LTCI. Staff turn-over is generally higher and more positions are vacant. Shifting of the workforce to remote can be harder to enroll, all else equal.
Nonetheless, COVID did not appear to deter the WA WS sales and, as a result of COVID, there is increased awareness of the LTC risk and of personal exposure and increased interest in staying out of nursing homes. More workers may have elders living in their homes and, if they are remote workers, the needs of those elders are more likely to interfere with their productivity.
Pricing and Underwriting Considerations: Most people interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI programs use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current or previous year. Some states apply similar laws to employers with fewer employees. Thus, for WS sales, insurers must create a separate unisex-priced product. The expense of separate pricing, marketing and administration discourages insurers from serving both the WS and NWS markets.
Moreover, insurers fear anti-selection. Because women have higher expected future claims, unisex pricing saves women money compared to gender-distinct NWS pricing, whereas men pay much more for WS than for NWS policies. The higher the percentage of female buyers in the WS, the more unisex pricing is likely to approach gender-distinct female pricing levels.
Insurers also fear health anti-selection (less-healthy people buying, while healthier people do not buy). Insurers are more vulnerable to health- or gender-anti-selection if the group has a large portion of young or less affluent employees as this group is generally less likely to buy LTCI.
Furthermore, because WS programs rarely offer “preferred health” discounts, healthy couples may pay more for WS coverage than for corresponding NWS coverage. Although there are few health concessions in the stand-alone WS market at this time, some combination products offer guaranteed issue if participation requirements are satisfied.
To control risk, most insurers will not accept a voluntary WS program if there are fewer than 100 employees. However, one insurer (which offers no health concessions) will accept voluntary LTCI programs with as few as 2 to 5 (varies by jurisdiction) employees buying.
In the carve-out market, a more expensive WS product can still produce after-tax savings compared to a cheaper NWS policy, because of tax advantages when an employer pays the premium. The specter of future tax increases enhances the attractiveness of employer-paid premium.
Availability of coverage: Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and to reduce exposure to extremely long claims. Such age restrictions can discourage employers from introducing a program, especially a carve-out program if they have executives or spouses under age 40.
With increased remote work, more employers have employees stretched across multiple jurisdictions and eligible non-household relatives might live anywhere. But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. So, it can be difficult to find an insurer which can cover everyone unless LTCI is sold on a group policy form and the employer does not have individuals in extra-territorial states.
One insurer no longer offers WS LTCI to non-household relatives. Reduced availability for such relatives does not have much impact on sales, because only about one percent of WS sales are to non-household relatives. However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.
Prior to gender-distinct pricing, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company, but now it is hard to find a carrier that offers unisex pricing under such circumstances. Such executives may buy policies with gender-distinct pricing either because they are unaware of the requirement under Title VII of 1964 Civil Rights Act; they may disagree with the interpretation that such policies should have unisex pricing to avoid the risk of a civil rights complaint, etc.
Some employee benefit brokers are reluctant to embrace LTCI because of declinations, the effort of enrollment, certification requirements, their personal lack of expertise, etc. WS sales gain from LTCI specialists forming relationships with employee benefit brokers.
Support for Employees who are Caregivers: Various programs offer LTC-related services to employees and their families. Regardless of whether the employee is insured or the relative is insurable, they may be able to access information, advice, services, and products that make caregiving more efficient, more effective, safer, and less expensive. Enabling employees and their families to have better LTC experiences and to use more (not necessarily 100 percent) commercial care should boost productivity at work. Some of these programs are packaged with WS LTCI.
STATISTICAL ANALYSIS As mentioned earlier, insurers’ sales distributions can vary greatly based on the submarket they serve (for example, in the WS market: core, voluntary, or carve-out). Therefore, in addition to fundamental changes in the industry, distributions may vary significantly from year to year due to a change in participating insurers, distribution within an insurer, and market share among insurers. Policies in the carve-out market are designed similarly to those in the NWS market. Our sales distributions reflect only stand-alone LTCI and only about five percent of stand-alone WS policies issued in 2021, unless otherwise noted. The distributions mostly represent the executive carve-out market, as these insurers averaged 10.6 issues per case.
Sales and Market Share Table 1 shows historical WS sales, including some estimates. It shows overall average WS premium for all carriers which reported sales compared to the average WS premium for the participants who contributed statistical data beyond sales. As shown in the table, until 2017, our WS statistics likely represented the broad WS market reasonably. Average premiums plummeted this year because of the WA sales.
Table 2 shows WS sales as a percentage of total LTCI sales, both including estimates. WA sales caused WS sales to be larger percentage of the total compared to past survey data.
Table 3 and the following tables do not include estimates. Thus, Transamerica, which was the #1 insurer in 2020 and 2021, is not included. LifeSecure leapfrogged to the top.
Average Premium Per Buyer Table 4 shows that, in 2021, the average premium per insured in the WS market dropped twice as much from 2020 levels than did the average premium in the NWS market.
As always, the average premium per buying unit (a couple comprise a single buying unit) is higher because there are fewer buying units than insureds. Normally, the increase in average premium per buying unit compared to per insured is significantly lower for WS sales, because more WS buyers are single and because spouses are less likely to buy in the WS. Those factors are muted materially because our data is weighted toward the carveout market. In 2021, the reported differences are small, perhaps influenced by the WA sales.
The average premium per new insured (NB Insured) reflects all participants, but the average premium per buying unit is determined solely by the participants who report sales based on marital status. The WS ratio is probably overstated because participants who reported premium by marital status for the WS are not characteristic of the entire market.
Issue Age In reviewing the balance of the statistical presentations, we urge you to be selective in how you use the data because it is not representative of the entire WS market as explained above.
Table 5 shows that WA sales dropped the average age in the NWS market by 7 years, but only by 3 years in the WS market. If our data included more of the WS market, our WS average age might have dipped more.
Table 7 displays the relative age distribution of workers ages 16+ vs. the age distribution of purchasers in the WS market. It also shows the age distribution of adults 20-79 compared to the age distribution of purchasers in the NWS market. If the percentage of sales in a particular age group is higher than the percentage of population in that age group, the LTCI industry penetrates that age group well. As was the case last year, when we instituted this table, the industry is particularly effective with ages 30-49 in the WS market. In the NWS market, the industry was particularly effective for ages 50-69 last year, but this year broadened the effective range down to 30 because of WA sales.
Rating Classification Most WS sales are in the “best” underwriting class (see Table 8) because there generally is only one underwriting class. Insurers often do not get enough information in WS to determine whether a “preferred health” discount could be granted and use the additional revenue (from not having a “preferred health” discount) to fund extra cost resulting from gender or health anti-selection. Carve-out programs are more likely to offer a “preferred” discount, which means a higher percentage of carve-out policies are issued in the second-best underwriting class. The percentage of policies issued in the best underwriting class soared in the NWS market in 2021 because younger and healthier buyers were drawn to LTCI in WA. The impact on the WS market was smaller, because so few people did not qualify in the best category in 2020. In each market, about 35 percent of buyers who did not qualify for the best price in 2020 shifted into the best category in 2022.
Benefit Period The WS average benefit period is low for core/buy-up programs and somewhat low for voluntary programs. Executive carve-out programs sometimes have longer benefit periods than the NWS market. In 2021, the average benefit period in each market dropped by about a half-year due to WA sales.
The difference in benefit periods between the markets is actually larger than these statistics indicate, because these statistics ignore Shared Care (and the WS market issues much less Shared Care).
Table 10 shows corresponding data back to 2014. As noted elsewhere, this data can jump around based on which insurers provide such detail and whether large core/buy-up cases are written in a particular year.
Maximum Monthly Benefit In 2020, the average initial monthly maximum was about nine percent lower in the WS market than in the NWS market. In 2021, the difference tripled to 27 percent lower in the WS market. To calculate the average initial monthly maximum, we presume an average size in each size range. The $2,100/month we assume for the smallest size range seems to overstate dramatically in 2021 as many people opted for the minimum $1,500/month.
Table 12 shows that the WS initial monthly maximum has varied more over time than the whole market, because of participant changes and how many core/buy-up plans were sold in a particular year.
Benefit Increase Features As shown in Table 13, 95.5 percent of 2021 WS sales had no benefit increase feature or a future purchase option (FPO), hence no first-year premium for benefit increases. The corresponding NWS percentage was 64.1 percent. The corresponding 2020 sales percentages were 86.4 percent and 47.5 percent.
Future Protection Based on a $27/hour cost for non-professional personal care at home ($27 is the median cost according to Genworth’s 2021 Cost of Care Survey), the average WS initial maximum daily benefit of $100 would cover 3.7 hours of such care per day at issue, whereas the typical NWS initial daily maximum of $137 would cover 5.1 hours of such care per day, as shown in Table 14. This year’s higher cost (the hourly cost was $24 in 2020) and lower initial monthly maximums contributed to the 40 percent decrease in WS hours (from 6.2 WS hours) and 25 percent decrease in NWS hours (from 6.8 NWS hours) from last year.
The number of future home care hours that could be covered depends upon when care is needed (we have assumed age 80), the home care cost inflation rate between now (age 39 for WS and 51 for NWS) and age 80 (we have calculated with two, three, four, five and six percent inflation), and the benefit increases provided by the LTCI coverage between now and age 80.
Table 14 shows calculations for three different assumptions relative to benefit increase features:
The first line presumes that no benefit increases occur (either sold without any benefit increase feature or no FPOs were exercised).
The second line reflects the average benefit increase design using the methodology reported in the July article, except it assumes that 40 percent of FPOs are elected (intended to be indicative of “positive” election FPOs, in which the increase occurs only if the client elects it) and provide five percent compounding.
The third line is like the second line except it assumes 90 percent of FPOs are elected (intended to be indicative of “negative” election FPOs, in which the increase occurs unless the client rejects it). It also assumes the FPOs reflect five percent compounding.
Table 14 indicates that:
Without benefit increases, purchasing power deteriorates significantly, particularly for the WS purchaser as younger buyers have more years of future inflation prior to claim onset. With four percent inflation and no benefit increases, the number of covered hours of home care at age 80 dropped from 1.8 for the average 2019 WS buyer to 1.4 for the average 2020 WS buyer, then to 0.7 (only 42 minutes) for the average 2021 WS buyer. For the average NWS buyer, the corresponding hours of home care at age 80 were 3.0 in 2019, 2.9 in 2020, and 1.6 in 2021.
The “composite” (average) benefit increase design assuming that 40 percent of FPO offers are exercised preserves purchasing power better than when no increases are assumed, but still generally leads to significant loss of purchasing power. The average 2021 WS buyer would have 2.1 hours of covered home care at age 80 rather than the 0.7 hours in #1. The average 2021 NWS buyer would have 3.4 hours of covered home care at age 80 rather than the 1.6 hours in #1.
With 90 percent FPO election rates, the average WS and NWS buyers would experience increased purchasing power over time with 3 percent or less inflation but would lose purchasing power with four percent or more inflation.
Table 14 underscores the importance of considering future purchasing power when buying LTCI. Please note:
a) The average 2021 WS buyer was 12 years younger at issue than the average 2021 NWS buyer, hence has 12 more years of inflation and benefit increases in the above table. The actual inflation rate to age 80 is not likely to be the same for today’s 39-year-olds as for today’s 51-year-olds.
b) WS sales have more FPOs, so WS results are more sensitive to FPO election rates.
c) Individual results vary significantly based on issue age, initial maximum monthly benefit, and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.
d) By the median age of starting to need care (about age 83) and the median age of needing care (about age 85), more purchasing power could be gained or lost.
e) Table 14 does not reflect coverage for professional home care or facility care. According to the aforementioned 2021 Genworth study, the average nursing home private room cost is $297/day, which is currently comparable to 11 hours of non-professional home care. However, the inflation rate for facility costs is likely to differ from the inflation rate for home care. From 2004-2021, Genworth’s studies showed the following compound growth rates: private room in a nursing home (3.0 percent), assisted living facility (3.8 percent), home health aide (2.2 percent), and home care homemaker (2.6 percent).
f) Table 14 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the average facility benefit.
g) FPO election rates might be different for policies purchased in 2021. How likely is it that 2021’s WA buyers will exercise FPOs?
Partnership Program Background When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some IN and NY policies disregard all assets). Partnership programs exist in 44 jurisdictions (all but AK, DC, HI, MA, MS, UT, and VT), but MA has a similar program (MassHealth). The first four states to develop Partnerships (CA, CT, IN and NY) have different rules, some of which have become a hindrance to sales. We are not aware of a Partnership-qualified WS LTCI product in those four states, which is unfortunate because the WS market serves many people who could benefit from Partnership.
To qualify for a state Partnership program, a policy must have a sufficiently robust benefit increase feature. Many jurisdictions have lowered the minimum Partnership-eligible compounding benefit inflation rate to one percent. To facilitate Partnership sales in such jurisdictions, an insurer could lower its minimum size by 1/3 (e.g., from $1,500 to $1,000) if one percent compounding is included in a core program. The revenue from the core program would typically increase. The premium would be more level by issue age, shifting risk to the younger ages which can be preferable for the insurer in a core program.
Jurisdictional Distribution Click here for a chart of the market share of each US jurisdiction relative to the total, WS and NWS markets, and the Partnership percentage by state. This chart indicates where relative opportunity may exist to grow LTCI sales.
Elimination Period Approximately 90 percent of the NWS market buys 90-day elimination periods (EPs). For that reason, many WS programs offer only a 90-day EP.
Table 15 shows distribution by EP and how many policies had a 0-day home care feature and a longer facility EP and how many policies had a calendar-day EP (as opposed to a service-day EP). We have reflected that all LifeSecure policies are 90-day EP with a calendar-day definition. Policies which have 0-day home care EP and define their EP as a service-day EP operate almost identically to a calendar-day EP, because people in facilities get daily care.
The large drop in WS 0-day home care EP reflects that Transamerica was in our data last year, but not this year.
Gender Distribution and Sales to Couples and Relatives Insurers began gender-distinct LTCI pricing in 2013, but as explained above, unisex pricing continues in the WS market.
In the NWS market, the 2013-2015 percentages of females were high as insurers that still offered unisex pricing attracted single females. The next 5 years, the percentage of female buyers in the NWS was stable, fluctuating from 54.3 to 54.9 percent. In 2020, women constituted 50.8 percent of the US age 20-79 population2, but in 2021 the percentage of females in the NWS market dipped below 50 percent (49 percent) because of the higher number of males purchasing coverage in WA.
In the WS market, the high percentage of female WS buyers from 2015-2018 suggests that women were particularly attracted to WS LTCI (presumably because of unisex pricing). To the degree that our more recent WS data is over-weighted to executive carve-out programs, it reflects less of the gender anti-selection that likely still exists. Although most executives are male, executive ranks are becoming more gender-balanced and many executive carve-out programs cover spouses. Women make up 47 percent of workers3 but accounted for a bit less (46 percent) of our reported 2021 WS sales. For the third straight year, our data (overly weighted toward executive carveout) has indicated negative gender anti-selection in the WS market, as the 2021 shift to males was stronger in our WS data than in our NWS data.
Table 17 digs deeper, exploring the differences between the WS and NWS markets in single female, couples and Shared Care sales.
Our WS data had fewer single buyers. Despite having more married buyers, there were fewer one-of-a-couple sales and “both buy” couples increased from 45.6 percent of sales to 52.6 percent.
In contrast, the percentage of single people and one-of-a-couple both increased in the NWS market.
Shared Care sales dropped but are likely to rebound in 2021.
Our limited data with regard to relatives who buy shows that two spouses are insured for every three employees. That’s a high percentage reflective of executive carve-out data. Only about one percent of purchasers are relatives other than the employees and employees’ spouses.
Type of Home Care Coverage Table 18 summarizes sales by type of home care coverage. Historically, the WS market sold few policies with a home care maximum equal to the facility maximum. However, with increasing emphasis on home care and simplicity, that difference faded.
Table 18 also shows that monthly determination dominates both markets. The low 2020 monthly determination percentage in the WS was caused primarily by a change in distribution of WS sales among participants.
Many WS products embed a “partial cash alternative” feature (which allow claimants, in lieu of any other benefit that month, to use approximately 1/3 of their benefit for whatever purpose they wish, with the balance extending the benefit period) or a small informal care benefit.
Other Features Table 19 shows that almost all Return of Premium (ROP) features were embedded (automatically included) and phased out before death would be likely. ROP with expiring death benefits may provide an inexpensive way to encourage more young people to buy LTCI but does not address the buyer’s concern (what if I keep paying all my life, then die without qualifying for benefits?).
Table 20 shows lower Joint Waiver of Premium and Survivorship sales to couples in the WS market than in the NWS market, mostly due to differences in distribution by carrier. Some products automatically provide Joint Waiver of Premium if a couple buys identical coverage or if a couple buys Shared Care. Employers sometimes are disinclined to add an optional couples’ feature because they are already contributing more money to cover a married employee plus that employee’s spouse than the cost for a single employee the same age.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophia Fosdick, Rachelle Jacobs, and Zane Truesdell 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.
The 2022 Milliman Long Term Care Insurance Survey is the 24th consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products.
More discussion of worksite sales, including a comparison of worksite sales distributions vs. non-worksite sales distributions will be in Broker World magazine’s August issue.
Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.
All references to sales in terms of “premium” refer to “annualized” premium (1 x annual; 2 x semi-annual; 4 x quarterly; 12 x monthly), even if only one monthly premium was received before year-end. All references to “Washington” or “WA” refer to the state of Washington. “WCF” refers to the “WA Cares Fund,” explained in the Market Perspective section.
Highlights from this year’s survey
Participants Seven insurers (Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian Life, New York Life, Northwestern, and Thrivent) contributed broadly to the stand-alone sales distributions reported herein. Total industry sales include, for seven additional companies, either reported sales (without sales distribution data) or the authors’ estimates of sales.
Our statistical distributions reflect non-worksite LTCI sales well. However, our worksite sales distributions do not reflect low-price worksite programs. Carriers that provided 2021 distributions had an average worksite annual premium of $2,077, whereas the insurers that provided sales, but not distributions, had an average worksite premium of $674 annually. Auto-Owners, MassMutual and Transamerica all stopped selling stand-alone LTCI in 2021. The following ten insurers contributed to our combination sales data: AFLAC, John Hancock, Mass Mutual, New York Life, Nationwide, Northwestern Mutual (Northwestern), OneAmerica, Pacific Life, Securian, and Trustmark.
Sales Summary
We estimate total stand-alone LTCI annualized new premium sales of nearly $200 million1 in 2021 (including exercised FPOs, except FPOs for insurers no longer selling LTCI), almost 1/3 more than our 2020 estimate of $150 million.1 However, premium outside the state of Washington decreased 6.0 percent, based on the insurers that reported sales.
We estimate that 140,000 to 150,000 people purchased stand-alone LTCI coverage in 2021, more than triple the 2020 numbers. Outside of WA, the number of new insureds dropped 9.4 percent based on the insurers that reported sales.
Worksite sales soared. We estimate that new annualized premium from worksite sales tripled in 2021, while non-work-site premium increased by 6.0 percent. We estimate that there were about 9.3 times as many worksite sales in 2021 compared to 2020, while non-worksite sales increased 47 percent.
Insurers providing sales information to this survey reported approximately $155 million1 in 2021 annualized new premium sales (including exercised FPOs) and 75,162 new policies, 25 percent more premium and 2.18 times more policies than the same insurers sold in 2020. The balance of the new premium sales in the previous bullets reflects our estimates for insurers not providing sales information.
For the first time ever in our survey, more males purchased LTCI than females, which appears to have been driven by the WCF exemption.
As noted in the Market Perspective section, the number of policies sold combining life insurance with LTCI or Chronic Illness benefits soared. Premium increased significantly as well, but because WA sales had a young average age and a small average face amount, the second half of 2021 average size combination life premium was only about one-quarter of the corresponding 2020 average premium.
Among carriers currently issuing LTCI, Northwestern had a large lead in annualized new premium including FPO elections, selling slightly more than the #2 and #3 insurers combined (Mutual of Omaha and New York Life, respectively). However, similar to last year’s survey, Mutual of Omaha led Northwestern in annualized premium from new policies sold.
Reflecting nine companies’ data, the inforce number of cases increased for the first time since 2014, by 3.6 percent, because of WA sales. Annualized premium rose 6.7 percent. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and falls from lapses, reductions in coverage, deaths, and shifts to paid-up status.
Collectively, seven participants paid about one percent less in claims in 2021 than in 2020, despite having about 15 percent more claimants.
Overall, the stand-alone LTCI industry incurred $12.9 billion in claims in 2020 (essentially the same as 2019) based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2020 to $167.3 billion. (Note: 2020 was the most recent year available from statutory filings when this article was written.) Most of these claims were incurred 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 8 insurers.
Partnership Programs discusses the impact of the state partnerships for LTCI.
Available only online:
Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce business, and product details.
Product Exhibit Details, a row-by-row definition of the product exhibit entries, with some commentary.
Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and female/male couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
Distribution by underwritingclass for each participant. Depending upon the product shown for an insurer in the Product Exhibit, we sometimes adjust that insurer’s underwriting distribution to provide readers a better expectation of likely results if they submit an application in the coming year and to line up with the prices we display. For example, if the Product Exhibit shows only a new product which has only one underwriting class (hence one price), but the insurer’s data partly or solely reflect an older product with three underwriting classifications, we might choose to show “100 percent” in their best (only) underwriting class.
State-by-state results show the percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
MARKET PERSPECTIVE (more detail in subsequent parts of the article) Washington State’s “Washington Cares Fund” (WCF) stimulated a tremendous demand for private LTCI from individuals and businesses within WA. WCF imposes a 0.58 percent payroll tax to fund a $36,500 lifetime pool (intended to inflate according to the Washington consumer price index) for care received in WA as defined in the Revised Code of Washington 50B.04. However, people who purchased qualifying private stand-alone or combination LTCI by November 1, 2021 could file to be exempt from the tax. Partly because the tax applies to all earned income, LTCI sales in Washington soared to unprecedented levels. Insurers quickly became backlogged with applications and were concerned about early lapses as the law provided a permanent WCF exemption based on only a one-time attestation. Insurers reduced design flexibility, and then discontinued sales in WA before the November 1 deadline. Nonetheless, as shown in the WA table, WA accounted for 60 percent of reported stand-alone LTCI policies sold and 60 percent of combination life/LTCI on-going premium (i.e., excluding single premium) policies sold in 2021 after having accounted for 3.0 percent of stand-alone LTCI sales in 2020 and only 1.6 percent of combination life/LTCI sales in 2020. Including estimated sales, we think more than 70 percent of the stand-alone policies sold in 2021 were sold in WA. (Note: WA had received 470,000 applications for exemption as of March 2022.)
As shown in the WA Table, insurers reported 44 times as many stand-alone policies sold in WA in 2021 as in 2020 but only 12 times as much new annualized premium. The WA table also shows the highest and lowest insurer results for the statistics in this and following bullets. Outside WA, insurers reported 6.0 percent less premium and 9.4 percent fewer policies in 2021 than in 2020. As mentioned earlier, our participants sold 2.18 times as many policies but only 25 percent more premium in 2021 than the same insurers sold in 2020. Total industry growth was higher than participant growth because the worksite market is substantially under-represented in the sales reported in the survey.
As shown in the WA Table, insurers reported 92 times as many combination on-going premium policies sold in WA in 2021 as in 2020 but only 9.8 times as much new annualized premium. Outside WA, insurers reported 0.6 percent more policies and 18 percent more premium in 2021 than in 2020. As a result, our national data for such combination policies shows 2.5 times as many new policies and 1.4 times as much annualized new premium. We collected single premium information as well, but we are reporting only the on-going premium results as WA sales had a much smaller impact in the single premium market.
As reflected in the table, reported data suggested that combination policies grew much faster in WA than stand-alone LTCI. However, including our estimates, the stand-alone sales grew a little more than the reported combination sales, and full-market combination sales may have grown less than 92 times as our data may reflect a higher percentage of the worksite combination market than of the individual combination market.
The bottom row in the combination portion of the table reflects a statistical “anomaly.” Combining data for the 10 combination insurers, the 2021 average premium was 10.6 percent of the 2020 average premium. However, the insurer with the minimum ratio had a 2021 average premium equal to 26.1 percent of its 2020 average premium. That is, the overall ratio was 10.6 percent but no insurer had a ratio less than 26.1 percent. That happened because the distribution of the business among insurers shifted significantly between 2020 and 2021. The company with the 88.5 percent ratio had low average premiums in both 2020 and 2021 and had a much bigger market share in 2021, driving down the average premium. If that company is removed from the data, the combined ratio of 2021 average size to 2020 average size would increase from 10.6 to 22.4 percent which would fall within the range of the minimum (26.1 percent) and the revised maximum (48.5 percent).
LIMRA’s U.S. Life Combination Products Sale Survey, 2020 (above we cited 2021 results) saw seven percent fewer policies and 23 percent less annualized new premium combined across whole life, universal life, variable universal life and term, with variable life performing the best (four percent more policies than in 2019 but two percent less new premium). The stand-alone LTCI industry performed better during that time period, as we estimated last year, with 13 percent less premium than in 2019.
However, LIMRA reports that the combination market rebounded in the first six months of 2021, enjoying 10 percent growth in policies and nine percent growth in premium, before significant increases driven largely by the WCF exemption. Based on 17 insurers’ contributions, LIMRA reports the following quarterly nationwide gains in 2021 over 2020. Note that a growth of 3,813 percent means that 39.13 times as many policies were sold. It is hard to compare LIMRA data to our survey data. LIMRA had more contributors than we did and a different representation of the individual market vs. worksite. We reported year-over-year results compared to LIMRA’s quarterly results below. Our data seems to show more growth but lower average premium, probably due to different data contributors and our inclusion of more worksite business in the estimates.
WA sales distorted the characteristics of sales significantly, as will be explained throughout this report. Given the observed sales in WA, it appears likely consumers generally sought the least expensive way to opt out of WCF.
The national placement rate increased from 57.8 percent in 2020 to 61.7 percent in 2021 (as shown in Table 24), driven by WA sales. WA had a 72.7 percent placement rate, which appears to be influenced by healthy and young applicants. Outside WA, the placement rate was 54.1 percent. Only 13.3 percent of WA business was declined (27.4 percent elsewhere) and declines were lower in WA for all age bands. Only 14.1 percent of WA business was incomplete, suspended, not taken out or returned during the free look period (18.5 percent elsewhere). Our surveys have never found placement rates parallel to 2021 WA experience. (Note: One survey participant sold a short-term care policy that they stated qualified for WCF exemption. Had we included it in this paragraph’s statistics, the WA placement ratio would have been even higher)
Higher placement ratios are critical to encourage more financial advisors to mention LTCI to clients. The following opportunities can improve placement rates.
E-applications speed submission and reduce processing time, thus generally increasing placement.
Health pre-qualification effectively and efficiently decreases decline rates.
Education of distributors, such as drill-down questions in on-line underwriting guides, tends to improves placement.
Requiring cash with the application (CWA) led to about five percent more of the apps being placed according to our 2019 survey.
Improved messaging regarding the value of LTCI and of buying now (rather than in the future) typically improves the placement rate by attracting younger and healthier applicants.
Future private LTCI sales in WA will be watched closely to determine the impact of WCF. For example:
Will WCF cause consumers to become more attentive to their potential LTC needs?
Will consumers feel a need to supplement WCF coverage? If so, what products and designs will consumers favor to supplement WCF?
Will WCF messaging promote private LTCI purchases?
How will explaining WCF and its differences from private LTCI (such as different claim triggers, lack of portability outside WA, and/or lack of Partnership qualification) impact the sales process and attitudes regarding selling and buying LTCI?
Will the insurance industry develop new products to fit a market with WCF coverage?
Will the rush of 2021 private LTCI sales dry up future demand for private LTCI in WA?
Will future legislation modify WCF? If so, how will that impact private LTCI sales?
Will consumer, insurance agent, and/or insurer attitudes be affected by the possible perception that WCF benefits will be made more generous in the future?
Other states are considering state-run LTCI programs. For example, California has completed an initial feasibility study and established a task force to explore the possibility of a state LTCI program.
Will insurers be interested in complementing state programs if those programs vary by jurisdiction?
Will brokers consider such complexity worth their effort?
Will employers and employee benefit advisors consider LTCI programs if they must vary by employee resident state?
What will happen to individuals who move from one state to another?
Will inconsistencies increase pressure for a uniform national program?
Will consumers, employers, brokers and insurers sit on the sidelines in what they might view as a turbulent short-term market?
How might reactions parallel or contrast with reactions to the original Robert Woods Johnson Partnerships and the partnership provisions of the Deficit Reduction Act of 2005?
The COVID-19 (COVID) pandemic may have driven increased consumer interest in life insurance. LIMRA reported a five percent increase in life insurance policies sold in 2021 over 2020 with a 20 percent increase in annualized premium and projects a 10 percent premium increase for whole life policies in 2022, with an additional increase in 2023.2 Thirty percent of survey responders say they are more likely to buy life insurance as a result of the pandemic2.
Above, we reported much larger increases because we focused on LTC-related policies, whereas these results include life insurance policies that lack LTC-related features.
Last year, we published (in a separate article in the June issue of Broker World) our survey participants’ reaction to the pandemic. This year, we asked for updated responses.
Insurers still do not anticipate any change in LTCI pricing due to the pandemic. It remains to be seen whether having had COVID will impact the future incidence, length, or severity of LTCI claims.
Insurers also do not anticipate permanent changes to procedures due to the COVID pandemic. Some insurers temporarily liberalized claims adjudication (e.g., waiving face-to-face assessments, broadening alternative plan of care) and underwriting (e.g., waiving face-to-face assessments, less insistence on current medical records) but anticipate restoration of previous protocols.
Having had COVID without being hospitalized generally seems to require a 30-to-60 day wait after full recovery before an application will be considered. With hospitalization, a 180-day wait is typically imposed from the date of recovery. Having been in contact with someone who had COVID or having travelled abroad is generally a non-issue, although one insurer mentioned a 14-day wait for contact (without having to supply a new application) and one insurer mentioned a 30-day wait for having traveled abroad.
The FPO (future purchase option, a guaranteed, or a non-guaranteed board-approved, option, under specified conditions, to purchase additional coverage without demonstrating good health) election rate dipped from 81.8 to 78.2 percent in 2021. As both the additional coverage and unit price increase for FPOs as policies age, FPOs become increasingly expensive, even more so with inforce price increases. The high election rate may reflect the importance of LTCI to policyholders and the effectiveness of annual (as opposed to triennial) negative-election FPOs. Negative-election FPOs activate automatically unless the client rejects them. Positive-election FPOs activate only if the client initiates a timely request. Considering such FPOs and other increased coverage provisions, we project a maximum benefit at age 80 of $292/day for an average 51-year-old purchaser in 2021, which is equivalent to an average 2.7 percent compounded benefit increase between 2021 and 2050. In 2020, the average 58-year-old purchaser anticipated an age 80 benefit (in 2042) of $305. So, the average 2021 purchaser will have four percent less coverage, despite facing eight more years of inflation in the cost of care. WA sales’ lower initial monthly maximum benefit and less robust compounding contributed to this reduction in estimated coverage. This is the lowest effective rate of compounding that we’ve seen in the survey, yet inflation appears to be an increasing threat now. As noted in the initial monthly maximum and benefit increase feature discussions below, 2021 WA sales might be more exposed to voluntary reductions, which could drop future coverage from 2021 sales even lower. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
Current premiums are much more stable than past premiums, partly because today’s premiums reflect much more conservative assumptions based on far more credible data3 and lower assumed investment yields. Three participants have never increased premiums on policies issued under “rate stabilization” laws, one of whom has had no increases on policies issued since 2003. Four other participating insurance companies have not raised rates on policies issued since 2015 (going back to 2013 for a couple of them). A financial advisor who is not aware of the price stability of new policies may be reluctant to encourage clients to consider LTCI.
Stand-alone LTCI without a return of premium feature can be sold for a lower premium than a linked-benefit product that adds a death benefit. However, that price advantage of stand-alone LTCI has reduced for partnered individuals. Not long ago, partnered people buying alone typically got a 15 percent discount compared to the single-person price of stand-alone LTCI, which was a bigger percentage discount than the typical linked-benefit product savings for partnered individuals. Now, partnered people buying alone typically get only a five percent discount with stand-alone LTCI, which is lower than the typical linked-benefit savings. Both-buy couples’ discounts typically provide more of an advantage for stand-alone LTCI as the linked-benefit price saving for married people is often the same whether or not the spouse purchases. However, that advantage has also reduced because both-buy discounts for stand-alone LTCI have dropped.
Linked benefit products tend to be attractive to consumers because if the insured never has a LTC claim, their beneficiary will receive a death benefit and because they often have guaranteed premiums and benefits. As noted above, stand-alone LTCI’s price advantage for couples has reduced. Furthermore, in an increasing interest rate environment, products with the ability to reflect higher non-guaranteed interest rates are likely to have a cost advantage.
However, it is important to remember that typical stand-alone and linked-benefit products provide much more significant LTC protection than combination policies which provide LTCI only through an accelerated death benefit.
Accelerated Death Benefit (ADB) provisions do not increase over time. By the time claim payments are made, stand-alone and linked-benefit policies’ maximum monthly benefit (on policies with benefit increase features) will have risen significantly.
Stand-alone and linked-benefit policies have lower renewal termination rates than policies with ADB. Thus, they are much more likely to pay LTCI benefits.
Because stand-alone policies are usually “use-it-or-lose it,” stand-alone policies might be more likely to be used to pay for care, whereas policies with ADB features might be held for the death benefit. On the other hand, ADB features are more likely to be cash benefits and fully paid.
Four participants offer coverage in all U.S. jurisdictions, but only two participants issued in all 50 states plus the District of Columbia. Insurers are reluctant to sell in jurisdictions which have unfavorable legislation or regulations, restrict rate increases, or are slow to approve new products. Lack of product availability in a jurisdiction can complicate or thwart a worksite case.
Life insurers generally have a retention limit (i.e., how much risk they’ll retain for a particular individual), an issue limit (i.e., their retention limit plus the amount of reinsurance they have arranged) and a participation limit. Even if an application requests coverage below their issue limit, insurers don’t typically issue coverage that causes a client’s total coverage to exceed their participation limit. Insurers are concerned when total coverage exceeds the apparent need for insurance.
A large death claim hits earnings soon after the insurer learns about the death. In contrast, a LTCI claim is often large because it lasts a long time. In the year of death, a typical LTCI claim reserve is established, so there is not a sudden “hit” to earnings. Over time, the claim reserve may turn out to be insufficient, which can result in spreading the impact of the large claim over multiple years. Thus, LTCI carriers may be less concerned about the impact of a single claim on current earnings. However, LTCI carriers have strong reasons to be concerned about over-insurance, especially if clients can profit from being on claim. So, we queried about participation limits this year and got seven responses.
Three insurers lower their LTCI issue limit to offset other inforce or applied-for stand-alone LTCI, considering current coverage not future increases. Two of those insurers adjust for LTCI that is issued as part of a combination product and one of them lowers its issue limit if other coverage including Chronic Illness riders exceeds $50,000/month or $2,000,000/lifetime. The other four respondents have no participation limit.
CLAIMS Independent Third-Party Review (IR) is intended to help assure that LTCI claims are paid appropriately.
Since 2009 (in some jurisdictions), if an insurer concludes that a claimant is not chronically ill as defined in the LTCI policy, the insurer must inform the claimant of his/her right to appeal to IR, which is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR.
In some states, regulators have not set up the required panel of independent reviewer organizations (IROs), and there has been no consumer pressure for those states to do so, which may suggest that insurers are doing a good job.
Indeed, of seven insurers which provided claims information this year, three have never had a request for IR and a fourth does not seem to track IR.
We are not aware of regulators who track IR results, but Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS), the largest IR organization, reports a moderate volume of IRs in 2021, with fewer than three percent of insurer denials being partially or fully reversed. LTCIIERS’ data, which include information from insurers that no longer sell LTCI and insurers that offer IR even in the absence of an implemented state IR requirement, appears to demonstrate that insurers are not inappropriately denying claims. Seven participants reported 2021 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.
Those seven insurers’ combined claim payments were about one percent lower in 2021 than in 2020. However, insurers reported 15 percent more claimants, so the average number of dollars paid per claimant in 2021 dropped about 16 percent from the previous year. This drop could reflect:
A shift from facility claims to less expensive home care claims (or family care), perhaps triggered by the pandemic.
An unusually high number of claim terminations, possibly due to the pandemic.
An unusual distribution of new claims weighted toward the end of the year and/or terminated claims weighted more toward the beginning of the year, either of which would cause fewer claim payments to be made on average in a particular year.
The LTCI industry has paid out benefits to policyholders far greater than indicated in the results of our survey, because many claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.
LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, and/or have other different policy or demographic characteristics.
Table 1 shows the total dollar and number of reported individual and multi-life (not group) LTCI claims. It reflects the same carriers for both years. As noted above, total paid claims were down one percent, although the number of claimants rose 15 percent.
The pandemic likely contributed to the lower average 2021 expenditure per claim by reducing the number of facility claims. A reduced payout per claim could also result from new claims being more weighted toward the end of the year or claim terminations being more weighted toward the beginning of the year.
As mentioned above, Table 2 shows that, for insurers reporting claims data, claims shifted away from assisted living facilities (ALFs) and to a lesser degree away from home care, dramatically so on an inception-to-date basis. Different insurers contributing data from one year to another and/or contributing differently makes it harder to identify trends. The Table 2 dollars of claims data include one additional company this year. Another insurer previously assigned all of a claimant’s benefits based on the venue in the claimant’s first month of claim. This year, they reported based on the venue for each claim payment, pushing Table 2 toward nursing homes. “Since inception” means since the insurer first started selling LTCI or as far back as they can report these results (for example, they may have changed claims administration systems and not be able to go all the way back to inception easily).
In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.
Four carriers reported open individual claims at year-end ranging between 53 percent and 81 percent of the number of claims paid during the year, averaging 70 percent overall.
Table 3 shows average size individual claims since inception: that is, including older claims and reflecting all years of payment. Assisted Living Facility (ALF) claims and Home Care claims showed lower average sizes this year, related to the change in reporting mentioned above. Because 40 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim might be expected to exceed the average claim paid for any particular venue. Individual Assisted Living Facility (ALF) claims stand out as high each year (albeit not as much this year), probably because:
a) ALF claims appear to have a longer duration compared with other venues.
b) Nursing home costs are most likely to exceed the policy daily/monthly maximum, hence nursing home claims are most likely to understate the cost of care.
c) People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.
d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs may charge more for a memory unit or for levels of assistance that align more closely with nursing home care.
Several insurers extend ALF coverage to policies which originally did not include ALF coverage, providing policyholders with significant flexibility at the time of claim but contributing to the insurers’ need for rate increases.
The following factors contribute to a large range of average claim by insurer (see Table 3):
Different markets (by affluence; worksite vs. individual; geography; etc.)
Demographic differences (distribution by gender and age)
Distribution by benefit period, benefit increase feature, shared care, and elimination period. For example, one carrier has a higher average home care claim than its average facility claims because home care was a rider and people who added the home care rider were more likely to add compound inflation also.
Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only.
Different lengths of time in the business.
Differences in the ways insurers report claims.
The following factors cause our average claim sizes to be understated.
For insurers reporting claims this year, 16.0 percent of inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.
Besides being understated, average claim data does not reflect the value of LTCI benefits from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI provides significant financial yield for most people who need care one year or longer. A primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.
Four insurers provided their current individual (excludes group) monthly LTCI claim exposure, which increased by nine percent in 2021 (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is 29 times their corresponding monthly LTCI premium income and 37 times their 2021 LTCI monthly paid claims. Seven insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 7.14 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately 0.27 years on the average inforce benefit period. With annual exposure 29 times annual premium and assuming an average benefit period of 7.14 years, we estimate that total exposure is 206 times annual premium.
Four insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $5,928 to $7,982.
Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims because ALF daily/monthly costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.
SALES STATISTICAL ANALYSIS Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian, New York Life, Northwestern and Thrivent contributed significant background statistical data, but some were unable to contribute some data.
Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.) and this year, with the concentration of LTCI sales in WA. Year-to-year variations in policy feature distributions may reflect industry trends but may also reflect changes in participants, participant practices and designs, participant or worksite market shares, etc. and this year, the WCF. The statistical differences between the worksite and non-worksite sales will be reported in the August issue of Broker World.
Market Share We include purchased increases on existing policies as new premium because new coverage is being issued. Table 5 lists the eight insurers that reported the most 2021 new premium, both including and excluding FPOs. Seven of the eight insurers had increases in annualized premium of 12 percent or more due to WA sales. Northwestern ranks #1 including FPOs and Mutual of Omaha ranks #1 when looking only at new policies, but Northwestern has reduced Mutual of Omaha’s lead. Together, they account for 60 percent of the market, which, when paired with New York Life’s strong growth, resulted in a 74 percent market share for the top three insurers. The premium below includes 100 percent of recurring premiums plus 10 percent of single premiums.
Worksite Market Share As demonstrated by LifeSecure (see Table 5), worksite sales soared in 2021 due to WA sales. Overall, we estimate that worksite annualized premium tripled in 2021, contributing 30 percent of total new annualized premium. Worksite sales were approximately 9.3 times those recorded in 2020, accounting for more than 60 percent of coverages sold.
Worksite sales normally consist of three different markets as outlined below, the first two of which produce a higher percentage of new insureds than of new premiums. Worksite 2021 sales were largely voluntary but had the age and premium characteristics of core/buy-up due to WA sales.
Voluntary group coverage generally is less robust than individual coverage.
Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.
The amount of worksite sales reported and its distribution among the sub-markets significantly impact sales characteristics. Table 6 is indicative of the full market (including our estimates for insurers that did not report sales), but this year’s sales distributions do not reflect the insurers focusing in the group voluntary and core/buy-up markets. More information about worksite sales will appear in the August issue of Broker World magazine.
As we noted last year, the future of the non-executive carve-out LTCI market is unpredictable with Transamerica’s departure. LifeSecure, Mutual of Omaha, and National Guardian may pick up market share; combination worksite products are likely to pick up market share; and/or worksite LTCI-related sales might drop.
Affinity Market Share Affinity groups (non-employers such as associations) produced $7.51 million in new annualized premium based on 2,494 new policies (average premium of $3,011) compared to $7.47 million on 2,762 policies (average premium: $2,706). We do not have WA-specific data for affinity coverage, but the decrease in the number of policies suggests that affinity group sales were not influenced much by the WCF exemption given the sales increases observed for other coverage. The higher average premium reflects price increases for new sales. The percentages in Table 7 reflect only participants’ sales.
Characteristics of Policies Sold Average Premium Per Sale To determine the average premium for new sales, we exclude FPOs. Due to WA sales, our participants’ average new business (NB) premium per insured and per buying unit (a couple comprise a single buying unit) each plunged 25 percent in 2021, as shown in Table 8.
Participants’ combined average premium per insured outside WA was $3,785, a five percent increase over 2020’s $3,646 because some carriers raised prices in late 2020 and early 2021. (These numbers are slightly overstated because they do include FPOs.)
Three participants had average WA premiums ranging from $522 to $762 per year. On the other hand, one insurer had an average premium of more than $2,000 per year.
Average WA premium ranged, by insurer, from 21 to 80 percent of average premium outside WA. The two insurers for whom the ratio exceeded 36 percent both doubled their minimum size and required three percent compound inflation in WA, which kept their WA premium from dropping as much as for other insurers. One insurer also raised their minimum issue age in WA significantly. At least one other insurer took all three steps, yet still had a much lower average premium in WA than outside WA.
The jurisdiction with the lowest average new premium for participants in 2021 (including FPOs and counting 100 percent of single premiums) was Washington ($1,089), followed by Puerto Rico ($1,349), and Idaho ($2,137). Indiana and Oregon followed with a more typical $2,912 annual premium. The jurisdiction with the highest average premium was Maine ($5,722), followed by Connecticut ($5,174), New Hampshire ($5,039) and Massachusetts ($5,009).
If we include data from, and estimates for, non-participants, the average premium per insured was $2,557 in the non-worksite market, $661 in the worksite market, and $1,371 overall.
Data for 2017 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.
Issue Age Table 9 shows that WA sales dropped our participants’ average age from 57.7 to 50.6, as 31.1 percent of buyers were below age 45 compared to 7.2 percent in 2020.
The shift to younger ages seems understated because some major worksite carriers did not provide age distribution. Some insurers raised their minimum issue age in WA to 40. That shifted young age business to other insurers and to combination products.
A special column in this table shows the percentage of participants’ placed policies that came from WA, based on age. Not surprisingly, 88.9 percent of the policies for people ages 18-29 came from WA, dropping to 87.8 percent for ages 30-39 and 76.3 percent for ages 40-49. At higher ages, the percentage in WA was much lower, but in each age group it exceeded WA’s 2020 three percent market share.
We estimate that our participants’ average issue age in WA was about 15 years lower than outside WA.
The age distributions for 2016 and earlier had more worksite participants than recent years. Note: one survey participant has a minimum issue age of 40, one will not issue below 30, and one will not issue below 25.
Benefit Period Table 10 summarizes the distribution of sales by benefit period. The average benefit period for limited benefit period policies dropped more than half a year from 3.75 to 3.23. The reduction in length of coverage is even larger; WA sales were less likely to include Shared Care because there were a lot of single and one-of-a-couple sales and because couples trying to minimize cost were less likely to buy Shared Care. Two-year benefit periods accounted for 21.2 percent of the sales, despite not reflecting the major worksite carriers.
Monthly Benefit A change in distribution by carrier led to the reduction in policies sold with monthly determination (Table 11). With monthly determination, low-expense days leave more benefits to cover high-expense days. One insurer offers only daily determination; one insurer offers a choice; and the other insurers automatically have monthly (or weekly) determination. WA sales included a significant number of small policies, causing the average initial maximum monthly benefit to drop to $4,045 (as shown in Table 12), the lowest in the history of our survey despite increasing costs for care. Two insurers accounted for 87.4 percent of the sales that had an initial monthly maximum less than $3,000.
Benefit Increase Features Table 13 summarizes the distribution of sales by benefit increase feature. WCF permitted policies to qualify for exemption even if there were no benefit increases. This contributed to a rise in the percentage of policies nationwide with no benefit increases, from 14.6 to 24.3 percent. Also, the percentage of FPO sales increased from 34.6 to 41.7 percent, presumably because FPOs do not require first-year premium outlay. Future FPO election rates might drop if a meaningful percentage of these buyers have no intention of exercising such options.
“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).
As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent per year offer for fixed FPOs. The maximum benefit at age 80 (in 2050) for our 2021 average 51-year-old purchaser projects to $292/day (equivalent to 2.7 percent compounding). Had our average buyer bought an average 2020 policy a year ago at age 50, her/his age 80 benefit would be $394/day. The lower initial maximums and reduced benefit increases driven by WA sales caused this drop in coverage. It is even more striking considering that the 2021 buyers are less likely to exercise FPO options and more likely to reduce the monthly maximum or drop the benefit increase feature and that inflation is a growing concern. Pandemic protocols are likely to increase facility costs and there are a variety of inflationary pressures which apply to LTC staff salaries at all types of venue. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.
FPOs are important to insureds in order to maintain purchasing power, and 78.2 percent of our participants’ 2021 FPOs were exercised. The high election rate is noteworthy, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age, and additional price increases due to rate increases.
One insurer had an election rate of 88 percent, two insurers had 67 to 68 percent, one insurer had 47 percent, and two insurers had 25 to 29 percent. It seems clear that higher election rates occur if FPOs are more frequent (i.e., every year vs. every three years) and are “negative-election” (i.e., activate automatically unless the client rejects them) as opposed to “positive-election” (i.e., which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.
FPOs can also be important to insurers. Two insurers got a large percentage of their new premium (42 percent for one; 51 percent for the other) from FPO elections.
Elimination Period Table 16 summarizes the distribution of sales by facility elimination period (EP). The percentage of people buying 84-100day EP dropped arithmetically by 2.2 percent, nearly evenly divided between people opting for shorter EPs and those opting for longer EPs. Five insurers saw between 2.75 and six percent of their new buyers opt for roughly six-month EPs and two of those insurers saw between eight and 11 percent of their new buyers opt for one-year EPs. One insurer mentioned that 20 percent of WA purchasers selected a one-year EP.
Table 17 shows the percentage of participant policies with zero-day home care elimination period (but a longer facility elimination period). For insurers offering an additional-cost zero-day home care EP option, the purchase rate is sensitive to the cost. Table 17 shows a shift away from the zero-day home care EP option due to WA sales, as individuals generally sought out lower cost coverage to qualify for the WCF exemption.
Table 17 also shows the percentage of participant policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred. A significant part of the drop in calendar-day EP is a change in distribution between carriers.
Sales to Couples and Gender Distribution Since inception, the LTCI industry has struggled to attract the attention of male consumers. As shown in Table 18, which summarizes the distribution of sales by gender and single/couple status, a majority of 2021 purchasers (51.4 percent) were male, largely influenced by WA sales. Among single purchasers, the male percentage increased from 34.4 to 44.5 percent.
WA sales also spurred an increase in the percentage of one-of-a-couple sales, from 23.9 to 27.5 percent in 2021. The percentage of one-of-a-couple sales to men increased from 44.3 to 58.7 percent in 2021.
The percentage of accepted applicants who purchase coverage when their partners are declined dropped slightly. It varies significantly by insurer based on their couples pricing and their distribution system. Only two insurers (both large and active in WA) were able to report this data. Their results were almost identical (80.3 and 80.9 percent, respectively) for the percentage of accepted applicants who purchased coverage after a partner’s denial.
Shared Care and Other Couples’ Features Table 19 summarizes sales of Shared Care and other couples features.
Shared Care allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool the couple can share.
Survivorship waives a survivor’s premium after the first death if specified conditions are met.
Joint waiver of premium (WP) waives both insureds’ premiums if either insured qualifies for benefits.
Changes in distribution by carrier can greatly impact year-to-year comparisons (Table 19), as some insurers embed survivorship or joint waiver automatically (sometimes only for particular circumstances. For example, joint waiver of premium might be automatic if Shared Care is purchased) while others offer it for an extra premium, offer it only under some circumstances, or do not offer the feature.
In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the percentage of policies that results from dividing by sales of insurers that offer the outlined feature.
Because WA buyers appeared to minimize their cost (as observed by lower reported average premiums), these features were less popular in 2021. Of couples who both bought limited benefit period, only 22.6 percent added Shared Care, compared to previous percentages of 33.4 to 43.0 percent.
For insurers reporting Shared Care sales, the percentage of both-buying couples who opted for Shared Care varied from four percent to 64 percent. The corresponding percentage of couples with Joint WP varied from four to 100 percent and for Survivorship ranged from 2.7 to 9.0 percent.
Tables 20 and 21 provide additional breakdown on the characteristics of Shared Care sales. Table 20 shows that couples buying four-year benefit period policies became the most likely to add Shared Care, presumably because people seeking a minimal premium might buy a 3-year benefit period but without Shared Care. Each benefit period can have anywhere from zero to 100 percent Shared Care among its couples.
Table 21 looks only at Shared Care policies and reports their distribution across benefit period, so the percentages must total 100 percent. As many policies have three-year benefit period, more than half the Shared Care policies had a three-year benefit period (Table 21) even though a higher percentage of four-year benefit period policies had Shared Care (Table 20).
Table 19 shows a low percentage of policies having Shared Care, partly because its denominator includes all policies, even those sold to single people or one of a couple. Table 20 denominators are couples who both bought coverage with the particular benefit period. Table 21’s denominator is the number of Shared Care policies.
Shared Care is generally more concentrated in two- to four-year benefit periods than are all sales. Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female and opt for a longer benefit period.
Existence and Type of Home Care Coverage Three participants reported sales of facility-only policies, which accounted for 0.4 percent of total sales. One insurer was responsible for 85 percent of such sales. Nearly ninety-six percent of the comprehensive policies included home care benefits equal to the facility benefit. The other sales all had a home care benefit of at least 50 percent of the nursing home benefit. The last home-care-only sale in our survey was sold in 2018.
Other Characteristics As shown in Table 22, partial cash alternative features (which allowed claimants, in lieu of any other benefit that month, to use between 10 and 40 percent of their benefits for whatever purpose they wish) were included in fewer of our participants’ policies due to a change in market share among participants.
Return of premium (ROP) features were included in 14.2 percent of policies, a surprising increase due to a market share change. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Ninety (90 percent) of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.
Due to market share change, 22 percent of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured has not needed services for at least six months. Approximately 90 percent of ROB features were automatically embedded.
Insurers must offer shortened benefit period (SBP) coverage, which makes limited future LTCI benefits available to people who stop paying premiums after three or more years. The insurers able to report SBP sales, sold SBP to 4.0 percent of buyers, a small increase due to market share change.
Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of total industry sales.
“Captive” (dedicated to one insurer) agents produced 68.6 percent of the sales, their highest percentage since we have been reporting this data. Brokers produced 31.4 percent of the sales. Some direct-to-consumer sales were made but not by our participants. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies. Sales distribution by jurisdiction is posted on the Broker World website.
Limited Pay and Paid-Up Policies In 2021, two insurers in the survey sold policies that become paid-up in 10 years or less, accounting for 1.2 percent of sales.
Because today’s premiums are more stable compared to policies sold years ago, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive for consumers than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.
Seven participants reported that 2.9 percent of their inforce policies are paid-up, a lower percentage than last year because an additional insurer participated.
PARTNERSHIP PROGRAM BACKGROUND When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Except for California, states with Partnership programs grant reciprocity to Partnership policies issued in other jurisdictions. Partnership programs are approved in 44 jurisdictions, all but AK, DC, HI, MA, MS, UT, and VT, but MA has a similar program (MassHealth).
Four states (CA, CT, IN and NY) blazed the trail for Partnership programs in the early 1990s. Other states were allowed to adopt Partnership regulations (which were simplified and more standardized) as a result of the Deficit Reduction Act of 2005 (DRA).
Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.
Partnership programs could be more successful if:
Advisors offer small maximum monthly benefits more frequently to middle-income individuals. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-income individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work in CA, CT, IN and NY because of their high Partnership minimum daily benefit requirements.)
Middle-income prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and qualify for Partnership asset disregard.
The four original Partnership states migrate to DRA rules.
More jurisdictions adopt Partnership programs.
Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
Financial advisors were to press reluctant insurers to certify their products and offer one percent compounding.
More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
Linked benefit products became Partnership-qualified.
PARTNERSHIP PROGRAM SALES Participants reported Partnership sales in 41 states, all authorized states except CA, CT and NY. One carrier sold a Partnership policy in each of the 41 states. One has chosen not to certify Partnership conformance.
Insurance brokers do not have access to Partnership policies in CA, CT and NY and from only one insurer in IN. However, consumers may be able to purchase Partnership-qualified coverage from another entity.
As only 23.4 percent of participants’ WA policies qualified for the Partnership, participants’ Partnership-qualified policies in DRA states dropped from 55 to 34.6 percent. Other states saw some slippage in Partnership sales, presumably because benefit increase provisions are less popular. Minnesota (76.6 percent, down from 81.4 percent in 2020) leads each year. Wisconsin was second (67.5 percent) and six states had between 60 and 64 percent. Indiana (3.7 percent) and New Mexico (8.3 percent) were the only states with participant Partnership sales in which fewer than 20 percent qualified.
UNDERWRITING DATA Case Disposition Seven insurers contributed application case disposition data to the survey (Table 24). In 2021, 61.4 percent of applications were placed due to WA sales. In 2020, 57.8 percent were placed. Two insurers placed 71 to 78 percent of their applications and five insurers placed 45 to 60 percent. One insurer had a lower placement rate than in 2020.
Declines were down in 2021, to 24.6 percent from 29.0 percent in 2020. Decline rates varied by insurer, ranging from 12.0 to 35.1 percent (based on decisions).
The percentage of suspended and withdrawn policies dropped but free look and not-taken (NTO) increased about as much. Our participants experienced between 6.6 and 15.6 percent terminated cases for such reasons. In WA, suspended, withdrawn, and NTOs more often resulted from the applicant finding a less expensive solution, sometimes through their employer. Thus, from a consumer standpoint, the placement rate was likely higher than stated above.
Seven insurers contributed to our WA placement data. They had a 72.7 percent placement rate in WA with a 54.1 percent placement rate outside WA. Their decline rate was 13.3 percent in WA vs. 27.4 percent elsewhere. Their combined withdrawn/suspended/NTO rate was 14.1 percent in WA vs. approximately 18.5 percent outside WA.
The WA placement rate was higher primarily for applicants under age 50. Factors such as age distribution, distribution system, market, underwriting requirements, and underwriting standards affect these results.
Table 25 shows that the placement rate increased at all ages. The improvements under age 50 resulted from WA sales. One insurer sold a product with a short benefit period that qualifies as LTCI in WA. Had we included that product, placement rates would have been higher at older bands represented in the table.
This data is a subset of the placement data in Table 24.
Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors may fear that declined clients will be dissatisfied. In the Market Perspective section, we listed ways to improve placement rates. This is a critical issue for the industry. If readers have suggestions, they are invited to contact the authors.
Underwriting Tools Four insurers contributed data to Table 26, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the count of instances where medical records were requested was 93 percent of the number of applications. That does not mean that 93 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.
Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, an insurer might not be able to split phone interviews by whether or not they include cognitive testing.
Medical, phone interviews, and prescription profiles all increased, signs of more thorough underwriting. The 2021 changes all reflect the impact of WA sales, with fewer apps needing face-to-face exams or phone interviews with a cognitive test due to the mix of younger applicants.
Underwriting Time Table 27 shows an average processing time, from receipt of application to mailing the policy, of 60 days. The increase in sales due to the WCF exemption swamped insurers, adding significantly to processing time. The issue appeared to be significantly more severe for some insurers marketing combination products.
Rating Classification Table 28 shows that almost two-thirds of 2021 policies were issued in the most favorable rating classification due to WA sales.
Table 28 shows the percentage of decisions which were either declined or placed in the 3rd or less-attractive classification is reducing. We conclude that the industry made more favorable decisions rather than declining applicants in lieu of giving them a substandard rating.
Tables 29 and 30 show the 2020 percentages of policies issued in the most favorable category and decline decisions by issue age. Tables 29 and 30 do not exactly match Table 28 because some participants provide all-age rating or decline data. The percentage placed in the most favorable classification increased for all ages, except 18-29.
The overall decline rate reduced because, as explained earlier, WA sales included younger and likely healthier applicants. The lower decline rate was most noticeable under age 50. Above age 60, where increased WA sales had less impact, the decline rate increased (except for a likely statistical fluctuation at ages 75+).
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophia Fosdick, Rachelle Jacobs, and Zane Truesdell of Milliman for managing the data expertly.
We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.
Footnotes:
Single premium sales are counted at 10 percent for the annualized premium calculations herein.
The 2021 Milliman Long Term Care Insurance Survey, published in the July issue of Broker World magazine, was the 23rd consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzed product sales, reporting sales distributions and detailed insurer and product characteristics.
From 2006-2009, Broker World published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank. In 2011, Broker World began this August annual analysis of worksite (“WS”) sales to complement the July overall market analysis.
The WS market consists of individual policies and group certificates (“policies” henceforth) sold with employer support, such as permitting on-site solicitation and/or paying or collecting premiums. If a business owner buys a policy for herself and pays for it through her business, participants likely would not report her policy as a WS policy because it was not part of a WS group. If a business sponsors general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site, sales would not be reported as WS sales.
We limit our analysis to US sales and exclude “combination” products, except where specifically indicated. (Combination products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
About the Survey Our survey includes WS sales and statistical distributions from National Guardian Life, New York Life, and Northwestern and WS sales data from LifeSecure and Transamerica. We estimated sales from some other insurers and compare WS sales to individual LTCI policies that are not WS policies (NWS) and to total sales (Total).
The July issue included data for the California Public Employees Retirement System (CalPERS) program. CalPERS eligibility is based on California public employment, but the program operates more like an affinity group than a WS group, so it was counted as affinity sales in July and is in the NWS data, not the WS data, in this article. Ten percent of single premiums are included as annualized premiums.
Highlights from This Year’s Survey
We estimate 2020 WS sales of 9,700 policies (approximately 20 percent of total sales) for $19.75 million (nearly 15 percent of total new annualized premium) which is a about a 15 percent decrease in both premium and number of sales from 2019. The premium includes 2020 future purchase options exercised on policies issued in the past.
In 2019, WS sales had rebounded from low 2018 sales. 2020 appeared likely to be another good year until the pandemic struck, hampering sales activities from April through year-end. As different WS markets have different seasonal sales patterns, the pandemic can impact statistical characteristics as well as sales.
We estimate that our WS sales total includes more than 95 percent of the stand-alone WS LTCI market, but our statistical distributions reflect only about 15 percent of WS policies. Our WS statistical distributions can vary significantly from year-to-year because insurers focusing on particular WS markets may be over- or under-represented. The carriers that provided 2020 statistical data had an average WS annual premium of $4,218 whereas the ones that provided only total sales had an average WS premium of $1,665, which indicates that our statistical analysis, like last year, is overly weighted toward executive carve-out programs. While these averages are quite close to the previous year’s numbers ($4,568 and $1,627), they can vary greatly year over year. The corresponding 2018 averages were $2,015 and $1,561. In 2017, the difference was in the other direction ($1,015 vs. $1,441).
MARKET PERSPECTIVE The three segments of the WS market (which may apply to different employee classes in a single case):
In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees. Employees can buy more coverage. “Core” programs generally have low average ages, short benefit periods, low daily maximum benefits and a small percentage of spouses insured.
In “carve-out” programs, employers pay for robust coverage for key executives and usually their spouses. Generally, executives can buy more coverage for themselves or spouses. Compared to “core” programs, a higher percentage of insureds are married, more spouses buy coverage, the age distribution is older and the average premium is higher.
In “voluntary” programs, employers pay nothing toward the cost of coverage. The typical coverage is more robust than “core” programs, but less robust than “carve-out” programs. Voluntary programs tend to be most weighted toward female purchasers.
National Guardian, New York Life, and Northwestern write mostly executive carve-out programs, whereas Genworth, LifeSecure, Mutual of Omaha, and Transamerica have significant voluntary and core buy-up business. Because we received statistical distributions from the former but not the latter, our 2020 and 2019 statistical distributions are more representative of the executive carve-out subset of the market.
Because of tax savings, small executive carve-out plans are weighted toward the end of the year. On the other hand, large voluntary cases were traditionally weighted toward fall enrollments with January 1 effective dates. Large voluntary cases are probably more evenly distributed through the year than in the past, but differences remain.
Carrier Changes: MassMutual ceased sales, hence will have, at most, negligible WS sales in 2021. Transamerica ceased accepting new cases at the end of March 2021 and ceased accepting new apps on June 30. However, Transamerica’s sales might be strong in 2021 because some employers sought WS programs in advance of the November 1 deadline in order for employees to qualify to opt out of the Washington Cares Fund tax, as explained below. In 2020, Genworth temporarily ceased sales, but has since resumed. These developments will impact total industry WS sales and change insurers’ market shares as well as the statistical characteristics of WS sales.
The WCF: The State of Washington created the Washington Cares Fund (WCF) through passage of the LTSS Trust Act. In January 2022, the state will begin collecting 0.58 percent payroll tax on wages to fund a $36,500 lifetime pool of money starting in 2025. The pool of money is intended to inflate thereafter according to the WA consumer price index. Coverage applies for vested individuals receiving care in WA and is not portable out-of-state.
The law allows people to opt out of the program and not pay the tax if they purchase LTCI by 11/1/2021. Therefore, 2021 private LTCI sales could be impacted if some people choose to opt out for reasons such as: Intend to retire outside of Washington; believe they will not obtain enough vesting credits; have high wages; want more robust coverage; want to cover unemployed spouses; or want to benefit from the state Partnership program. We understand some employers either instituted WS programs or educated their employees so they could seek individual coverage if appropriate. Even employers outside WA were stimulated to act if they had WA-based employees.
COVID-19: In 2020, most scheduled enrollments were canceled or delayed, and it was obviously not a good time for employers to consider implementing a new WS program.
Enrollments of newly-eligible employees continued in 2020 for existing programs, being performed in web meetings.
Early 2021 was also not a good time for enrollments, due to COVID-19, focus on “re-opening”, continued high unemployment and volatility in the work force.
Pricing Considerations: Most people interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI programs use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current or previous year. Some states apply similar laws to employers with fewer employees. Thus, for WS sales, insurers must create a separate unisex-priced product. The expense of separate pricing, marketing and administration discourages insurers from serving both the WS and NWS markets.
Moreover, insurers fear anti-selection. Because women have higher expected future claims, unisex pricing saves women money compared to gender-distinct NWS pricing, whereas men pay much more for WS than for NWS policies. The higher the percentage of female buyers in the WS, the more unisex pricing is likely to approach sex-distinct female pricing levels.
The recent evolution of couples’ discounts (discussed in our July article) might impact WS programs directly or indirectly.
Because healthy, young, and less affluent people are less likely to buy LTCI, insurers also fear health anti-selection (less-healthy people buying, while healthier people do not buy). Furthermore, because WS programs rarely offer “preferred health” discounts, healthy heterosexual couples may pay more for WS coverage than for corresponding NWS coverage. Therefore, there are few health concessions in the stand-alone WS market at this time. However, some combination products offer guaranteed issue if participation requirements are satisfied.
In the carve-out market, a more expensive WS product can still produce after-tax savings compared to a cheaper NWS policy, because of tax advantages when employers pay the premium.
In addition to health and gender distribution, insurers are also careful about age and income distributions of WS cases they accept. Insurers are more vulnerable to health- or gender-anti-selection if the group has a lot of young or less affluent employees.
Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and to reduce exposure to extremely long claims. Such age restrictions can discourage employers from introducing a program, especially a carve-out program if they have executives or spouses under age 40.
To control risk, most insurers will not accept a voluntary WS program if there are fewer than 100 employees. However, one insurer (which offers no health concessions) will accept voluntary LTCI programs with as few as two to five employees buying (minimum varies by jurisdiction).
Availability of coverage: With increased remote work, more employers have employees stretched across multiple jurisdictions and eligible non-household relatives might live anywhere. But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. So, it can be difficult to find an insurer which can cover everyone unless LTCI is sold on a group chassis and the employer does not have individuals in extra-territorial states.
One insurer no longer offers WS LTCI to non-household relatives. Reduced availability for such relatives does not have much impact on sales, because only about one percent of WS sales are to non-household relatives. However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.
Prior to sex-distinct pricing, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company, but now it is hard to find a carrier that offers unisex pricing under such circumstances. Such executives may buy policies with sex-distinct pricing either because they are unaware of the requirement under Title VII of 1964 Civil Rights Act, they are confident that no female will file a civil rights complaint, or they disagree with the interpretation that such policies should have unisex pricing to avoid the risk of a civil rights complaint, etc.
Some employee benefit brokers are reluctant to embrace LTCI because of declinations, the effort of enrollment, certification requirements, their personal lack of expertise, etc. WS sales gain from LTCI specialists forming relationships with employee benefit brokers.
Positive Factors: Despite the above problems, there are positives for the WS market.
As a result of COVID-19, there is increased awareness of the LTC risk and of personal exposure. In addition, there is increased interest in staying out of nursing homes. More workers may have elders living in their homes and, if they are remote workers, the needs of those elders are more likely to interfere with their productivity.
Potential future tax increases would increase the tax advantages of employer-paid premium.
Voluntary WS LTCI sales lack the tax advantages of employer-paid coverage. Therefore, voluntary programs for young and less-affluent groups may gravitate toward products that include life insurance, which is viewed as a more immediate potential need by young employees with families.
As most jurisdictions now permit policies with one percent compounding to qualify as Partnership policies, the WS should be a great venue to serve people who can benefit from state Partnership programs. Two insurers in the WS market currently offer one percent compounding. As explained in the Partnership section, sales of Partnership policies could likely be increased if more insurers offered one percent compounding and if they lowered the minimum monthly maximum for core/buy-up programs with one percent compounding.
Another potentially positive factor is the increased availability of combination products in the WS market. From the perspective of insurers and advisors selling stand-alone LTCI in this market, competition from combination products might be a negative. Furthermore, such combination products may produce relatively little purchasing power during retirement years because the monthly LTCI benefit is constrained to a portion (typically four percent) of the death benefit and because the benefit does not compound. However, combination products should expand the WS market.
Yet another positive are programs which offer free LTC-related services to employees and their families. Regardless of whether the employee is insured or the relative is insurable, they can access information, advice, services and products that make caregiving more efficient, more effective, safer and less expensive. Enabling employees and their families to have better LTC experiences and to use more (not necessarily 100 percent) commercial care should boost productivity at work.
With all of the above changes, it will be particularly interesting to see how 2021 sales develop.
STATISTICAL ANALYSIS As mentioned earlier, insurers’ sales distributions can vary greatly based on the submarket they serve (for example, in the WS market: core, voluntary or carve-out). Therefore, distributions may vary significantly from year to year due to a change in participating insurers, in distribution within an insurer or in market share among insurers. Policies in the carve-out market are designed similarly to those in the NWS (non-worksite) market. Our sales distributions reflect only about 15 percent of WS policies and certificates issued in 2020 and are mostly representative of the executive carve-out market. For example, one insurer’s average WS case consisted of 5 policies being issued and another averaged 7 policies. One of the 3 insurers sold 61 more policies than it did in 2019, whereas the other two insurers sold about 35 percent fewer policies, which resulted in one insurer comprising 76 percent of the WS sales on which our distributions are based.
Sales and Market Share Table 1 shows historical WS sales for all insurers reporting sales, including some estimates in 2020. As there are several WS markets and some have long lead times, there may be a lag before competitors can fill in after an insurer drops out.
Table 1 also shows the overall average WS premium compared to the average WS premium for the participants who contributed statistical data beyond sales. As shown in the table, until 2017, our WS statistics likely represented the broad WS market well.
Table 2 shows WS sales as a percentage of total LTCI sales. For the most part, this percentage has stayed relatively level in the past five years and much higher than prior to 2016.
As shown in Table 3, two insurers wrote 60 percent or more of their 2020 new premium in the WS, while the other insurers wrote 15 percent or less of their business in that market. The percentage of each insurer’s new premium that comes from WS sales did not change dramatically from 2019 to 2020.
Average Premium Per Buyer Table 4 shows that, in 2020, the NWS average premium per buying unit (a couple comprise a single buying unit) was 42.8 percent higher than the average premium per insured. This dropped to 29.9 percent for WS sales, because more WS buyers are single and because spouses are less likely to buy in the WS. The average premium per new insured (NB Insured) reflects all participants, but the average premium per buying unit is determined solely by the participants who report sales based on marital status. The WS ratio is probably overstated because participants who reported premium by marital status for the WS are not characteristic of the entire market.
Issue Age The balance of the statistical presentations are not representative of the entire WS market as explained above. We report the results we have available, though we urge you to be selective in how you use the data.
Not surprisingly, Table 5 shows the WS market is much more weighted to the younger ages, even with data that is disproportionately weighted to executive carve-out programs. The total industry average age and the NWS average age both rounded to the exact same age as in 2019. The WS average fell a bit.
Table 7 displays the relative age distribution of the workers ages 18+ to purchasers in the WS market and all adults 18-79 to purchasers in the NWS markets. In the WS market, the LTCI industry is particularly successful selling to ages 30-59; ages 40-49 represent 38.4 percent of sales but only 21.2 percent of employees. In the NWS market, the industry is particularly successful with 50-70 year-olds.
Rating Classification Most WS sales are in the “best” underwriting class (see Table 8) because there generally is only one underwriting class. Insurers often do not get enough information in WS to determine whether a “preferred health” discount could be granted and use the additional revenue (from not having a “preferred health” discount) to fund extra cost resulting from gender or health anti-selection. Carve-out programs are more likely to offer a “preferred” discount, which means a higher percentage of carve-out policies are issued in the second-best underwriting class. The percentage of policies issued in the best underwriting class dropped in the NWS market in 2020 from 44.9 to 43.6 percent. However, it was higher than in either 2018 (43.1 percent) or 2017 (40.5 percent). Meanwhile the percentage in the WS market increased from 81.7 to 89.4 percent, partly due to a change in market share among insurers. The 2020 WS was lower than in either 2018 (93.9 percent) or 2017 (91.9 percent), but in 2017-18, our data included more large group business with significant health concessions.
Benefit Period The WS average benefit period is low for core/buy-up programs and somewhat low for voluntary programs. Executive carve-out programs sometimes have longer benefit periods than the NWS market. Our 2020 WS and NWS average benefit periods are similar, with WS having significantly more two-year benefit periods this year. Last year, the average benefit period was the same in the WS and NWS markets.
Table 10 shows corresponding data back to 2013. As noted elsewhere, this data can jump around based on which insurers provide such detail and whether large core/buy-up cases are written in a particular year.
As discussed later, the WS market issues much less Shared Care.
Maximum Monthly Benefit Even with a lot of executive carve-out business, Table 11 shows that the WS market has many core programs sold with a $50/day or $1500/month initial maximum benefit. In 2020, both the WS and NWS markets had more business concentrated between $3,000 and $5,999 initial monthly maximums.
Table 12 shows that the WS initial monthly maximum has varied more over time than the whole market, because of participant changes and how many core/buy-up plans were sold in a particular year.
Benefit Increase Features As shown in Table 13, the WS market has more future purchase options (FPO), because of its core programs. The high indexed FPO WS percentage is caused by a change in carrier market share based on policy count.
Both the NWS market (15.9 to 14.5 percent) and the WS market (20.8 to 16.5 percent) saw decreases in the percentage of policies sold with no benefit increase feature.
Future Protection Based on a $24/hour cost for non-professional personal care at home ($24 is the median cost according to Genworth’s 2020 Cost of Care Survey), the average WS initial maximum daily benefit of $148.90 would cover 6.2 hours of such care per day at issue, whereas the typical NWS initial daily maximum of $163.60 would cover 6.8 hours of such care per day, as shown in Table 14. This year’s higher cost (the hourly cost was $23 in 2019) contributed to the decrease in the number of initial covered hours from 6.8 (WS) and 7.1 (NWS) last year.
The number of future home care hours that could be covered depends upon when care is needed (we have assumed age 80), the home care cost inflation rate between now (age 42 for WS and 58 for NWS) and age 80 (we have calculated with two, three, four, five and six percent inflation), and the benefit increases provided by the LTCI coverage between now and age 80.
Table 14 shows calculations for 3 different assumptions relative to benefit increase features:
The first line presumes that no benefit increases occur (either sold without any benefit increase feature or no FPOs were exercised).
The second line reflects the average benefit increase design using the methodology reported in the July article, except it assumes that 40 percent of FPOs are elected (intended to be indicative of “positive” election FPOs, in which the increase occurs only if the client elects it) and provide five percent compounding.
The third line is like the second line except it assumes 90 percent of FPOs are elected (intended to be indicative of “negative” election FPOs, in which the increase occurs unless the client rejects it). It also assumes the FPOs reflect five percent compounding.
Table 14 indicates that:
Without benefit increases, purchasing power deteriorates significantly, particularly for the WS purchaser because there are more years of future inflation for a younger buyer. With four percent inflation and no benefit increases, the number of covered hours of home care at age 80 dropped from 1.8 in 2019 to 1.4 in 2020 for the WS market and from 3.0 in 2019 to 2.9 in 2020 for the NWS market.
The “composite” (average) benefit increase design assuming that 40 percent of FPO offers are exercised preserves purchasing power better than when no increases are assumed, but still generally leads to significant loss of purchasing power. The exceptions: both WS and NWS purchasers gain a bit of purchasing power if the inflation rate is only two percent (with a 40 percent FPO election rate, the composite is greater than two percent compounding). With three percent inflation, the NWS clients gain purchasing power but the WS clients lose a slight bit of purchasing power.
With 90 percent FPO election rates, the average WS buyer would experience increased purchasing power with four percent or less inflation but would lose purchasing power with five percent or more inflation. The average NWS buyer gains purchasing power with three percent or less inflation but loses purchasing power with four percent or more inflation.
Table 14 also underscores the importance of considering future purchasing power when buying LTCI. Please note:
a) The average WS buyer was 16 years younger at issue, hence has 16 more years of inflation and benefit increases in the above table. The effective inflation rate to age 80 is not likely to be the same for 42-year-olds versus 58-year-olds purchasing today.
b) WS sales have more FPOs, so WS results are more sensitive to FPO election rates.
c) 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.
d) By the median age of starting to need care (about age 83) and the median age of needing care (about age 85), more purchasing power could be gained or lost.
e) Table 14 does not reflect the cost of professional home care or a facility. According to the aforementioned 2020 Genworth study, the average nursing home private room cost is $290/day, which is currently comparable to 12.1 hours of non-professional home care. However, the inflation rate for facility costs is likely to differ from the inflation rate for home care. From 2004-2020, Genworth’s studies showed the following compound growth rates: private room in a nursing home (3.1 percent), assisted living facility (3.7 percent), home health aide (1.6 percent), and home care homemaker (2.2 percent).
f) Table 14 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the average facility benefit.
Partnership Program Background When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some IN and NY policies disregard all assets). Partnership programs exist in 44 jurisdictions (all but AK, DC, HI, MA, MS, UT, and VT), but MA has a somewhat similar program (MassHealth). The first four states to develop Partnerships (CA, CT, IN and NY) have different rules, some of which have become a hindrance to sales. We are not aware of a Partnership-qualified WS LTCI product in those states, which is unfortunate because the WS market serves many people who could benefit from Partnership.
To qualify for a state Partnership program, a policy must have a sufficiently robust benefit increase feature. Many jurisdictions have lowered the minimum Partnership-eligible compounding benefit inflation rate to one percent. To facilitate Partnership sales in such jurisdictions, an insurer could lower its minimum size by 1/3 (e.g., from $1500 to $1000) if one percent compounding is included in a core program. The revenue from the core program would typically increase. The premium would be more level by issue age, shifting risk to the younger ages which is preferable for the insurer in a core program.
Jurisdictional Distribution Broker World’s website (Click here) has a chart of the market share of each US jurisdiction relative to the total, WS and NWS markets, and the Partnership percentage by state. This chart indicates where relative opportunity may exist to grow LTCI sales.
Elimination Period More than 90 percent of the NWS market buys 90-day elimination periods (EPs). For that reason, many WS programs offer only a 90-day EP. Yet, probably because we lack data for some insurers which sell almost entirely 90-day WS EP, our WS data shows many more WS policies with 180-day or longer EPs (7.8 percent) than in the NWS market (5.0 percent).
Table 15 also shows how many policies had a 0-day home care feature and a longer facility EP and how many policies had a calendar-day EP (as opposed to a service-day EP). We have reflected that all LifeSecure policies are 90-day EP with a calendar-day definition and all Transamerica sales have 0-day home care EP. Policies which have 0-day home care EP, but define their EP as a service-day EP operate almost identically to a calendar-day EP.
The significant differences in 0-day home care EP and in calendar-day EP by market reflect specific insurers’ design preferences; they do not appear to be driven by the market.
Gender Distribution and Sales to Couples and Relatives Insurers began sex-distinct LTCI pricing in 2013, but, as explained above, unisex pricing continues in the WS market. The 2013-2015 percentages of females in the NWS market were high as insurers which still offered unisex pricing attracted single females.
In the past five years, the percentage of female buyers in the NWS has been stable, fluctuating from 54.3 to 54.9 percent.
From 2015-2018, the high percentage of WS buyers who are female suggested that women were particularly attracted to voluntary WS LTCI (presumably because of unisex pricing). Our WS results are heavily distributed to executive carve-out programs, and many executive carve-out programs cover spouses.
The low 2019 percentage of female sales in the WS was mostly attributable to a drop in female sales for a major insurer. That insurer’s percentage of female sales bounced partly back in 2020.
In 2020, women constituted 50.5 percent of the USA age 20-79 population1, but a slightly higher 54.3 percent of total LTCI purchases. Women were only 46.8 percent of workers2 but accounted for 53.9 percent of WS sales.
Table 17 digs deeper, exploring the differences between the WS and NWS markets in single female, couples and Shared Care sales.
It shows that the bounce-back in female sales at the WS was primarily among single people. Insuring one spouse became more common in the WS market, but when both spouses were insured, Shared Care became more common. Shared Care is less common in the WS market because it often is not offered and because spouses often don’t buy. Also, executive carve-out programs may feel that insuring spouses favors married personnel and that adding Shared Care does so to an undesirable degree.
The NWS market saw a shift to more couples-both-buying sales, but among sales to single people, the percentage of females increased.
Our limited data with regard to relatives who buy shows that two spouses are insured for every three employees. That’s a high percentage reflective of executive carve-out data. Only about one percent of purchasers are relatives other than the employee and employees’ spouses.
Type of Home Care Coverage Table 18 summarizes sales by type of home care coverage. Historically, the WS market sold few policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, that difference faded. Yet, in 2020, there was a small drop in WS sales with a 100 percent home care benefit.
Table 18 also shows that monthly determination dominates the NWS market, but daily determination still dominates the WS market. The particularly low 2020 monthly determination percentage in the WS was caused primarily by a change in distribution of WS sales among participants.
Many WS products embed a “partial cash alternative” feature (which allow claimants, in lieu of any other benefit that month, to use approximately 1/3 of their benefit for whatever purpose they wish, with the balance extending the benefit period) or a small informal care benefit.
Other Features Table 19 suggests that Return of Premium (ROP) became more common in the WS market in 2020 but a bit less common in the NWS market. In each market, the percentage of ROP features actively chosen by purchasers increased. The percentage of ROP riders that expire increased even though embedded ROP almost always expires. ROP with expiring death benefits can provide an inexpensive way to encourage more young people to buy LTCI but may not provide a meaningful benefit.
Table 20 shows significant drops in WS sales of Joint Waiver of Premium and Survivorship to couples, but and a significant increase in Restoration of Benefits (ROB). These changes are significantly related to changes in market share by insurer. All WS sales are tax-qualified. Our 2019 percentages are corrected in Table 20.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophie Fosdick, Margaret Liang, Nicole Gaspar, and Alex Geanous 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.
The 2021 Milliman Long Term Care Insurance Survey is the 23rd consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products.
More discussion of worksite sales, including a comparison of worksite sales distributions vs. non-worksite sales distributions will be in Broker World magazine’s August issue.
Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.
Highlights from this year’s survey
Participants Eight carriers participated broadly in this survey. Four others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.
We estimate our statistical distributions reflect about 75 percent of total industry policies sold (85 percent of premium) and about 15 percent of worksite policies sold (30 percent of premium). Total industry sales and total worksite sales (the denominators) include authors’ estimates of sales for three companies.
Our worksite statistical distributions can vary significantly from year-to-year because insurers focusing on particular worksite markets may be over- or under-represented. Our worksite statistical analysis is overly weighted toward executive carve-out programs. The carriers which provided 2020 statistical data had an average worksite annual premium of $4,218 whereas the insurers which did not provide statistical data had an average worksite premium of $1,634.
CalPERS, Northwestern and the six insurers displayed in the Product Exhibit provided broad statistical information. Auto-Owners, Country, LifeSecure, and Transamerica contributed total and worksite sales (new premium and lives insured) but did not provide other information. However, in a few places we were able to reflect some of their product designs in our statistical distributions. We estimate approximately $10 million of sales for those insurers which did not contribute their sales data.
Country Life, Genworth and CalPERS stopped selling stand-alone LTCI in 2020; however, Genworth has since resumed sales and CalPERS intends to resume sales. MassMutual and Transamerica discontinued selling stand-alone LTCI early in 2021 but Transamerica continued to accept new worksite applications until mid-year and may be experiencing last minute sales as a result.
Sales Summary
After having reported an increase in new premiums in 2019 (for the first time since 2012), twelve insurers reported $139,562,096* in 2020 annualized new premium sales (including exercised FPOs) and 41,440 new policies, 9.7 percent less premium and 11.9 percent fewer policies than the same insurers sold in 2019. However, some insurers with limited 2020 activity did not report 2020 sales to us. Including estimated sales for those insurers we peg total stand-alone LTCI industry sales at about $150 million*, which is nearly 13 percent less than the 2019 sales of $171,634,536 (restated upward by nearly $900,000 from our report last year). As noted in the Market Perspective section, sales of policies combining life insurance with LTCI or Chronic Illness benefits dropped eight percent in the first half of 2020 and corresponding premium dropped 19 percent. *Single premium sales are counted at ten percent for the annualized premium calculations herein.
Although we are not able to quantify the magnitude, the COVID-19 pandemic could have had a material impact on sales.
Three insurers sold more new premium than in 2019.
The pandemic may have had a greater impact on worksite sales. We estimate worksite new annualized LTCI premium dropped 15 percent in 2020 (18 percent fewer new sales).
With FPO elections included in new premium, Northwestern retained the number one spot in sales. Mutual of Omaha was a strong second and again had a large lead in annualized premium from new policies sold. Together, these two insurers combined for 60 percent of new premium including FPOs, compared to 59 percent last year.
The number of policies inforce increased each year through 2014 but has decreased each year since, decreasing 0.9 percent in 2020. However, inforce premium continued to increase (1.9 percent) despite fewer policies inforce and more policies in paid-up status. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons. A major carrier did not report inforce data, likely suppressing the percentage of inforce premium increase.
Collectively, the seven participants which reported claims saw claims increase only 1.6 percent in 2020, partly because two insurers reported a reduction in claims. The other five insurers experienced a 5.2 percent increase in claims in 2020. Overall, the stand-alone LTCI industry incurred $12.9 billion in claims in 2019 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2019 to $154.4 billion. (Note: 2019 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2019 incurred claims are 11.2 percent higher than the $11.6 billion of incurred claims reported in 2018.
The placement rate dropped from 59.2 percent in 2019 to 57.8 percent in 2020, which is also lower than the 59.0 percent and 58.8 percent placement rates in 2017 and 2018, respectively. Difficulty in collecting underwriting information during the pandemic may have contributed to lower placement rates. Table 23 shows that three-fourths of the reduction in placement rate can be attributed to suspended and withdrawn applications and Table 26 shows that underwriting averaged about 3 days longer. The longer average underwriting time was also likely caused by the pandemic. However, due to 2020 pending applications that will be reported in 2021, as well as the 2019 applications that were pending at the end of that year, some of our statistics such as underwriting processing time do not fully reflect the impact of the pandemic.
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 8 insurers. Partnership Programs discusses the impact of the state partnerships for LTCI.
Available here at www.BrokerWorldMag.com:
Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce, and product details.
Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
MARKET PERSPECTIVE (more detail in subsequent parts of the article)
“Both buy” and married discounts are reaching stable points. In the past year, some insurers lowered couples’ discounts significantly, to the 15 to 20 percent range. One-of-a-couple discounts are also dropping, to the zero to five percent range. The histories of these discounts are related.
When all LTCI had unisex prices, insurers’ single-person prices reflected that single buyers were predominantly female. Couples who bought policies were nearly 50 percent male; insurers did not have to charge them two prices weighted toward females, so they raised the couples’ discount. When the industry converted to gender-distinct pricing, the justification for couples’ discounts decreased substantially; however, large couples’ discounts continued to be common until now.
As an example, a single person price of $1,500 led to a couples’ combined price of $1,800 when couples’ discounts were 40 percent. If insurers took away the couples’ discount when one spouse was declined, consumers would be disappointed that the spouse about whom they were most concerned was declined, and the price for the healthy insured would be 5/6 of their combined price (5/7 if the discount was 30 percent). Fearing that the healthy spouse would refuse the policy, insurers typically cut the discount in half, rather than removing it completely. In the above example, the healthy spouse would have been charged $1,200 to $1,275, depending on whether the couples’ discount was 40 or 30 percent, respectively.
In the 2019 article “Is Your Spouse Contagious?,” Milliman analyzed the additional cost of LTC incurred by people whose spouses already had LTCI claims. As people who are LTC caregivers are likely to have worse LTCI claims experience than single people, a discount is inappropriate if the spouse is uninsurable. Of course, sometimes only one spouse buys even though both are healthy; for example, perhaps one spouse already has coverage. Nonetheless, their results make it hard to justify an across-the-board one-of-a-couple discount.
We summarized the “Is Your Spouse Contagious?” findings in our survey questionnaire, asking what the industry can do to lower claim costs after the claim or death of a spouse. The same five insurers responded to each question and their recommendations mostly cut across both situations. They cited proactive outreach to provide supportive services to help clients age in place, including preventive measures and care management, examples being home safety assessments and technology to monitor an insured’s health if they live alone. Following the death of a spouse, one carrier suggested informal care options with low daily limits which would permit relatives to be paid caregivers and another suggested a new plan of care, answers that seemed to anticipate that the survivor was already on claim. There were some concerns, however, with one insurer indicating that “cost will be a barrier” and another commenting “if appropriate”.
When one spouse is on claim, two insurers suggested offering respite care options to support the non-claim spouse.
Some specific steps the respondents may have had in mind in their general comments include brain fitness training; helping the healthy spouse marshal and manage resources to help the care recipient; access to cognitive tests that provide early detection of cognitive slippage; lifestyle suggestions including diet and sources of prepared meals; home modification projects; document organization; end-of-life planning; tele-medicine; information to access available government benefits and local services; help in finding and evaluating potential commercial caregivers; products and information about reducing risk and/or facilitating improved caregiving; etc.
We noted that the 10-year Treasury yield as of January 1, 2021 was 0.93 percent and asked what insurers projected it would be in 5 and 10 years. The range in five years was scattered between 1.5 to 3.0 percent and in ten years was two to three percent, with four of the five answers being 2.9 to 3.0 percent. Although all envisioned rising interest rates, only two mentioned that it would ease pressure on profit margins.
The June issue of Broker World magazine had an article about the impact of the pandemic which included data from this survey. Rather than repeat that data here, we refer readers to the June issue.
Government-provided LTCI programs continue to be a topic of discussion.
The Affordable Care Act (2010) included a LTCI program (the “CLASS” Act). Criticisms of the design were validated when, after passage of the ACA, the government dropped the LTCI program because it could not find a way to make it work.
Since then, there have been state efforts to create LTCI programs. On January 1, 2022, the Washington Long-Term Care Trust (WLTCT) will begin collecting 0.58 percent payroll tax to fund a $36,500 lifetime pool of money starting in 2025 (the pool of money is intended to inflate according to the Washington consumer price index). The program provides coverage for vested individuals receiving care in the state of WA. Government-provided LTCI programs will be watched closely for their potential impact on LTCI sales.
Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR), which is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. It is hard to get data relative to IR. Regulators in some states have not set up the required panel of independent reviewers and regulators do not collect IR statistics. Insurers often do not track IR. It is complimentary of the industry’s claims processing that there has not been a clamor for IR; that there have been significantly fewer requests in the past two years; and that insurers have consistently been completely upheld 70 percent or more of the time based on data we have received over the years from insurers and from Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS). In other cases, the reviewer might agree with the insurer partly (e.g., that the claimant did not satisfy the triggers initially, while concluding that the claimant satisfied the triggers later).
Current prices are more stable than past prices, partly because today’s prices reflect much more conservative assumptions based on far more credible data and lower assumed investment yields. Three participants have never increased premiums on policies issued under “rate stabilization” laws. The others reported no increases on policies issued since 2015, 2014 (2 insurers), and 2013 (2 insurers). Nonetheless, many financial advisors presume new policies will face steep price increases, and hence may be reluctant to encourage clients to consider LTCI.
As shown in Table 23, the placement rate for the past 8 years has remained at about 60 percent. Improving the placement rate is critical to encourage financial advisors to mention LTCI to clients. The industry may be able to improve placement rates as follows.
Utilize E-applications for faster submission and reduced processing time, thereby increasing placement.
Pre-qualify an applicant’s health. Effectively and efficiently increasing the percentage of applicants who are pre-qualified will decrease declines.
More effective education of distributors by insurers, such as drill-down questions in on-line underwriting guides and eApps.
Require cash with the application (CWA). CWA led to about five percent more of the apps being placed according to our 2019 survey.
Continue to improve messaging regarding the value of LTCI and of buying now (rather than in the future). Such messaging would increase the number of applications and improve the placement rate by attracting younger and healthier applicants.
Once again, more than 80 percent of our participants’ policyholders exercised their FPOs (future purchase option, a guarantee that, under specified conditions, a policyholder can purchase additional coverage without demonstrating good health). As both the additional coverage and unit price increase over time, FPOs become increasingly expensive, even more so with the price increases that the industry has experienced. The high election rate demonstrates the importance of LTCI to policyholders and the effectiveness of annual (as opposed to triennial) negative-election FPOs. (Negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request.) At least in some markets and with some designs, policyholders reliably exercise FPOs when they must do so to continue to receive future offers. Considering such FPOs and other provisions, we project a maximum benefit at age 80 of $305/day for an average 58-year-old purchaser in 2020, which is equivalent to an average 2.9 percent compounded benefit increase between 2020 and 2042. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
Linked benefit products are attractive because even if the insured has no LTC claim, their family will receive benefits and because they often have guaranteed premiums and benefits. According to LIMRA, 516,809 stand-alone LTCI and combination (life and LTCI and life and Chronic Illness) policies were sold in 2019 and were distributed as follows, with stand-alone LTCI’s 11 percent market share the same as 2018. (ADB= “Accelerated Death Benefit)
The stand-alone column and the linked-benefit column are both much more significant in terms of LTC protection than indicated above, for the following reasons:
The Accelerated Death Benefit (ADB) provisions do not increase over time. By the time the average claim payment is made, the stand-alone policies’ maximum monthly benefit (on plans with benefit increase features) will have risen significantly. The linked-benefit portion would also have increased significantly.
The stand-alone and linked-benefit policies have significantly lower lapse rates than the policies with ADB. Thus, they are much more likely to be around when care is needed.
The stand-alone and linked-benefit policies may have lower mortality rates because of their better persistency and because they are purchased with LTCI in mind whereas the ADB policies are generally purchased for their life insurance and the ADB benefit may be incidental in the minds of the buyers.
The ADB policies are less likely to be used to pay for care, as it may be preferable to have the death benefit be paid to the beneficiary.
A small offset is that the stand-alone policies are more likely to be reimbursement-based benefits, which are less likely to result in the full benefit being paid each month.
According to LIMRA, in the first half of 2019, combination life sales dropped slightly, but then rebounded strongly in the latter half of the year to finish ten percent higher than 2018 in terms of premium (although, one percent lower in terms of the numbers of policies). However, in the first half of 2020 (the most recent data available as this article was being written), premiums were 19 percent lower and new policies eight percent lower than the weak first half of 2019. In addition to the pandemic, LIMRA noted that the new 2017 CSO Mortality Table and low interest rates led to higher premiums which depressed sales. The policies with the most significant LTCI benefits (linked benefits) dropped the most (27 percent in premium; 21 percent in policy count).
Only four participants offer coverage in all U.S. jurisdictions; no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which have unfavorable legislation or regulations, restrict rate increases, or are slow to approve new products.
All but one of our participants use third party administrators (TPAs) and five of the eight participants use reinsurers. The number of insurers using TPAs for the following functions is shown in parentheses: Underwriting (6), Issue (5), Billing (5), Commissions (3), and Claims (6). Two insurers noted they use their underwriting and claims TPAs for only some functions and another, which responded that it does not use TPAs for underwriting and claims, noted that it sometimes receives help from its TPA, but the TPA never makes the decision. We thank CHCS, DMS, LifeCare Assurance, Long-Term Care Group, RGA, and Wilton Re for their contributions to the LTCI industry. Other reinsurers and TPAs may support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.
CLAIMS
Seven participants reported 2020 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.
The insurers’ combined claim payments on individual policies rose 1.6 percent in 2020 over 2019. Two insurers reported a decrease in claims, while the other five insurers reported a 5.2 percent increase.
The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.
LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, etc.
Table 1 shows the total dollar and number of reported individual and multi-life (not group) LTCI claims. It reflects the same carriers for both years. As noted above, total claims rose only 1.6 percent. The impact of the pandemic is not clear in the data, but some claimants likely died prematurely and/or spurned facility care, particularly nursing home care. Some claimants likely abandoned facilities, thereby losing coverage either because they did not hire commercial home caregivers or because they had a facility-only policy and did not qualify for exemptions that some insurers provided. Claimants and commercial caregivers potentially were hesitant to meet during a large part of the year, likely dampening home care claims.
Table 2 shows the distribution of those claims by venue, which have shifted away from nursing homes over the years (except in 2019) due to consumer preferences and more claims coming from comprehensive policies. The distribution reflects different insurers from year-to-year; 2019’s aberration was caused by the absence of data from an insurer which resumed providing data this year.
The inception-to-date number of claims is surprisingly more weighted to Nursing Home than the dollar of claims. It seems that nursing home claims come from older policies with lower maximum daily benefits.
In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line. Six carriers reported their number of open individual claims at year-end, ranging between 51 and 81 percent of the number of claims paid during the year, averaging 64 percent overall.
Table 3 shows average size individual claims since inception. Because 41 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim might be expected to exceed the average claim paid for any particular venue. However, individual Assisted Living Facility (ALF) claims stand out as high each year, probably because:
ALF claims appear to have a longer duration compared with other venues.
Nursing home costs are most likely to exceed the policy daily/monthly maximum, hence nursing home claims are most likely to understate the cost of care.
People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.
Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or for levels of assistance that align more closely with nursing home care. Upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.
Several insurers extend ALF coverage to policies which originally did not include ALF coverage, providing policyholders with significant flexibility at time of claim, but contributing to the insurers’ need for rate increases.
The following factors contribute to a large range of average claim results by insurer (see Table 3), which results in significant year-to-year differences in Table 3 because different insurers contribute data:
Different markets (by affluence; worksite vs. individual; geography; etc.)
Demographic differences (distribution by gender and age)
Distribution by benefit period, benefit increase feature, shared care and elimination period.
Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only, etc.
Different lengths of time in the business.
The following factors cause our average claim sizes to be understated.
For insurers reporting claims this year, nine percent of inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.
Besides being understated, average claim data does not reflect the value of LTCI from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. A primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.
Five insurers provided their current individual (excludes group) monthly LTCI claim exposure, which exceeds $5 billion (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is thirty times their corresponding monthly LTCI premium income and more than 41 times their 2020 LTCI monthly paid claims. Eight insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 6.85 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately 0.25 years on the average inforce benefit period. With annual exposure thirty times annual premium and assuming an average benefit period of about 6.85 years, we estimate that total exposure is 207 times annual premium.
Three insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $4,121 to $6,729.
Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF daily/monthly costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.
STATISTICAL ANALYSIS Bankers Life, CalPERS, Knights of Columbus, Mutual of Omaha, National Guardian, New York Life, Northwestern and Thrivent contributed significant background data, but some were unable to contribute some data. Four other insurers (Auto-Owners, Country, LifeSecure and Transamerica) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales, but not clarifying whether FPOs were included in the premium.
Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.). Year-to-year variations in policy feature distributions may reflect industry trends but may also reflect changes in participants, participant practices and designs, participant or worksite market shares, etc. The statistical differences between the worksite and non-worksite sales will be reported in the August issue of Broker World.
Market Share Because new coverage is being issued, we include purchased increases on existing policies in new premium (we call them FPOs and include board-approved increase offers). FPOs increased in 2020, cushioning the reduction in premium from new sales. Removing FPOs spotlights insurers with more new policy sales. Table 5 lists the top 8 participants in 2020 new premium including FPOs and without FPOs. Northwestern ranks #1 including FPOs, with Northwestern and Mutual of Omaha accounting for 60 percent of the market. Ignoring FPOs, Mutual of Omaha is #1. The premium includes 100 percent of recurring premiums plus ten percent of single premiums.
Worksite Market Share After a strong 2019, worksite premium dropped about 15 percent in 2020, accounting for a lower percentage of total sales than in 2019. It is possible that the worksite market could have produced a bigger percentage of total sales than in 2019 had the pandemic not occurred. However, with Transamerica leaving the market and other changes, the future of the worksite LTCI market (except executive carveout) is unpredictable. LifeSecure, Mutual of Omaha, and National Guardian may pick up market share; linked-benefit worksite products might pick up market share; and/or LTC risk covered in the worksite might drop.
Worksite sales consist of three different markets, the first two of which produce a higher percentage of new insureds than of new premiums:
Voluntary group coverage generally is less robust than individual coverage.
Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.
The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Table 6 is indicative of the full market (including our estimates for two insurers which did not report sales), but this year’s policy feature distributions significantly underweight the voluntary and core/buy-up markets, as most of those markets are not reflected in our statistical data. More information about worksite sales will appear in the August issue of Broker World magazine.
Affinity Market Share Affinity groups (non-employers such as associations) produced 8.1 percent of new insureds (see Table 7), and 6.0 percent of new business premium. Less than 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage. It would seem that, over time, an increasing number of associations would have discounts, which might cause the affinity group percentage to increase over time, but our data does not demonstrate such a pattern.
Characteristics of Policies Sold Average Premium Per Sale The average new business (NB) premium per insured (Table 8), subtracting FPOs for the insurers that reported statistics, and the average premium per buying unit (a couple comprise a single buying unit) increased six to seven percent each to $2,706 and $3,847, respectively.
Data for 2018 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.
Average premium per new policy ranged from $1,029 to $3,792 among the 12 insurers. The lowest average new premium (including FPOs) was in Puerto Rico ($2,511), followed by Indiana ($2,642) and Kansas ($2,915), while the highest was in the District of Columbia ($5,336), followed by Connecticut ($4,820), and New York ($4,656). For those insurers which reported results for 2019 and 2020, the average inforce premium (reflecting rate increases, FPO elections and termination of older policies) increased from $2,246 to $2,309, a 2.8 percent increase. However, Table 8 shows a decrease due to a change in insurers reporting inforce premium.
Issue Age Table 9 summarizes the distribution of sales by issue age band based on insured count. The average issue age remained 57.7. All insurers reported an average issue age between 55 and 60. The age distributions for 2016 and earlier had more worksite participants than recent years. Note: one survey participant has a minimum issue age of 40, one will not issue below 30, and one will not issue below 25.
Benefit Period Table 10 summarizes the distribution of sales by benefit period. For the first time since 2014, endless benefit periods registered a measurable percentage, albeit only 0.2 percent. The average benefit period for limited benefit period policies dropped back to 3.75, but if we treat endless benefit periods as 15 years, the average benefit period was 3.82. Because of Shared Care benefits, total coverage was higher than the 3.75 average suggests. Three-year benefit periods accounted for 52.9 percent of the sales.
Monthly Benefit Monthly determination applied to a record 83.0 percent of 2020 policies (Table 11). With monthly determination, low-expense days leave more benefits to cover high-expense days. One insurer offers only daily determination; one insurer offers a choice; and the other insurers automatically have monthly determination.
Table 12 shows the largest concentration ever in the $4,500-$5,999 initial monthly maximum range (32.3 percent). The average maximum monthly benefit increased slightly to $4,888.
Benefit Increase Features Table 13 summarizes the distribution of sales by benefit increase feature. Most notably, only 14.6 percent of the policies were sold without a benefit increase feature.
“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).
As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent/year offer for fixed FPOs. The maximum benefit at age 80 (in 2042) for our 2020 average 58-year-old purchaser projects to $305/day (equivalent to 2.9 percent compounding). Had our average buyer bought an average 2019 policy a year ago at age 57, her/his age 80 benefit would be $316/day (equivalent to 2.9 percent compounding). Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.
FPOs are important to insureds in order to maintain purchasing power, and 82 percent of our participants’ 2019 to 2020 FPOs were exercised. The high election rate is noteworthy, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age, and additional price increases due to rate increases.
One insurer had an election rate of 91 percent, two insurers had 68 to 70 percent, two insurers had 43 to 45 percent, and one insurer had 19 percent. It seems clear that higher election rates occur if FPOs are more frequent (every year vs. every 3 years) and are “negative-election” (activate automatically unless the client rejects them) as opposed to “positive-election” (which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.
FPOs are also important to insurers, accounting for at least 22 percent of new premium in 2020. Two insurers had nearly half their new premium come from FPOs.
Elimination Period Table 16 summarizes the distribution of sales by facility elimination period (EP). Ninety-two percent (92 percent) of buyers opt for elimination periods between 84 and 100 days. The percentage of EPs of 100 days or more was 5.2 percent, lower than any other year in the table.
Table 17 shows the percentage of policies with zero-day home care elimination period (but a longer facility elimination period). For insurers offering an additional-cost zero-day home care EP option, the purchase rate is sensitive to the cost.
Table 17 also shows the percentage of policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.
Sales to Couples and Gender Distribution Table 18 summarizes the distribution of sales by gender and single/couple status.
In 2012, the last year in which all sales were unisex, 54.9 percent of buyers were female. In 2013, the female percentage spiked to 57.2 percent as females purchased unisex pricing that was still available. Since unisex pricing has disappeared entirely except in the worksite, the female percentage has plateaued at slightly above 54 percent. The percentage of females varies significantly based on an insurer’s markets. This year, the percentage of females varied from 45 to 63.9 percent among insurers.
The percentage of accepted applicants who purchase coverage when their partners are declined also varies significantly by insurer based on their couples’ pricing and their distribution system. Few insurers are able to report this data.
Shared Care and Other Couples’ Features Table 19 summarizes sales of Shared Care and other couples’ features.
Shared care allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
Survivorship waives a survivor’s premium after the first death if specified conditions are met.
Joint waiver of premium (WP) waives both insureds’ premiums if either qualifies for benefits.
Changes in distribution between carriers can greatly impact year-to-year comparisons in Table 19, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature.
In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the (higher) percentage that results from dividing by sales of insurers that offer the feature. For insurers reporting Shared Care sales, the percentage of both-buying couples who opted for Shared Care varied from 8 to 89.7 percent. The corresponding percentage of couples with Joint WP varied from 10 to 100 percent and for Survivorship ranged from 2.1 to 14.1 percent.
Table 20 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 20, two- to four-year benefit period policies are most likely (26 to 31 percent) to add Shared Care. Partly because three-year benefit periods comprise 53 percent of sales, most policies with Shared Care (61 percent) have three-year benefit periods, as shown on the left side of Table 20.
Above, we stated that Shared Care is selected by 36.4 percent of couples who both buy limited benefit period policies. However, Table 20 shows Shared Care comprised no more than 31 percent of any benefit period. Table 20 has lower percentages because Table 19 denominators are limited to people who buy with their spouse/partner whereas Table 20 denominators include all buyers.
Shared Care is more concentrated in two- to four-year benefit periods (88.4 percent of shared sales) than are all sales (73.0 percent). Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female, hence opt for a longer benefit period.
Existence and Type of Home Care Coverage Four participants reported sales of facility-only policies, which accounted for 0.7 percent of total sales. One insurer was responsible for more than 80 percent of such sales. Ninety-six percent (96.4 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. No participant has reported home-care-only sales since 2018.
Other Characteristics As shown in Table 21, partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 10 and 40 percent of their benefits for whatever purpose they wish) were included in 52.5 percent of sales, including non-participant sales.
Return of premium (ROP) features were included in 10.4 percent of policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 75 percent of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.
Nearly sixteen percent (15.8 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured has not needed services for at least six months. Approximately 90 percent of ROB features were automatically embedded.
Insurers must offer shortened benefit period (SBP) coverage, which makes limited future LTCI benefits available to people who stop paying premiums after three or more years. The insurers able to report SBP sales, sold SBP to 3.7 percent of buyers.
Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.
“Captive” (dedicated to one insurer) agents produced 53.1 percent of the coverages. Brokers produced 46.3 percent and a direct-to-consumer carrier accounted for 0.6 percent. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.
Sales distribution by jurisdiction is posted on the Broker World website.
Limited Pay and Paid-Up Policies In 2020, two insurers sold policies that become paid-up in 10 years or less, accounting for 1.1 percent of sales, the highest percentage since 2014, as shown in Table 22.
Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.
Seven participants reported that 3.0 percent of their inforce policies are paid-up, a lower percentage than last year because an additional insurer participated.
PARTNERSHIP PROGRAM BACKGROUND When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Except for California, states with Partnership programs grant reciprocity to Partnership policies issued in other jurisdictions. Partnership programs are approved in 44 jurisdictions, all but AK, DC, HI, MA, MS, UT, and VT, but MA has a similar program (MassHealth).
Four states (CA, CT, IN and NY) blazed the trail, legislating variations of the Robert Woods Johnson approach (“RWJ” states), whereas “DRA” states use simpler, more consistent rules developed later, in the Deficit Reduction Act of 2005. For example, RWJ states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and sometimes assess a fee for insurers to participate (none of which apply in DRA states).
Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding. Partnership programs could be more successful if:
Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work in RWJ states with high Partnership minimum daily benefit requirements.)
Middle-class prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
The four original Partnership states migrate to DRA rules.
More jurisdictions adopt Partnership programs.
Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
Financial advisors were to press reluctant insurers to certify their products and offer one percent compounding.
More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
Linked benefit products became Partnership-qualified.
PARTNERSHIP PROGRAM SALES Participants reported Partnership sales in all 44 authorized states except CT and NY. No participant sold Partnership policies in more than 41 states in 2020. Two had Partnership sales in 38 states, three in 29 to 34 states, one in 1 state, and the other has chosen not to certify Partnership conformance.
Insurance brokers do not have access to Partnership policies in CA, CT and NY and from only one insurer in IN. However, in some of those states, consumers can purchase Partnership-qualified coverage from one or two other entities.
In the DRA states, 55 percent of policies qualified for Partnership status. Minnesota (81.4 percent) leads each year. Georgia, Maine and Wisconsin were also above 70 percent.
The original RWJ states had few Partnership sales. In New Mexico, a recent Partnership state, only 4.7 percent of sales qualified, which should increase in the future. Kentucky had only 25.2 percent.
UNDERWRITING DATA Case Disposition Seven insurers contributed application case disposition data to Table 23. In 2020, 57.8 percent of applications were placed, the lowest ever, seemingly impacted by the pandemic. One insurer reported a 76.4 percent placement rate; all others were below the average, with three insurers between 40 and 47 percent.
Decline rates and suspended/withdrawn rates hit records. While we thought the suspended/withdrawn rate would rise with the pandemic, of the six insurers who have reported such data for both 2019 and 2020, two had a noticeably lower suspended/withdrawn rate in 2020 and two were +/-0.1 percent.
Decline rate by carrier varied from 11.9 to 38.4 percent, but all but two insurers were between 23.2 and 29.1 percent, varying based on factors such as age distribution, distribution system, market, underwriting requirements, and underwriting standards. Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secures coverage because applicants denied by one carrier may be issued either stand-alone or combo coverage by another carrier or may receive coverage with the same insurer after a deferral period.
Table 24 shows that, compared to 2019, the placement rate increased below age 60 and decreased above age 60, which seems consistent with a theory that the lower placement rate was related to the pandemic. This data is a subset of the placement data in Table 23.
Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors fear that declined clients will be dissatisfied. In the Market Perspective section, we listed ways to improve placement rates. This is a critical issue for the industry. If readers have suggestions, they are invited to contact the authors.
Underwriting Tools Six insurers contributed data to Table 25, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 82 percent of the number of applications. That does not mean that 82 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.
Insurers are trying to speed underwriting to increase placement rates. In the worksite market, insurers are less likely to use some of these tools.
Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, an insurer might not be able to split phone interviews by whether or not they include cognitive testing.
The biggest change was the drop in Face-to-Face assessments, perhaps because it was hard to schedule them due to the pandemic.
Underwriting Time Table 26 shows the average processing from receipt of application to mailing the policy time (40 days) reversed the trend of speedier processing. Of the six insurers that reported this data in both 2019 and 2020, the three fastest processors of 2019 all got faster and the three slower processors of 2019 all got slower, expanding the range from 28.9-60.3 to 26.9-65.9.
Rating Classification Table 27 shows that a lower percentage of policies was issued in the most favorable rating classification, but the highest percentage was placed in the two most favorable classes since 2012. That’s surprising because prior to 2016, we had more worksite business in the rating classification table. For more information, look for the August issue of Broker World magazine where we will separate data by worksite vs. non-worksite business.
Only 7.7 percent of policies were issued beyond the second-best classification, but three insurers placed 11.0 to 12.4 percent of policies in such a class and another insurer placed 19.2 percent of policies in such a class.
Two insurers placed more than 80 percent of their applicants in the best underwriting class. The other five insurers placed 19 to 25 percent in their best class.
Lastly, Table 27 shows the percentage of decisions which were either declined or placed in the 3rd or less-attractive classification is reducing. Hence, we conclude that industry is making more favorable decisions rather than declining applicants in lieu of giving them a substandard rating,
Tables 28 and 29 show the 2020 percentages of policies issued in the most favorable category and decline decisions by issue age. Tables 27 and 28 do not exactly match Table 26 because some participants provide all-age rating or decline data. The percentage placed in the most favorable classification increased for ages 65 and older, likely statistical fluctuation. Although overall decline rates increased, the by-age decline rates decreased, except for under age 30; that anomaly results because only some insurers can provide decline data by issue age.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophia Fosdick, Margaret Liang, Nicole Gaspar, and Alex Geanous of Milliman for managing the data expertly.
We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.
The 2020 Milliman Long Term Care Insurance Survey, published in the July issue, was the 22nd consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzed individual product sales and Genworth group sales, reporting sales distributions and detailed insurer and product characteristics.
From 2006-2009, Broker World published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank. In 2011, Broker World began annual analysis of worksite sales of individual products in August to complement the July overall market analysis.
The worksite market consists of individual policies and group certificates (“policies” henceforth) sold with employer support, such as permitting on-site solicitation and/or paying or collecting premiums. If a business owner buys an individual policy and pays for it through her/his business, some participants may report such policies as “worksite” policies while others might not if it was not processed as a worksite group. If a business sponsors general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site, such sales are not counted here as WS sales.
We limit our analysis to U.S. sales and exclude “combination” products except where specifically indicated. (Combination products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
About the Survey Our survey includes worksite (WS) sales and statistical distributions from MassMutual, National Guardian Life, New York Life, and Northwestern, and worksite sales data from Genworth, LifeSecure and Transamerica. We compare WS sales to individual LTCI policies that are not worksite policies (NWS) and to total sales (Total).
The July issue also included sales of the California Public Employees Retirement System (CalPERS) program. CalPERS eligibility is based California public employment, but the program operates more like an affinity group than a worksite group, so it was counted as affinity sales in July and is not included as a worksite product in this article.
Ten percent of single premiums are included as annualized premiums.
Highlights from This Year’s Survey
Participants reported 2019 WS sales of 11,483 policies (21.0 percent of total sales) for $22.85 million (13.4 percent of new annualized premium). The premium includes 2019 future purchase options exercised on policies issued in the past.
In 2019, WS sales rebounded from the 2018 results we reported last year. The three insurers which are most focused on voluntary worksite LTCI programs all had sales increases of between 62 and 76 percent in 2019, despite increased competition from a new entrant and from life insurance LTCI linked-benefit programs.
Our worksite sales total includes nearly 100 percent of the stand-alone WS LTCI market, but our statistical distributions reflect only about 12 percent of worksite policies sold (28 percent of premium). Our worksite statistical distributions can vary significantly from year-to-year because insurers focusing on particular worksite markets may be over- or under-represented. Last year, we commented that the worksite business in our statistical analysis was overly weighted toward executive carve-out programs. This year that imbalance has increased. The carriers that provided 2019 statistical data had an average worksite annual premium of $4,568 whereas the ones that provided only total sales had an average worksite premium of $1,627. The corresponding 2018 averages were $2,015 and $1,561. In 2017, the difference was in the other direction ($1,015 vs. $1,441).
MARKET PERSPECTIVE The three segments of the worksite market (which may apply to different employee classes in a single case):
In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees; the employees can buy more coverage. “Core” programs generally have lower average ages, short benefit periods, low daily maximum benefits and a small percentage of spouses insured.
In “carve-out” programs, employers pay for robust coverage for generally a small number of executives and usually their spouses. Generally, employees can buy more coverage for themselves or spouses. Compared to “core” programs, a higher percentage of insureds are married, more spouses buy coverage and the age distribution is older.
In “voluntary” programs, employers pay nothing toward the cost of coverage. Coverage is more robust than “core” programs, but less robust than “carve-out” programs. Voluntary programs tend to be most weighted toward female purchasers.
MassMutual, National Guardian, New York Life and Northwestern write mostly executive carve-out programs, whereas Genworth, Transamerica and LifeSecure business includes significant voluntary and core buy-up business as well. Because the insurers that write mostly executive carve-out business provided statistical data this year and the other insurers provided only total sales, our statistical distributions are more representative of the executive carve-out subset of the market than all types of worksite sales.
Insurer Challenges in the Worksite Market COVID-19: In 2020, worksite insurers, like most businesses, experienced challenges due to the COVID-19 pandemic. Most scheduled enrollments were canceled or delayed. Enrollments of newly-eligible employees continued, being done in web meetings. As a result, we expect 2020 worksite (and individual) LTCI sales to be lower than 2019.
We suspect 2021 will remain suppressed because a lot of new 2021 sales would typically be enrolled in the 4th quarter of 2020. Even if the worksite LTCI market were to bounce back quickly, we anticipate that a lot of 2021 activity would produce 2022 sales. Moreover, potential unemployment and reduced profitability (due to reduced sales and increased expenses) may blunt enthusiasm for new employee benefit programs. Employers may focus instead on protecting employees and clients from communicable diseases by testing and providing protective equipment to employees and clients. More comments about the impact of COVID-19 on the LTCI market were published on the Broker World Magazine website as part of our July analysis.
Pricing considerations: Most people interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI programs use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current or previous year. Thus, to sell at the WS, insurers must create a separate unisex-priced product. The expense of separate pricing, marketing and administration discourages insurers from serving both the WS and NWS markets.
Because healthy, young, and less affluent people are less likely to buy, insurers and enrollers fear health anti-selection (less-healthy people buying, while healthier people do not buy). Health concessions can exacerbate this risk, hence are less common and generous than in the past. There is no “guaranteed issue” stand-alone LTCI coverage; however, some combination products offer some guaranteed issue with adequate WS participation.
WS programs rarely offer “preferred health” discounts; insurers may not get enough health information to grant such a discount. Thus, heterosexual couples might pay more for a WS policy than a corresponding NWS policy, if the male spouse is older or buys more coverage and/or one or both spouses would qualify for a “preferred health” discount in the NWS market. In the carve-out market, a costlier LTCI product can still produce savings on an after-tax basis, because of the tax advantages when employers pay the premium.
Females get a good deal in a WS program compared to NWS pricing, but males pay more in the WS. Insurers fear that most worksite buyers might be female, hurting WS profitability. To the degree that sales skew to females, unisex pricing must approach sex-distinct female pricing (because females have higher expected future claims).
In addition to health and gender distribution, insurers are also careful about age and income distributions of WS cases they accept. Younger and less affluent people are less likely to buy LTCI, so insurers are more vulnerable to health- or gender-anti-selection if the group has a lot of young or less affluent employees.
Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and to reduce exposure to extremely long claims. Such age restrictions can discourage employers from introducing a program, especially a carve-out program if they have executives or spouses under age 40.
To control risk, most insurers will not accept a voluntary WS program if there are fewer than 100 employees. However, one insurer (which offers no health concessions) will accept voluntary LTCI programs with as few as two to five employees buying (minimum varies by jurisdiction).
Availability of coverage: With increased remote work, more employers have employees stretched across multiple jurisdictions and eligible non-household relatives might live anywhere. But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. So, it can be difficult to find an insurer which can cover everyone unless LTCI is sold on a group chassis and the employer does not have individuals in extra-territorial states.
One WS insurer no longer offers WS LTCI to non-household relatives. Reduced availability for such relatives does not have much impact on sales, because few non-household relatives buy WS LTCI. However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.
Prior to sex-distinct pricing, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company, but now it is hard to find a carrier that will offer unisex pricing under such circumstances. Such executives may buy policies with sex-distinct pricing either because they are unaware of the requirement under Title VII of 1964 Civil Rights Act, they are confident that no female will file a civil rights complaint, or they disagree with the interpretation that such policies should have unisex pricing to avoid the risk of a civil rights complaint.
Some employee benefit brokers are reluctant to embrace LTCI because of declinations, the enrollment effort, certification requirements, their personal lack of expertise, etc. Increased WS sales are likely to depend upon LTCI specialists forming relationships with employee benefit brokers.
The Tax Cuts and Jobs Act of 2017 reduced the tax savings for C-Corporations buying LTCI for their employees and employees’ life partners. Pass-through entities may be the more attractive market now. Although the eligible premium is capped in a pass-through entity, a much higher marginal tax rate might apply than for a C-Corporation.
Voluntary worksite LTCI sales lack the tax advantages of employer-paid coverage. Therefore, voluntary programs for young and less-affluent groups may gravitate toward combo products as they include life insurance that is viewed as a more immediate potential need by young employees with families.
The worksite is a great venue to serve people who can benefit from the state Partnership programs (described in the Partnership section). In 2019, 30.5 percent of WS qualified for Partnership programs compared to only 10.3 percent in 2018. However, the increase is at least partly because executive carve-out sales dominate our statistical distributions. As executives are less likely to benefit from Partnership programs the increase may not be meaningful. Core/buy-up programs rarely include compounded benefits and employees often are not willing to pay for the compounding necessary to qualify for the Partnership program.
Regulators have “stepped up,” as 26 jurisdictions now accept policies issued at any age to qualify as Partnership policies even if maximum benefits compound by only one percent. The inclusion of one percent compounding at all ages can make core and voluntary WS programs more attractive. There is a potential market opportunity for an insurer willing to allow a lower minimum monthly maximum for core/buy-up programs with one percent compounding. Four other states permit one percent but only for ages 61+.
The worksite market should be poised for growth given the acceptance of one percent compounding benefits, Partnership qualification, attractive tax breaks, challenged government budgets, advantages over life/LTCI linked benefits (that lack Partnership and tax advantages), and a growing need for LTC insurance coverage. However, employers perceive that offering LTCI to their employees has little value for the employer. By the time the employee or spouse needs LTC, the employee will likely have terminated employment. Employee benefit brokers can help employers more effectively by expanding existing services that reduce the likelihood that employees’ elders will need LTC, which may make LTC more effective, more efficient, safer and less expensive. Enabling employees and their families to have better LTC experiences and to use more (not necessarily 100 percent) commercial care should boost productivity at work.
STATISTICAL ANALYSIS As mentioned earlier, insurers’ sales distributions can vary greatly based on the submarket they serve (for example, in the WS market: core, voluntary or carve-out). Therefore, distributions may vary significantly from year to year due to a change in participating insurers, in distribution within an insurer or in market share among insurers. Our sales distributions reflect only about 12 percent of worksite policies and certificates issued in 2019 and are mostly representative of the executive carve-out market. For example, two insurers provided data regarding the number of worksite cases they opened up. Their combined average size was only three policies per worksite. Policies in the carve-out market are designed similarly to those in the NWS (non-worksite) market.
Sales and Market Share Table 1 shows historical WS sales for all insurers reporting sales. The WS market increased in 2019 relative to 2018 but did not reach the level of sales experienced in 2016-2017. As noted earlier, the three carriers specializing in voluntary sales all had increases between 62-76 percent in 2019.
Lower sales in 2018 appears to be mostly attributable to a significant player temporarily leaving the market that year. Its competitors did not seem to get additional 2018 sales in that carrier’s absence, but their sales grew significantly in 2019. As voluntary worksite cases have a meaningful gestation period and are often enrolled late in the year with effective dates early in the next year, there may be a lag before competitors can fill in after an insurer drops out.
Table 1 also shows the overall average worksite premium compared to the average worksite premium for the participants who contributed statistical data beyond sales. As shown in the table, worksite statistics likely represented the broad worksite market well through 2016. However, beginning in 2017, our worksite distributions reflected sales that were not representative of the whole worksite market.
Table 2 shows the above WS sales as a percentage of total LTCI sales. For the most part, this percentage has stayed relatively level in the past four years and much higher than prior to 2016.
As shown in Table 3, three insurers wrote 60 percent or more of their 2019 new premium in the worksite, while the other insurers wrote ten percent or less of their business in that market. The percentage of each insurer’s new premium that comes from WS sales did not change dramatically from 2018 to 2019.
Average Premium Per Buyer Table 4 shows that, in 2019, the NWS average premium per buying unit (a couple comprise a single buying unit) was 41.1 percent higher than the average premium per insured. This dropped to 31.5 percent in the worksite, because more buyers in the worksite are single and because spouses are less likely to buy in the worksite. These numbers reflect all participants, but the ratio of buying unit to insured unit is determined solely by the participants who are able to report sales based on marital status. The worksite ratio is probably somewhat overstated because the participants who reported premium by marital status for the worksite were not characteristic of the entire market.
Issue Age The balance of the statistical presentations is non-representative of the entire worksite market. We report the results we have available, though we urge you to be selective in how you use the data. Not surprising, Table 5 shows the WS market is much more weighted to the younger ages, even with data that is disproportionately weighted to executive carve-out programs. However that data bias seems to have reduced the difference between average age inside and outside the WS market.
Table 7 displays the relative age distribution of the population compared to purchasers in the NWS and WS markets.
Rating Classification Most WS sales are in the “best” underwriting class (see Table 8) because there generally is only one underwriting class. Insurers often do not get enough information in WS to determine whether a “preferred health” discount could be granted and use the additional revenue (from not having a “preferred health” discount) to fund extra cost resulting from health concessions. Carve-out programs are more likely to offer a “preferred” discount, which means a higher percentage of carve-out policies are issued in the second-best underwriting class.
Benefit Period Originally, the WS average benefit period was lower than the individual market average benefit period. The relative benefit periods have come closer together over time because the average benefit period in the NWS market has dropped. The executive carve-out portion of the WS market seems to have dropped to a lesser degree. This year, many short benefit period WS sales are not reflected, resulting in the WS average benefit period being essentially identical to the NWS market. Table 10 shows similar results in the 2013-2016 era. As noted elsewhere, this data can jump around based on which insurers provide such detail and also based upon whether some large core/buy-up cases are written in a particular year.
As discussed later, the WS market issues much less Shared Care, so the NWS market is still generally buying longer coverage.
Maximum Monthly Benefit Even with a lot of executive carve-out business, Table 11 shows that the WS market has significantly more coverages that are less than $100/day (and also less than $3000/month). Many core programs are sold with a $50/day or $1500/month initial maximum benefit. Table 12 shows that the WS initial monthly maximum has varied more over time than the whole market, because of participant changes and how many core/buy-up plans were sold in a particular year.
Benefit Increase Features As shown in Table 13, the WS market has more future purchase options (FPO), because of its core programs.
Future Protection Based on a $23/hour cost for non-professional personal care at home ($23 is the median cost according to Genworth’s 2019 study), the average WS initial maximum daily benefit of $156.47 would cover 6.8 hours of care per day at issue, whereas the typical NWS initial daily maximum of $162.94 would cover 7.1 hours of care per day, as shown in Table 14.
The number of future home care hours that could be covered depends upon when care is needed (we have assumed age 80), the home care cost inflation rate between now (age 45 for WS and 58 for NWS) and age 80 (we have calculated with two, three, four, five and six percent inflation), and the benefit increases provided by the LTCI coverage between now and age 80.
Table 14 shows calculations for 3 different assumptions relative to benefit increase features:
The first line presumes that no benefit increases occur (either sold without any benefit increase feature or no FPOs were exercised).
The second line reflects the average benefit increase design using the methodology reported in the July article, except it assumes that 40 percent of FPOs are elected (intended to be indicative of “positive” election FPOs, in which the increase occurs only if the client elects it) and provide five percent compounding.
The third line is like the second line except it assumes 90 percent of FPOs are elected (intended to be indicative of “negative” election FPOs, in which the increase occurs unless the client rejects it).
Table 14 indicates that:
Without benefit increases, purchasing power deteriorates significantly, particularly for the worksite purchaser because there are more years of future inflation for a younger buyer.
The “composite” (average) benefit increase design assuming that 40 percent of FPO offers are exercised preserves purchasing power better than when no increase are assumed, but still generally leads to significant loss of purchasing power. The exceptions: both WS and NWS clients gain a bit of purchasing power if the inflation rate is only two percent (the composite with a 40 percent FPO election rate is equivalent to a bit more than two percent compounding). With three percent inflation, the loss in purchasing power is a bit less than ten percent.
With 90 percent FPO election rates, insured people retain more purchasing power compared to no increases or 40 percent election rates. The average WS buyer would experience increased purchasing power if inflation averages less than 3.9 percent, but would lose purchasing power if inflation exceeds 3.9 percent. The average NWS buyer would experience increased purchasing power if inflation average less than 3.25 percent but would lose purchasing power if inflation exceeds 3.25 percent.
Table 14 underscores the importance of considering future purchasing power when buying LTCI. Please note:
a) The average WS buyer was 13 years younger, hence has 16 more years of inflation and benefit increases in the table. The effective inflation rate to age 80 is not likely to be the same for 45-year-olds versus 58-year-olds purchasing today.
b) WS sales have less automatic compounding and more FPOs, so WS results are more sensitive to FPO election rates.
c) 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.
d) By the median age of starting to need care (about age 83) and the median age of needing care (about age 85), more purchasing power would be lost.
e) Table 14 does not reflect the cost of professional home care or a facility. According to the aforementioned 2019 Genworth study, the average nursing home private room cost is $280/day, which is currently comparable to 12.2 hours of non-professional home care. However, the inflation rate for facility costs is likely to differ from the inflation rate for home care. From 2004-2019, Genworth’s studies showed the following compound growth rates: Private room in a nursing home (3.1 percent), an ALF (3.6 percent), home health aide (1.7 percent), and home care homemaker (2.1 percent).
f) Table 14 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the average facility benefit.
Partnership Program Background When someone applies to Medicaid for long term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Partnership sales were reported in 43 jurisdictions in 2019, all but California (no participants offer California Partnership policies) and Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).
To qualify for a state Partnership program, a policy must have a sufficiently robust benefit increase feature, the requirement varying by issue age and jurisdiction. Historically, a level premium with permanent annual three percent or higher compound increases or an otherwise similar consumer price index (CPI) increase was required for ages 60 or less. For ages 61 to 75, five percent simple increases also qualified, and for ages 76 or older, policies qualified without regard to the benefit increase feature. As noted, many states now confer Partnership status with compounding as low as one percent. Two insurers offer one percent compounding in worksite products.
The WS venue provides an efficient opportunity to serve less-affluent employees and relatives who would most benefit from Partnership qualification. However, only 30.5 percent of WS sales in 2019 qualified for Partnership programs and most of those policies were probably executive carve-out programs. If additional states permit one percent compounding and if insurers design products to offer one percent compounding, the percentage of Partnership policies sold in the WS market is likely to grow.
Jurisdictional Distribution On the Broker World website, you can find a chart of the market share of each US jurisdiction relative to the total, WS and NWS markets, split by Partnership combined with non-Partnership policies and separately solely Partnership policies. This chart indicates where relative opportunity may exist to grow LTCI sales.
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. The WS 90-day EP percentage of 89.7 percent shown below is understated because we lacked data for some participants which are almost entirely 90-day EP.
Table 15 also shows how many policies had a 0-day home care feature and a longer facility EP and how many policies had a calendar-day EP (as opposed to a service-day EP). We have reflected that all LifeSecure policies are 90-day EP with a calendar-day definition and that all Transamerica sales have zero-day home care EP. Policies which have zero-day home care EP, but define their EP as a service-day EP operate almost identically to a calendar-day EP. The significant differences in zero-day home care EP and in calendar-day EP by market are reflective of specific insurers’ design preference; they do not appear to be driven by the market.
Gender Distribution and Sales to Couples and Relatives In 2013, insurers started to use sex-distinct pricing, but, as explained, that change has not extended to the worksite market.
The 2012 NWS percentage of female sales in Table 16 reflects a relatively high percentage of female sales in 2012 due to recognition that sex-distinct pricing would occur in 2013. The 2013-2015 percentages of females in the NWS market remained high as insurers which still offered unisex pricing attracted single females.
In the past four years, the percentage of female buyers in the NWS has been stable, fluctuating from 54.3 to 54.9 percent.
Until 2019, the percentage of WS buyers who are female had increased since insurers started using sex-distinct pricing in the NWS market. Perhaps the biggest reason is that women are more interested in LTCI, perhaps especially so in the worksite market because of the WS unisex pricing. Furthermore, the percentage of workers who are female was probably increasing as was the percentage of females among executives (hence included in executive carve-out programs). We noted last year that women constituted 51.2 percent of the U.S.A age 20-79 population in 2018,* but only 46.8 percent of the workers,* which underscores the significance of a higher female percentage of sales in the worksite.
In 2019, the percentage of female sales in the worksite dropped to 51.7 percent from 57.7 percent in 2018. Of this 6.0 percent arithmetic drop, only 0.6 percent was attributable to different insurers providing data in 2019 compared to 2018. The bulk of the difference is attributable to a drop in female sales for a major insurer. *Bureau of Labor Statistics, https://www.bls.gov/cps/demographics.htm
Table 17 digs deeper, exploring the differences between the WS and NWS markets in single female, couples and Shared Care sales. It shows that the decrease in female sales at the worksite was primarily among single people.
Couples who both buy are less likely to purchase Shared Care in the WS market than in the NWS market, because Shared Care is less commonly offered in the WS market and because executive carve-out programs often do not include Shared Care. The bottom row of Table 17 adjusts for insurers not offering Shared Care in the WS market, but does not adjust for advisors and employers choosing not to offer it or not to pay for it. (Married executives generally benefit more from executive carve-out LTCI programs than do single executives, because the employer typically pays for the spouse. Employers may shy away from paying for Shared Care because it would favor married executives even more.)
Type of Home Care Coverage Table 18 summarizes sales by type of home care coverage. Historically, the WS market sold few policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, that difference faded. The increase in the percentage of WS policies with a maximum home care benefit equal to the nursing home maximum (81.7 percent in 2018 vs. 93.9 percent in 2019) is attributable to a change in participants. Table 18 also shows that monthly determination dominates the NWS market, but daily determination still dominates the WS market, albeit less so in the executive carve-out market.
Many worksite products embed a “partial cash alternative” feature (which allow claimants, in lieu of any other benefit that month, to use approximately one-third of their benefit for whatever purpose they wish, with the balance extending the benefit period) or a small informal care benefit.
Other Features Table 19 suggests that Return of Premium (ROP) became more common in the WS market and that a lot more of the WS ROP coverages were permanent; however, if the data is limited to participants that provided data each year, the frequency of ROP would have been unchanged and the percentage that were permanent would have actually decreased. ROP was less common in the NWS market in 2019 than in 2018. ROP with expiring death benefits can provide an inexpensive way to encourage more young people to buy LTCI but may not provide a meaningful benefit.
Table 20 shows little change in the sales of Joint Waiver of Premium and Survivorship to couples, but that Restoration of Benefits (ROB) appears to have been sold more often in the WS in 2019. The increase in WS ROB sales is more than explained by a change in participants. All WS sales are tax-qualified.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar, Alex Geanous and Anders Hendrickson 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.
The 2020 Milliman Long Term Care Insurance Survey is the 22nd consecutive annual review of stand-alone long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products, including group insurance.
More analysis of worksite sales will appear in the August issue of Broker World magazine.
Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.
Highlights from this year’s survey
Participants Nine carriers participated broadly in this survey. Six others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.
We estimate our statistical distributions reflect about 75 percent of total industry policies sold (85 percent of premium) but only about 12 percent of worksite policies sold (28 percent of premium). Our worksite statistical distributions can vary significantly from year-to-year because insurers focusing on particular worksite markets may be over- or under-represented. Last year, we commented that the worksite business in our statistical analysis was overly weighted toward executive carve-out programs. This year, that imbalance has increased. The carriers which provided 2019 statistical data had an average worksite annual premium of $4,568 whereas the ones which provided only total sales had an average worksite premium of $1,627. The corresponding 2018 averages were $2,015 and $1,561, respectively. In 2017, the difference was in the other direction ($1,015 and $1,441, respectively).
National Guardian Life contributed statistical distributions for the first time, but CalPERS and Genworth did not provide statistical distributions this year. Country Life, which has been a consistent participant in this survey, discontinued LTCI sales effective May 1, 2020.
The insurers displayed in the Product Exhibit all provided broad statistical information, although they were not all able to provide all the data we requested. Northwestern also provided such information. Auto-Owners, CalPERS, Genworth, LifeSecure, Transamerica and United Security Assurance contributed total and worksite sales (new premium and lives insured) but did not provide other information. However, in a few places we were able to reflect some of their product designs in our statistical distributions.
Sales Summary
The 15 carriers reported sales of 54,563 policies and certificates (“policies” henceforth) with new annualized* premium of $170,770,732 (including exercised FPOs) in 2019, which compared to 2018 industry sales of 56,287 policies with new annualized* premium of $169.7 million (both slightly restated from last year’s report), a 3.1 percent drop in the number of policies but a 0.6 percent increase in new annualized premium, the first increase in new premium since 2012. As noted in the Market Perspective section, sales of policies combining LTCI with other risks dropped slightly. *Single premium sales are counted at 10 percent for the annualized premium calculations herein.
Seven of the top 10 insurers sold more new premium than in 2018, while four sold more new policies. This difference resulted largely because elected FPOs add premium but not new policies.
Worksite LTCI rebounded in 2019. The three stand-alone LTCI carriers specializing in worksite each saw sales jump by 62 to 76 percent despite increased competition from a major new carrier and from linked-benefit policies.
With FPO elections included in new premium, Northwestern garnered the number one spot in sales. Mutual of Omaha was a strong second and had a large lead in annualized premium from new policies sold. Together, these two companies combined for 59 percent of new premium including FPOs, compared to 57 percent last year.
Based on our analysis, for the fifth straight year (and fifth time ever), our participants’ number of inforce policies dropped, but less than one percent.
Despite the reduced number of policies and increased number of policies in paid-up status, inforce premium increased 10.0 percent and the average inforce premium per policy rose from $2,208 to $2,426. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.
Participants’ claims rose 8.1 percent. Overall, the stand-alone LTCI industry incurred $11.6 billion in claims in 2018 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 20187 to $141.5 billion. (Note: 2018 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2018 incurred claims are 5.5 percent higher than the $11.0 billion of incurred claims reported in 2017.
The placement rate rose to 59.2 percent, higher than 58.8 percent in 2018 and 59.0 percent in 2017. The small increase occurred despite the increase in average age. The more favorable and faster underwriting decisions documented below contributed to the higher placement rate. As discussed in the Market Perspective section, the industry may be able to increase placement rates further, which should make financial advisors more comfortable suggesting that their clients consider LTCI, all else equal.
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 11 insurers.
Partnership Programs discusses the impact of the state partnerships for LTCI.
Product Exhibit shows, for eight insurers: Financial ratings, LTCI sales and inforce, and product details. Please note that, during the COVID-19 pandemic, some insurers have temporarily discontinued sales that would require face-to-face interviews. Our Exhibit ignores such temporary restrictions.
Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic 3 or 5 percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
Market Perspective (more detail in subsequent parts of the article)
Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR). The IR determination is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. It is hard to get data relative to IR. Regulators do not collect statistics and insurers often do not track it. It has been a positive sign that few IR requests have been made and that insurers seem to have been upheld approximately 90 percent of the time based on data we have received over the years from insurers and from Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS). Mr. LaPierre reported a 40 percent drop in IR requests in 2019, but an increase to approximately 30 percent of cases in which insurers were overruled. Part of the increase may be explained by statistical fluctuation because the number of IRs is low. Generally, if the appeal rate drops, the strongest cases are likely to continue to be appealed, resulting in a higher percentage being overruled. Another factor, in the experience of one of the authors, is claims examiners’ unfamiliarity with old policy forms in which standard wording was modified to fit a state-specific requirement, a problem that can be exacerbated if the claim function is transferred to a new entity lacking the historical knowledge. Because the number of IRs is so low, even a small percentage of such errors could cause the IR overturn rate to spike.
Third Party Notification (TPN) provisions provide another consumer protection. When someone incurs dementia, bills often accumulate unpaid. Under contract law, insurers could then terminate policies for non-payment of premium, despite the cause of non-payment being unknown claim qualification. In response to this issue, insurers and regulators agreed long ago to encourage applicants to name a third-party who must be notified before a policy can be terminated for non-payment of premiums. Insurers do not contact such a third-party until the grace period is over, and then provide at least another 30 days for the third-party to stave off cancellation. Every two years, insurers give policyholders an opportunity to update the contact information or change the third party. The benefit of this provision to policyholders often receives little attention, perhaps partly because no one seems to have ever studied the impact.
This year, we asked some one-time questions related to TPNs. Only two participants were able to provide data. One had TPNs identified for 63 percent of its inforce policies and the other had TPNs identified for 77 percent of its policies. One-fifth of the policyholders who had identified a TPN increased their protection by identifying more than one TPN. Only about 10 percent of single purchasers have named a TPN, despite seemingly having a greater need for a TPN. Financial advisors could serve an important role by stressing the importance of a TPN for single people. Not surprisingly, fewer than half of the policies with third-party billing have TPNs. Thus direct-billed policies and couples have distinctly higher percentages of TPNs than indicated above.
Current prices are more stable than past prices because today’s prices reflect much more conservative assumptions based on far more credible data1 and lower assumed investment yields. Many financial advisors presume that new policies will face steep price increases, hence can be reluctant to encourage their clients to consider LTCI. Although three participants have never increased premiums on policies issued under “rate stabilization” laws, it may take a long time before the market is comfortable that prices are stable.
Linked benefit products have increased market share, due to influences such as: i) regardless of whether the policyholder has a long-term care claim, their family will receive benefits, ii) they often have guaranteed premiums and benefits, iii) they no longer need to be funded with single premiums; and iv) they are issued to younger ages than before.
According to LIMRA, in the first half of 2019 (the most recent data available when this article went to print), combination life sales dropped slightly, even in the recurring-premium market which continued to gain market share compared to single premiums. The biggest drop (six percent both in premium and policies) was in the Chronic Illness market.
As noted earlier, roughly 59 percent of applications have resulted in placed policies in the past three years, with the low placement rates contributing to financial advisors being hesitant to recommend that clients consider LTCI. The industry may be able to improve placement rates in a variety of ways.
Utilize E-applications for faster submission and reduced processing time by assuring that all apps are “in good order.” The speed and accuracy increase placement. It would be helpful if brokerage general agents could populate an eApp with quote information, then forward that partial eApp to the broker for completion.
Pre-qualify an applicant’s health. It is important to stress the importance of such pre-qualification to advisors and prospects and to continue to find effective ways to accomplish quality pre-qualification.
More effective education of their distribution system by insurers, such as with drill-down questions in on-line underwriting guides and eApps.
Require cash with the application (CWA), which led to about five percent more of the apps getting placed according to our 2019 survey.
Continue to improve messaging regarding the value of LTCI and of buying now (rather than in the future). Such messaging would increase the number of applications and improve the placement rate by attracting younger and healthier applicants.
Over the past two years, 79 percent of our participants’ policyholders exercised their FPO (future purchase option, a guarantee that, under specified conditions, a policyholder can purchase additional coverage without having to demonstrate good health). As both the additional coverage and price per unit increase over time, such options become increasingly expensive, even more so with the price increases that the industry has experienced. The high election rate demonstrates the importance of the coverage to the policyholder and the effectiveness of annual (as opposed to triennial) negative-election FPOs (negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request). At least in some markets and with some designs, policyholders reliably exercise FPOs when they must do so to continue to receive future offers. Considering such FPOs and other provisions, we project a maximum benefit at age 80 of $306/day for an average 58-year-old purchaser in 2019, which is equivalent to an average 2.9 percent compounded benefit increase between 2019 and 2041. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
Only four participants offer coverage in all U.S. jurisdictions and no worksite insurer does so. Insurers continue to be reluctant to sell in jurisdictions which are slow to approve new products, restrict rate increases, or have unfavorable legislation or regulations.
Eight of our nine participants use third party administrators (TPAs) and seven use reinsurers. We thank American United, LifeCare Assurance, Manufacturers, Munich American, RGA, Wilton Re, Long-Term Care Group, Life Plans, and CHCS for their contributions to the LTCI industry. Other reinsurers and TPAs support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.
As we reported last year, the NAIC adopted a significantly improved 2019 version of the Shopper’s Guide, covering combination products as well as stand-alone LTCI and adding other information, while reducing the number of pages from 80 to 76. We asked last year’s readers to email claude.thau@gmail.com to comment on the new Guide and how (much) it is used to educate consumers. We received no comments. This year, we polled insurers; their answers suggest they view the Shopper’s Guide primarily as a regulatory requirement. Their suggestions to improve the usefulness for consumers included shortening it, linking to it from state department of insurance websites, and regulators using the guide in a campaign to encourage long term care planning. We visited 31 jurisdiction websites to see if they linked to the NAIC Shopper’s Guide. We found that 13 jurisdictions use their own guides. Five (plus the Federal government) link to the 2019 NAIC Guide, while four link to the 2013 NAIC Guide. One state links to an AHIP Guide, and we found no guide or minimal wording in the remaining eight states.
Claims
Eight participants reported 2019 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.
The eight insurers’ combined claim payments on individual policies rose 8.1 percent in 2019 over 2018, despite only a 0.2 percent increase in inforce policies and a 3.7 percent increase in their inforce premium.
The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.
LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, etc.
Table 1 shows the total dollar and number of reported individual LTCI claims. The large drop in claims is primarily the result of having Genworth data in 2018 but not in 2019.
Table 2 shows the distribution of those claims by venue, which have shifted away from nursing homes over the years (except in 2019) due to consumer preferences and more claims coming from comprehensive policies. Regarding the change in 2019, we note that, for insurers that contributed data in both 2018 and 2019, the number of claims in nursing homes dipped 0.6 percent following the prior years’ patterns.
The inception-to-date data shows 53.3 percent of the number of claims being in Nursing Homes (vs. 45.0 percent last year). Here again, if we limit data to insurers reporting each year, we see a drop of 0.8 percent instead of an increase of 8.3 percent. Surprisingly, the inception-to-date number of claims is more weighted to Nursing Home than the dollar of claims. The nursing home claims seem to come from older policies with lower minimums.
In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.
Seven carriers reported their number of open individual claims at year-end, ranging between 59 and 107 percent of the number of claims paid during the year, averaging 75 percent overall. The insurer reporting 107 percent noted that they include open claims that have had no payments made yet. With that carrier excluded, the overall ratio was 76 percent.
Table 3 shows average size individual claims since inception. Because 41 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim generally exceeds the average claim paid for any particular venue. Nonetheless, individual Assisted Living Facility (ALF) claims stand out as high each year, probably because:
a) ALF claims appear to have a longer duration compared with other venues.
b) Nursing home costs are most likely to exceed the policy daily/monthly maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.
c) People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.
d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or for levels of assistance that align more closely with nursing home care. Upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.
Several insurers extended ALF coverage to policies which originally did not include ALF coverage. Providing these additional benefits provides the policyholder with significant flexibility at time of claim, but has contributed to the insurers’ need for rate increases.
The following factors contribute to a large range of average claim results by insurer (see Table 3):
Different markets (by affluence; worksite vs. individual; geography; etc.).
Demographic differences (distribution by gender and age).
Distribution by benefit period, benefit increase feature, shared care and elimination period.
Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only, etc.
Different lengths of time in the business.
The following factors cause our average claim sizes to be understated.
For the carriers reporting claims this year, 11 percent of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.
Besides being understated, average claim data does not reflect the value of LTCI from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. The primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.
Six insurers provided their current individual (excludes group) monthly LTCI claim exposure, which exceeds $4.8 billion (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is thirty times their corresponding monthly LTCI premium income and more than 47 times their 2019 LTCI monthly paid claims.
Eight insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 6.8 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately .25 years on the average inforce benefit period. With annual exposure thirty times annual premium and assuming an average benefit period of about 6.8 years, we estimate that total exposure is 202 times annual premium.
Four insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $4,696 to $6,552.
Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.
STATISTICAL ANALYSIS Nine insurers contributed significant background data, but some were unable to contribute data in some areas. Six other insurers (Auto-Owners, CalPERS, Genworth, LifeSecure, Transamerica and United Security) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales, but not clarifying whether FPOs were included in the premium.
Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.). Year-to-year variations in policy feature distributions may reflect changes in participants, participant practices and designs, participant or worksite market shares and industry trends.
Market Share We include purchased increases on existing policies in new premium (we call them FPOs and include board-approved increase offers) because new coverage is being issued. However, looking at new premiums ignoring FPOs spotlights insurers with more new policy sales. Table 5 lists the top 10 participants in 2019 new premium including FPOs and shows their sales (if submitted) without FPOs. Northwestern ranks #1 including FPOs, with Northwestern and Mutual of Omaha accounting for 59 percent of the market. Ignoring FPOs, Mutual of Omaha is #1, 63 percent ahead of #2 Northwestern. The premium includes 100 percent of recurring premiums plus 10 percent of single premiums.
Worksite Market Share The three stand-alone LTCI carriers specializing in worksite each saw sales jump by 62 to 76 percent despite increased competition from a major new carrier and from linked-benefit policies. Thus, worksite business produced 21.0 percent of new insureds (see Table 6) and 13.4 percent of new annual premium (including FPOs but excluding single premium). Worksite sales consist of three different markets, the first two of which produce a higher percentage of new insureds than of new premiums:
Voluntary group coverage generally is less robust than individual coverage.
Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.
The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Table 6 is indicative of the full market, but this year’s policy feature distributions significantly underweight the large group market, as most of that market is not reflected in our statistical data. More information about worksite sales will appear in the August issue of Broker World.
Affinity Market Share Affinity groups (non-employers such as associations) produced 8.5 percent of new insureds (see Table 7), but only 5.9 percent of new business premium. Less than 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage.
Characteristics of Policies Sold Average Premium Per Sale Table 8 shows the average new business premium per insured ($2,551), subtracting FPOs for the insurers that reported statistics. For insurers that reported distribution by couples vs. individuals, the number of insureds was 41.5 percent higher than the number of buying units (a couple comprise a single buying unit), boosting the $2,551 to $3,608.
The average premium for new policies for the 15 insurers rose 1.7 percent compared to 2018 (we recalculated the 2018 results to include more carriers). Our statistics show a higher average initial maximum monthly benefit, a higher issue age and a slightly higher benefit period, which generate a larger increase in average premium for the insurers which provided statistical data.
Data for 2017 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.
Average premium per new policy ranged from $1,443 to $3,701 among the 15 insurers. The lowest average new premium (including FPOs) was in Puerto Rico ($2,036), followed by Oklahoma ($2,586) and Kansas ($2,646), while the highest was in the District of Columbia ($4,575), followed by Connecticut ($4,531), West Virginia ($4,349), and New York ($4,270). Due to rate increases, FPO elections and termination of older policies, the average inforce premium jumped to $2,426, 9.8 percent more than at the end of 2018.
Issue Age Table 9 summarizes the distribution of sales by issue age band based on insured count. The average issue age increased to 57.7 mostly due to change in participants. The age distributions for 2016 and earlier had more worksite participants than recent years. Note: Two survey participants have a minimum issue age of 40, one will not issue below 30, and two will not issue below 25.
Benefit Period Table 10 summarizes the distribution of sales by benefit period. The average notional benefit period increased slightly from 3.74 to 3.79 because of change in participants. Because of Shared Care benefits, total coverage was higher than the 3.79 average suggests. Three-year to five-year benefit periods accounted for 75.2 percent of the sales, quite a concentration compared to the past.
Monthly Benefit Table 11 shows that, because of the change in participants, monthly determination applied to a record 83.2 percent of 2019 policies. With monthly determination, low-expense days leave more benefits to cover high-expense days. Among companies which make monthly determination optional, the percentage electing monthly determination ranged from 16 to 43 percent.
Table 12 shows that the average maximum monthly benefit increased from $4,763 in 2018 to $4,882 in 2019, two-thirds of which increase resulted from the change in participating insurers.
Benefit Increase Features Table 13 summarizes the distribution of sales by benefit increase feature. The big increase in three percent compounding is less meaningful considering that there was a big decrease in “Other compound” most of which was a variation of three percent compounding.
“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).
As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent/year offer for fixed FPOs. The maximum benefit at age 80 (in 2041) for our 2019 average 58-year-old purchaser projects to $306/day (equivalent to 2.9 percent compounding). Had our average buyer bought an average 2018 policy a year ago at age 57, her/his age 80 benefit would be $313/day (equivalent to three percent compounding). The two percent drop is attributable to the change in participants this year. The increase in the FPO election rate added $4/day to the 2041 benefit. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.
FPOs are important to insureds in order to maintain purchasing power, and as demonstrated by the fact that 82 percent of our participants’ 2018-2019 FPOs were exercised. The high election rate is very impressive, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age and additional price increases due to rate increases.
The high election rate, coupled with a range of responses from 20 to 90 percent election, demonstrates the effectiveness of annual (as opposed to triennial) options and negative-election (negative-election FPOs activate automatically unless the client rejects them) as opposed to positive-election FPOs (which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.
FPOs are also important to insurers, accounting for at least 18 percent of new premium in 2018 and at least 22 percent in 2019. Two insurers had nearly half their new premium come from FPOs.
Elimination Period Table 16 summarizes the distribution of sales by facility elimination period (EP). Ninety-one percent (91 percent) of buyers opt for 90-day elimination periods. However, two carriers report 23 to 30 percent of their sales in the 20-44-day EP range. Three carriers reported six to 11 percent of their sales having more than a 200-day EP.
Table 17 shows the percentage of policies with zero-day home care elimination period (but a longer facility elimination period). With most insurers offering an additional-cost zero-day home care EP option, 15 to 30 percent of buyers purchased a zero-day home care elimination period, but one insurer had nearly a 50 percent election rate.
Table 17 also shows the percentage of policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.
Sales to Couples and Gender Distribution Table 18 summarizes the distribution of sales by gender and single/couple status.
The percentage of buyers who are female dropped to 54.2 percent and the percentage of females among single insureds dropped to 64.8 percent. Changes in participants accounted for only 33 and 17 percent of those respective drops. The percentage of females varies significantly and consistently among companies each year based on their markets.
The 81.8 percent of accepted applicants who purchased coverage when their partners were declined is the highest we have seen. However, some insurers which reported approximately 50 percent success in the past did not contribute data this year.
Shared Care and Other Couples’ Features Table 19 summarizes sales of Shared Care and other couples’ features.
Shared care—allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
Survivorship—waives a survivor’s premium after the first death if specified conditions are met.
Joint waiver of premium (WP)—both insureds’ premiums are waived if either qualifies for benefits.
Changes in distribution by carrier can greatly impact year-to-year comparisons in Table 19, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature. However, the 2019 increased percentages of Shared Care and Joint WP are not attributable to changes in participants.
In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. Four participants sold Shared Care to more than half their limited benefit period couples; four others sold Shared Care to fewer than half of such couples. Three insurers sold Joint WP to 50 percent or more of their couples; three others sold joint WP to fewer couples. Three carriers sold Survivorship ranging to nine to 16 percent of their couples, while two insurers sold Survivorship to 2.5 to three percent of their couples.
Table 20 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 20, two- to four-year benefit period policies are most likely (26 to 32 percent) to add Shared Care. Partly because three-year benefit periods comprise 52 percent of sales, most policies with Shared Care (62 percent) have three-year benefit periods, as shown on the left side of Table 20.
Above, we stated that Shared Care is selected by 35.9 percent of couples who both buy limited benefit period policies. However, Table 20 shows Shared Care comprised no more than 31 percent of any benefit period. Table 20 has lower percentages because Table 19 denominators are limited to people who buy with their spouse/partner whereas Table 20 denominators include all buyers.
Shared Care is more concentrated in two- to four-year benefits periods (88.3 percent of shared sales) than are all sales (71.5 percent). Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female, hence opt for a longer benefit period. Shared Care percentages rebound at the longer benefit periods reflecting buyers who are trying to cover catastrophic risk and might prefer an endless benefit period.
Existence and Type of Home Care Coverage For the first time, no participant reported home-care-only sales. Five participants reported sales of facility-only policies, which accounted for 0.7 percent of total sales. Ninety-six percent (96.4 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.
Other Characteristics As shown in Table 21, partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 and 40 percent of their benefits for whatever purpose they wish) were included in 49.1 percent of sales, including some non-participant sales.
Return of premium (ROP) features were included in 10.4 percent of policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 80 percent of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.
Nearly fourteen percent (13.6 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured does not need services for at least six months. Approximately 89 percent of ROB features were automatically embedded.
Shortened benefit period (SBP) makes limited future LTCI benefits available to people who stop paying premiums after three or more years. Although every insurer is obligated to offer SBP, some carriers did not report any SBP sales. Removing their sales from the denominator, we found that 3.1 percent of buyers selected SBP.
Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.
“Captive” (dedicated to one insurer) agents produced 57.0 percent of the policies. The balance was produced by brokers. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.
Sales distribution by jurisdiction is posted on the Broker World website.
Limited Pay and Paid-Up Policies In 2019, only two insurers sold policies that become paid-up in 20 years or less, accounting for 0.8 percent of sales.
Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.
Participants reported that 3.8 percent of their inforce policies are paid-up. Less than one percent (0.8 percent) are paid-up because they have completed their premium period. Another 0.8 percent are paid-up due to shortened benefit period and 0.4 percent are due to survivorship features. Almost half of the paid-up policies are paid up for unidentified reasons. For example, shortened benefit period percentages could be as much as three times as high as suggested herein.
PARTNERSHIP PROGRAM BACKGROUND 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 Partnership-qualified policy. Partnership sales were reported in 43 jurisdictions in 2019, all but California (no participants offer California Partnership policies) and Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).
The Partnership rules in California, Connecticut, Indiana and New York (“original” Partnership states) are significantly different than in other Partnership jurisdictions (“Deficit Reduction Act (DRA)” jurisdictions). The “original” states legislated variations of the Robert Woods Johnson Partnership (RWJ) proposal, whereas the “DRA” jurisdictions use more consistent rules based on the Deficit Reduction Act of 2005. For example, the “original” states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and assess a fee for insurers to participate (none of which applies in DRA states). As a result, only two to five insurers sell Partnership policies in CA (two), CT (four), IN (five) and NY (two). At the time that this article is written, insurance brokers do not have access to Partnership policies in CA and NY.
The National Reciprocity Compact (NRC) requires member states to recognize Medicaid Asset Disregard earned in any other member state. States creating Partnerships under the Deficit Reduction Act of 2005 were automatically enrolled in the NRC but had the right to secede. The four original Partnership states (California, Connecticut, Indiana and New York) had the right to opt in. California is now the only jurisdiction with a Partnership program that is not a member of the NRC. Last year, we reported that New Hampshire had created a unique regulation in 2018, limiting asset disregard for policies sold in other jurisdictions. New Hampshire has reversed that limitation.
PARTNERSHIP PROGRAM SALES Insurers sometimes delay certifying policy forms as “Partnership” because of other priorities (e.g., needing time to comply with state-specific requirements to notify existing policyholders or offer an exchange). Such delay is not harmful, as certification is retroactive to policies already issued on that policy form if the policies have the required characteristics. For this reason, the “original” Partnership issues mentioned above and because some insurers are not licensed in all jurisdictions, none of our participants sold Partnership policies in more than 40 jurisdictions in 2019. Three had Partnership sales in 38-40 jurisdictions, four in 29-34 jurisdictions, one in six jurisdictions, and the other has chosen not to certify Partnership conformance.
In the DRA states, 55 percent of policies qualified for Partnership status. Once again, Minnesota led the way; 82.5 percent of the policies sold qualified as Partnership. Maine (75 percent) and Wisconsin (74 percent) followed. North Dakota and Georgia were also above 70 percent. In the original RWJ states, only 0.4 percent of the issued policies qualified as Partnership: Indiana (3.5 percent), Connecticut (1.0 percent), New York (0.4 percent) and California (zero percent).
Partnership policies are expected to have higher average premiums because of the requirement that Partnership policies issued under age 76 have benefit increase features. In our survey, most states did not have such a relationship because we asked insurers to include FPOs in their sales and the carriers with the most FPOs had high average premiums while selling few Partnership policies.
Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.
Partnership programs could be more successful if:
Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work where a Partnership minimum daily benefit is required such as CA, $230/day; CT, $291; or NY, $337.) When policies reflecting CA SB 1248 become available in California, California’s minimum size policy will drop to $100/day. South Dakota requires a $100 minimum size for all LTCI and Indiana’s Partnership requires $115.)
Middle-class prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
The four original Partnership states migrate to DRA rules.
More jurisdictions adopt Partnership programs.
Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
Financial advisors were to press reluctant insurers to certify their products and create one percent compounding.
More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
More insurers offer one percent compounding.
Linked benefit products became Partnership-qualified.
UNDERWRITING DATA Case Disposition Eight insurers contributed application case disposition data to Table 22. In 2019, 59.2 percent of applications were placed, including those that were modified, a little higher than in 2017 and 2018. Half of the improvement was related to change in participants.
One insurer reported a 76.7 percent placement rate, the second highest being 58.3 percent. Two insurers placed fewer than 50 percent of their apps, the lowest placement rate being 32.3 percent. Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates can discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors fear that declined clients will be dissatisfied. Decline rates slipped slightly for the second straight year. The decline rate by carrier varied from 11.2 to 41.8 percent, affected by factors such as age distribution, market, underwriting requirements, and underwriting standards. Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secures coverage because applicants denied by one carrier may be issued either stand-alone or combo coverage by another carrier or may receive coverage with the same insurer after a deferral period.
Underwriting Tools Eight insurers contributed data to Table 23, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 86 percent of the number of applications. That does not mean that 86 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.
Insurers are trying to speed underwriting to increase placement rates. In the worksite market, insurers are less likely to use some of these tools.
Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, the cognitive phone calls are understated below because one insurer could not split them apart from their other phone interviews (PHI) and reported them all as PHI with no or minimal cognitive testing.
Underwriting Time Table 24 shows the average processing from receipt of application to mailing the policy (37.0 days) was 2.4 days faster than in 2018, which in turn had been 3.4 days faster than in 2017. About 38 percent of the reduction was due to the change in survey participants.
The reduction came at both ends of the spectrum, a much higher percentage processed within 29 days and many fewer taking 45 or more days. All but one insurer reported an increase.
Rating Classification Table 25 shows that a lower percentage of policies was issued in the most favorable rating classification, but for participants which contributed data both years, the percentage increased 0.4 percent despite a higher average issue age. Two insurers placed more than 80 percent of their applicants in the best underwriting class. Only 8.1 percent of the applicants were placed beyond the second-best classification. In 2016 and prior years, the “best” percentage was lower partly because we received more data from insurers writing worksite business, which does not offer preferred health discounts and because one insurer eliminated its preferred health discount (hence “standard” ratings became its “best”).
Underwriting placements have become more favorable. To gauge whether insurers are declining applicants rather than placing them in a less-attractive rating, we added a line in Table 25 that shows the percentage of decisions which were either declined or placed in the third or less-attractive classification. This approach confirms the more favorable decisions in 2019.
Tables 26 and 27 show by issue age range the percentage of policies issued in the most favorable category in 2019 and the percentage of decisions that were declines. One participant was not able to provide the by-issue-age data, so Tables 26 and 27 do not exactly match Table 25.
Please click on the links below to find the following additional information:
Product Exhibit shows, for eight insurers: Financial ratings, LTCI sales and inforce, and product details. Please note that, during the COVID-19 pandemic, some insurers have temporarily discontinued sales that would require face-to-face interviews. Our Exhibit ignores such temporary restrictions.
Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
Premium Exhibit, which shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period (other aspects vary), three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. The exhibit includes facility-only policies, as well as comprehensive policies. Worksite products do not reflect any worksite-specific discount, though some carriers offer this.
Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar, Alex Geanous, and Anders Hendrickson of Milliman for managing the data expertly.
We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.
COVID-19 will have significant impacts on the long term care insurance (LTCI) industry in 2020 and perhaps beyond. The following comments are speculative and should be viewed as intending to encourage thought and discussion rather than being relied upon.
Every 100,000 deaths from COVID-19 would increase 2020 deaths by close to 3.5 percent and represent 1/30 of one percent of the population of the United States.
Claims
Higher mortality could lead to shorter claim durations. People in nursing homes appear to be among the most vulnerable to COVID-19. To the degree that COVID-19 causes premature deaths of LTCI claimants, this tragic result could reduce the financial instability of older blocks of policies.
Home care claims may be depressed. “Sheltering in place” is expected to reduce commercial home care expenditures, as home care providers are less willing to visit and less welcome in homes, and spouses and children may be more available to provide home care services while staying home.
Future claims on inforce blocks may decrease somewhat because of terminations due to death and inability to pay premium. On the other hand, people may avoid seeking treatment unless it is absolutely necessary and doctors may shift their focus to COVID-19 (at least in the short term). As a result, chronic conditions may be less effectively diagnosed, monitored and treated, which could cause somewhat higher LTCI claims in coming years.
Future claims could increase if people who survive COVID-19 become more susceptible to needing long term care, but this will not be known for some time.
If COVID-19 ends up having an “annual” season (like the flu) or even less frequent recurrences, it could have an impact on claims incidence and claims length. The greatest impact might be higher mortality rates at older ages, which would reduce the cost of claims. But if vaccines are developed, there may not be a significant impact on the claims experience of today’s sales.
Premium income and persistency
Unemployment will likely cause some policyholders to be unable to continue premiums and some employers might stop paying LTCI premiums or might pare their executive carve-out ranks. Because terminations (deaths and lapses) will likely increase in the short term, COVID-19 should lower future premium income. However, as a result of such terminations, insurers will release reserves, which might more than offset the loss of income.
Insurers are generally extending grace periods by 30 to 61 days. It is our interpretation that the Third Party Notification will be delayed, but the subsequent time available for the Third Party to cure the overdue premium will be the normal length. Some insurers seem to be a bit slower to respond than for previous emergency situations, despite having their past precedents. Because regulators from various states were instituting requirements, insurers held off to avoid having to repeatedly update their COVID-19 response. For example, Alaska mandated that policies cannot be lapsed prior to June 1. Delaware forbid lapses during the pendency of the emergency order.¹ West Virginia seems to have mandated an open-ended restriction on terminating coverage.¹ California requested a 60-day grace period,² and Wisconsin requested flexibility.¹ To the degree that insurers grant such grace periods to consumers with adversely-impacted cash flow, insurers will suffer inferior cash flow.³ To the degree that they never receive some of the due premium, they would have extended a short period of coverage with no corresponding premium income. However, in that case, they would be experiencing higher lapse rates than anticipated, which should improve profitability.
Investment income
Reduced investment income may result due to COVID-19. For inforce business, mortgage and bond defaults would be harmful, but a low interest rate climate may be less harmful for older blocks experiencing negative cash flow.
A prolonged recession or depression might keep interest rates low. On the other hand, some people believe that the increased government spending resulting from COVID-19 will spur inflation that would cause nominal investment yields to increase. Inflation would likely make today’s sales more profitable (less exposed to price increases) because it could increase investment income on future premiums and reinvestment of assets. Although inflation would drive higher long term care costs, which could increase claims, the daily or monthly maximums of LTCI policies put a limit on the degree to which claims could increase.
Insurers may respond to expected lower investment income by raising new business prices and restricting single premium options.
Expenses
Insurer expenses may drop somewhat in 2020 primarily due to lower new business expenses and other administrative expense reductions. In the long run, expense variations due to COVID-19 are not likely to be significant.
Sales
Sales to individuals and couples will rise or drop for conflicting reasons:
Economic activity is depressed in the early stages of this pandemic, and income instability makes it unwise to commit to more on-going outflow.
Reduced asset values may cause some people to reconsider LTCI instead of self-insuring. According to Don Levin, President and CEO of USA-BGA, GE Financial had its best LTCI sales the month after 9/11, “Because it showed the country how quickly life can change in the blink of an eye.”
Some people who were convinced that the government would take care of them may become less confident as a result of the COVID-19 related government debt.
More people may be reviewing and seeking to increase their financial security, and people quarantined at home may be more easily available for remote solicitation, education, and sales.
Some insurers discontinued older age sales because they cannot complete face-to-face interviews.
A desire to replenish one’s estate and increased conservatism may accelerate interest in linked-benefit products.
New worksite sales may decrease significantly as employers are focused on other business and employee issues. Furthermore, workforce continuity is unusually uncertain and face-to-face enrollment temporarily discontinued. In 2021, the market might benefit from pent-up demand, but resulting enrollments might not take place until late 2021 or early 2022.
Worksite enrollments of new employees in existing programs are less affected because people become eligible automatically without executive decision-making. However, decreased hiring means decreased add-on sales.
Core/buy-up elections and voluntary participation are likely to decrease as employees are less confident of family net income.
Insurers should see a spike in the use of eApps and fillable apps as face-to-face solicitation will ebb.
Operations
Insurance operations are well-suited for remote employment and insurance company staff have the knowledge and resources to work remotely. Reduced sales should reduce stress on some operational staff and may result in some layoffs.
LTCI underwriting should be less affected than underwriting of products which require more time-of-sale health screening. However, in addition to difficulty scheduling face-to-face assessments, potential problems such as slower transmission of medical records may occur. If an insurer requires someone to go to the doctor before applying or if an insurer wants an updated test, the related application is likely to flounder because people may not want/be able to go to their doctor’s office. As noted above, insurers are capping the sales age due to inability to perform face-to-face assessments. In response, insurers are developing capability to do face-to-face assessments electronically.
Some states have temporarily suspended fingerprint requirements, at least in some cases, issuing temporary insurance licenses to brokers. Such brokers will be required to complete the fingerprint process at a later date.
Some insurers are expanding electronic policy delivery, which may change typical processing even post-COVID-19.
Particularly where cash benefits are payable, insurers will be diligent to assure that they become aware of deaths.
Other
A. M. Best has committed to stress test insurers regarding COVID-19.⁴
West Virginia required insurers to provide a “preparedness plan” by April 2 to address maintaining an adequate workforce, assuring on-going processing, evaluating the ability of third parties to continue necessary service, a communications strategy, etc., under a variety of COVID-19 projections (determined by the insurer). The “preparedness plan” must also have been tested by April 2. In addition, West Virginia required an assessment of the impact of COVID-19 on reserve requirements, credit exposure and counter-party credit risk, assets that may be adversely impacted and the overall resultant potential impact on earnings, profit, capital, and liquidity.⁵
Wisconsin has ended its normal deemer provision that results in insurance policy filings being approved if the state does not respond within a particular time frame.⁶
The 2019 Milliman Long Term Care Insurance Survey, published in the July issue of Broker World magazine, was the 21st consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzed individual product sales and Genworth group sales, reporting sales distributions and detailed insurer and product characteristics.
From 2006-2009, Broker World magazine published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank. In 2011, Broker World magazine began annual analysis of worksite sales of individual products in August to complement the July overall market analysis.
The worksite market consists of individual policies and group certificates (“policies” henceforth) sold with discounts and/or underwriting concessions to groups of people based on common employment.
About the Survey Our survey includes worksite (WS) sales and statistical distributions from Genworth group, MassMutual, New York Life, and Northwestern and worksite sales data from LifeSecure and Transamerica. We compare WS sales to individual LTCI policies that are not worksite policies (NWS) and to total sales (Total).
The July issue also included the California Public Employees Retirement System (CalPERS) program. CalPERS eligibility is based California public employment, but the program operates more like an affinity group than a worksite group, so it was counted as affinity sales in July and is not included as a worksite product in this article.
We limit our analysis to U.S. sales and exclude “combo” products, except where specifically indicated. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
If a business owner buys an individual policy and pays for it through her/his business, some participants may report such policies as “worksite” policies while others might not, if it was not processed as a worksite group.
If a business sponsors general long term care/LTCI educational meetings, with employees pursuing any interest in LTCI off-site, such sales are not treated as WS sales.
Highlights from This Year’s Survey
Participants reported 2018 WS sales of 8,436 policies (15.0 percent of total sales) for $15.64 million (9.1 percent of new annualized premium). The premium includes 2018 future purchase options exercised on policies issued in the past.
In 2018, the WS policies sold decreased by 41 percent and new annualized WS premium decreased 33 percent, compared to 2017 results, a much steeper drop than the whole stand-alone LTCI industry.
Our worksite sales are representative of nearly 100 percent of the stand-alone WS LTCI market, but our statistical distributions reflect about 65 percent of worksite sales.
MARKET PERSPECTIVE The worksite market consists of three types of programs (which may apply to different employee classes in a single case):
In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees; the employees can buy more coverage. “Core” programs generally have lower average ages, short benefit periods, low daily maximum benefits and few spouses insured.
In “carve-out” programs, employers pay for robust coverage for generally a small number of executives and usually their spouses. Generally employees can buy more coverage for themselves or spouses. Carve-out programs cover more married people and spouses and have higher age distributions than “core” programs.
In “voluntary” programs, employers pay nothing toward the cost of coverage. Coverage is more robust than “core” programs, but less robust than carve-out programs. Voluntary programs tend to be most weighted toward female purchasers.
MassMutual, New York Life and Northwestern write mostly executive carve-out programs, whereas Genworth, Transamerica and LifeSecure business includes a lot of voluntary and core buy-up business as well.
Prior to gender-distinct NWS pricing, many insurers simply offered a five or 10 percent worksite discount for a product that was already designed, state-approved and had illustration, sales material and administrative support.
Most people interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI 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. Thus, to sell at the WS, insurers must create a separate unisex-priced product.
The added expense of separate pricing and administration for WS sales discourages insurers from serving both the WS and NWS markets. With the decrease in LTCI sales this century, insurers may be less confident that the effort of creating a WS program would be rewarded.
Because healthy, young, and less affluent people are less likely to buy, insurers and enrollers fear anti-selection (less-healthy people buying, while healthier people do not buy). Most WS programs offer health concessions which can exacerbate this risk.
Females get a good deal in a WS program compared to NWS pricing, but males pay more in the WS. Insurers fear that most worksite buyers might be female, hurting WS profitability. The Statistical section provides significant data in this regard. To the degree that sales skew to females, unisex pricing must approach gender-distinct female pricing (since females have higher expected future claims).
WS programs rarely offer “preferred health” discounts; insurers generally don’t get enough health information to grant such a discount. Thus, heterogeneous couples might pay more for a WS policy than a corresponding NWS policy, if the male spouse is older or buys more coverage and/or one or both spouses would qualify for a “preferred health” discount in the NWS market. In the carve-out market, a costlier LTCI product can still produce savings on an after-tax basis.
To control risk, most insurers will not accept a voluntary WS program if there are fewer than 100 employees. There is no “guaranteed issue” stand-alone LTCI coverage; however, some combo products offer some guaranteed issue with adequate WS participation. Insurers are also more careful about gender, age and income distributions of WS cases they accept. However, one insurer (which offers no health concessions) will, in half of US jurisdictions, accept voluntary LTCI programs with as few as twoemployees buying (the other jurisdictions require that three to five employees buy).
Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and reduce exposure to extremely long claims. Such age restrictions can discourage employers from introducing a program, especially a carve-out program if they have executives or spouses under age 40.
With increased remote work, more employers have employees stretched across multiple jurisdictions and eligible non-household relatives might live anywhere. But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. So, it can be difficult to find an insurer which can cover everyone unless LTCI is sold on a group chassis and the employer does not have individuals in extra-territorial states.
One WS insurer no longer offers WS LTCI to non-household relatives. Reduced availability for such relatives does not have much impact on sales, because few non-household relatives buy WS LTCI. However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.
In the past, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company, but now it is hard to find a carrier that will offer unisex pricing under such circumstances. Thus, it is harder for some executives to benefit from the tax advantages of employer-paid coverage.
Some employee benefit brokers are reluctant to embrace LTCI because of declinations, the need to educate employees, certification requirements, their personal lack of expertise, etc. Increased WS sales are likely to depend upon LTCI specialists forming relationships with employee benefit brokers.
The Tax Cuts and Jobs Act of 2017 reduced the tax savings for C-Corporations buying LTCI for their employees and employees’ life partners. Pass-through entities may be the more attractive market now. Although the eligible premium is capped in a pass-through entity, a much higher marginal tax rate might apply.
Voluntary worksite LTCI sales, which lack the tax advantages of employer-paid coverage, may, like the NWS market, gravitate toward combo products, which have the added advantage of providing valuable life insurance that is viewed as a more immediate potential need by young employees with families.
The worksite is a great venue to serve people who can benefit substantially from LTCI and the state Partnership programs (described in the Partnership section below). Unfortunately, only 10.3 percent of 2018 WS sales qualified for Partnership programs.
Regulators have “stepped up,” as more than 20 jurisdictions now accept policies in their state Partnership programs even if maximum benefits compound by only one percent. By offering one percent compounding option, insurers can make core and voluntary WS programs more attractive.
Increased ong term care exposure coupled with attractive tax breaks for employer-paid coverage and Partnership and combo opportunities in the core and voluntary market may generate significant WS LTCI growth.
However, either consciously or subconsciously, employers understand that offering LTCI to their employees has little value for the employer. By the time the employee or spouse needs long term care, the employee will likely have terminated employment. The industry can help employers much more effectively by providing services which can reduce the likelihood of employees’ elders needing long term care and can make long term care more effective, more efficient and less expensive for employee caregivers.
STATISTICAL ANALYSIS In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the submarket they serve (for example, in the WS market: Core, voluntary or carve-out). Therefore, distributions may vary significantly from year to year due to a change in participating insurers, in distribution within an insurer or in market share among insurers. Because our sales distributions reflect approximately 90 percent of NWS sales but only 65 percent of the worksite sales, the “total” distributions are skewed toward NWS characteristics.
Sales and Market Share Table 1 shows historical WS sales and Table 2 shows WS sales as a percentage of total LTCI sales. The WS market dropped 41 percent in terms of number of new policies and 33 percent in new premium compared to 2016.
As shown in Table 3, most of the drop in sales resulted from an insurer which was #2 in the market in 2017 but was out of the market for most of 2018. Clearly, the other insurers did not gain market penetration as a result. The six top worksite carriers have been the same for several years and WS market share among carriers is distributed very differently from the NWS market. The percentage of each insurer’s new premium that comes from WS sales did not change dramatically from 2017 to 2018.
Average Premium Per Buyer Table 4 shows the average premium per insured for new business (NB) in the WS market is about 50 percent as high as in the NWS market, because WS buyers are younger and purchase less robust coverage. While the NWS average premium per buying unit is 42 percent higher than the average premium per insured, the WS average premium per buying unit is only 29 percent higher because fewer spouses buy coverage in the WS.
Issue Age Table 5 shows 2018 WS data is concentrated much more to ages 30-50 than in 2017. The reduced WS sales at ages 60+ led to a very low average WS issue age (42.2). Hence, the difference in average issue age between WS and NWS has increased from 5.3 years in 2016 to 15.4 years in 2018 (see Table 6). Table 7 displays the relative age distribution of the population compared to purchasers in the NWS and WS markets.
Rating Classification Most WS sales are in the “best” underwriting class (see Table 8) because there generally is only one underwriting class. Insurers often do not get enough information in WS to determine whether a “preferred health” discount could be granted and use the additional revenue (from not having a “preferred health” discount) to fund extra cost resulting from health concessions. Some carve-out programs may offer a “preferred” discount. A higher percentage of NWS cases were in the “best” class in 2018 because one insurer eliminated its preferred health discount (hence “standard” ratings were its “best”).
Benefit Period Table 9 shows the combined WS percentage of three- and four-year benefit periods increased from 49.7 to 55.1 percent. Table 10 shows historical variation in the average WS benefit period. A large increase in two-year benefit period sales explains the lower WS average benefit period the past two years, probably caused by a difference in carriers reporting data. As discussed later, the WS market issues much less Shared Care, so the advantage of the NWS market in terms of benefit period is significantly greater than indicated in Table 9.
Maximum Monthly Benefit Table 11 shows that the average initial monthly maximum benefit increased by $113 in 2018 in the WS market and by $50 in the NWS market. Table 12 shows how the WS initial monthly maximum has varied over time.
Benefit Increase Features As shown in Table 13, the WS market has a lot more future purchase options (FPO; 72.1 percent vs 32.0 percent in the NWS market) because of its core programs. Correspondingly, only 13.4 percent of WS policies had automatic compound increases, compared with 49.3 percent of NWS policies.
Both markets showed an increase in indexed FPOs. In the WS market, this was caused by distribution shift among insurers. In the NWS market, it was caused by reclassifying an insurer’s sales; the insurer guarantees FPOs of indeterminate amount but bases its decision on interest rates.
Based on a $22/hour cost for non-professional personal care at home ($22 is the median cost according to Genworth’s 2018 study, the average WS initial maximum daily benefit of $137.60 would cover 6.3 hours of care per day at issue, whereas the typical NWS initial daily maximum of $161.21 would cover 7.3 hours of care per day, as shown in Table 14.
The number of future home care hours that could be covered depends upon when care is needed (we’ve assumed age 80), the home care cost inflation rate between now (age 42 for WS and 58 for NWS) and age 80 (we’ve calculated with two, three, four, five and six percent inflation), and the benefit increases provided by the LTCI coverage between now and age 80.
Table 14 shows calculations for 3 different assumptions relative to benefit increase features:
The first line presumes that no benefit increases occur (either sold without any benefit increase feature or no FPOs were exercised).
The second line reflects the average benefit increase design using the methodology reported in the July article, except that it assumes 25.8 percent elections of five percent compound FPOs, which we inferred in July is indicative of “positive” election FPOs (the increase occurs only if the client elects it).
The third line is like the second line except it assumes 90.0 percent FPO election, which we inferred in July is indicative of “negative” election FPOs (the increase occurs unless the client rejects it).
Table 14 indicates that: 1. Without benefit increases, purchasing power deteriorates significantly, particularly for the worksite purchaser because there are more years of future inflation for a younger buyer. 2. The “composite” (average) benefit increase design, assuming that 25.8 percent of FPO offers are exercised is much better, but still leads to significant loss of purchasing power. The exception: The WS client gains a bit of purchasing power if the inflation rate is only two percent (the composite with a 25.8 percent FPO election rate is equivalent to a bit more than two percent compounding). 3. With 90 percent FPO election rates, insured people will do much better retaining purchasing power. The average WS buyer would experience increased purchasing power if inflation averages less than four percent but would lose purchasing power if inflation exceeds four percent. The average NWS buyer would lose purchasing power even if inflation is only three percent.
Table 14 underscores the importance of considering future purchasing power when buying LTCI. Please note: a) The average WS buyer was 16 years younger, hence has 16 more years of inflation and benefit increases in the above table. The effective inflation rate to age 80 is not likely to be the same for 42-year-olds versus 58-year-olds purchasing today. b) WS sales have less automatic compounding and more FPOs, so WS results are more sensitive to FPO election rates. c) 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. d) The median age of starting to need care is about age 83 and the median age of needing care is about age 85. By then, more purchasing power would be lost. e) Table 14 does not reflect the cost of professional home care or a facility. According to the afore-mentioned 2018 Genworth study, the average nursing home private room cost is $275/day, which is currently comparable to 12.5 hours of non-professional home care. However, the inflation rate for facility costs is likely to differ from the inflation rate for home care. f) Table 14 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the average facility benefit.
Partnership Programs and Qualification Rates When someone applies to Medicaid for long term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Partnership sales were reported in 44 jurisdictions in 2018, all but Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth). To qualify for a state Partnership program, a policy must have a sufficiently robust benefit increase feature, the requirement varying by issue age. Historically, a level premium with permanent annual three percent or higher compound increases or an otherwise similar consumer price index (CPI) increase was required for ages 60 or less. For ages 61 to 75, five percent simple increases also qualified, and for ages 76 or older, policies qualified without regard to the benefit increase feature. As noted above, many states now confer Partnership status with compounding as low as one percent. Three insurers offer one percent compounding. One of those insurers and three others offer two percent compounding. The WS venue provides an efficient opportunity to serve less-affluent employees and relatives who would most benefit from Partnership qualification. Unfortunately, only 10.3 percent of WS sales in 2018 qualified for Partnership programs. Two insurers reported that 33 to 38 percent of their WS sales qualified, but the other two insurers reported that five to 6.5 percent qualified. Unfortunately, voluntary and core plans are less likely to qualify than carve-outs. As additional states permit one percent compounding and as insurers design products to offer one percent compounding, the percentage of Partnership policies sold in the WS market is likely to grow.
Jurisdictional Distribution On the Broker World web-site (www.BrokerWorldMag.com), you can find a chart of the market share of each US jurisdiction relative to the total, WS and NWS markets, split by Partnership combined with non-Partnership policies and separately solely Partnership policies. This chart indicates where relative opportunity may exist to grow LTCI sales.
Elimination Period Nearly 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 96 percent of 2018 WS sales had a 90-day EP, as shown in Table 15.
Table 15 also shows how many policies had a 0-day home care feature and a longer facility EP and how many policies had a calendar-day EP (as opposed to a service-day EP). We have reflected LifeSecure and Transamerica in the 0-day HC and calendar-day EP figures for both years. Policies which have 0-day EP, but define their EP as a service-day EP operate almost identically to a calendar-day EP.
Gender Distribution and Sales to Couples and Relatives In 2018, women constituted 51.2 percent of the US age 20-79 population, but 54.8 percent of LTCI buyers in the NWS market. That’s not surprising; it has long been clear that women are more interested in LTCI. However, women constituted only 46.8 percent of the workers, but 57.7 percent of LTCI buyers in the worksite. This much larger discrepancy (10.9 vs. 3.6 percent in the NWS market) demonstrates that gender anti-selection occurs in the worksite. Table 16 shows that, in 2014 and prior years, more men purchased LTCI in the WS than women, because a significant part of the market was executive carve-out and more executives were male. But the LTCI industry adopted gender-distinct pricing in 2013 which spread through the industry the next few years. Since 2015, more women than men purchase WS LTCI. As noted earlier, carriers have taken a variety of steps to reduce such anti-selection or to reduce its impact. Considering that it is harder to find WS LTCI programs for employers with high percentages of females makes the statistics herein more striking. *Bureau of Labor Statistics, https://www.bls.gov/cps/demographics.htm
For insurers selling mostly executive carve-out programs, the percentage of females is lower than for insurers selling core and voluntary programs.
Table 17 digs deeper. In 2018, the difference in single females buying, between the WS and NWS markets, was the same as the difference for all females.
Not surprisingly, a higher percentage of the WS market consists of sales to single people and only one of a couple (core programs being one of the reasons). Over sixty percent (60.7 percent) of couples in the WS market insure only one person, which is particularly striking because the WS market should have fewer declines due to a younger age distribution, health concessions, and better health among working people than non-workers.
Shared Care is less common in the WS market because it is less commonly offered than in the NWS market.
As noted earlier, between 2006 and 2009, Broker World magazine published group LTCI surveys. At that time, parents and grandparents accounted for less than one percent (approximately 0.75 percent) of sales. This year, one insurer (one that focuses on the executive carve-out market) was able to share family sales data; 1.9 percent of its policies were issued on other relatives, which is a little broader net than parents and grandparents. Sixty-eight (68) spouses were written for every 100 employees, which seems to be characteristic of the executive carve-out market.
Type of Home Care Coverage Table 18 summarizes sales by type of home care coverage. Historically, the WS market sold few policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, that difference faded. However, in 2018, one insurer sold 22 percent of its WS policies with a home care maximum equal to 75 percent of the facility maximum. Table 18 also shows that monthly determination dominates the NWS market, but daily determination still dominates the WS market.
Many worksite products embed a “partial cash alternative” feature (which allow claimants, in lieu of any other benefit that month, to use approximately one-third of their benefit for whatever purpose they wish, with the balance extending the benefit period) or a small informal care benefit.
Other Features Return of Premium (ROP, see Table 19) dropped from 54.7 percent of WS policies in 2015 to 12.7 percent in 2018 (different participants). In the WS, 94.2 percent of the ROP benefits were embedded automatically versus 84.2 percent in the NWS market. In the WS market, 70.5 percent of the embedded ROP sales had death benefits that expire (such as expiring at age 67) or don’t reach 100 percent. ROP with expiring death benefits can provide an inexpensive way to encourage more young people to buy coverage, but may not provide a meaningful benefit.
Table 20 shows that Shared Care and Restoration of Benefits are less frequently sold in the WS market and that all WS sales are tax-qualified.
CLOSING We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Alex Geanous 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.
The 2019 Milliman Long Term Care Insurance Survey is the 21st consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products including group insurance.
More analysis of worksite sales will appear in the August issue of Broker World magazine.
Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” policies provide LTCI combined with life insurance or annuity coverage.
Highlights from This Year’s Survey
Participants Eleven carriers participated broadly in this survey. Four others provided sales information so we could report more accurate aggregate industry individual and multi-life sales. From these submissions, we estimated total industry production.
We estimate our statistical distributions reflect up to 90 percent of total industry sales and about 65 percent of worksite sales.
State Farm discontinued stand-alone LTCI sales in May 2018, hence is no longer included in the Product Exhibit.
Although not displaying products, Northwestern LTC and State Farm provided background statistical information. Auto-Owners, LifeSecure, Transamerica and United Security Life contributed total and worksite sales (new premium and lives insured) but did not provide broad statistical information.
Sales Summary
The 15 carriers reported sales of 56,288 policies and certificates (“policies” henceforth) with new annualized premium of $171,537,644 (including exercised FPOs) in 2018, compared to 2017 restated sales of 64,800 policies ($181,506,770 of new annualized premium), a 13.1 percent drop in the number of policies and a 5.5 percent drop in the amount of new annualized premium. As noted in the Market Perspective section, sales of policies combining LTCI with other risks continue to increase.
Five of the top 10 insurers sold more new premium than in 2017, but only three sold more new policies. This difference emerges because elected FPOs add on-going premium but not new policies.
With FPO elections included in new premium, Northwestern garnered the number one spot in new sales. Mutual of Omaha was a strong second and had a large lead in annualized premium from new policies sold. Together, they combined for 57 percent of new premium including FPOs and 52 percent of new premium excluding FPOs.
For the fourth straight year (and fourth time ever), our participants’ number of inforce policies dropped, this time by 1.1 percent, after 5.1 percent (2017), 0.3 percent (2016) and 0.2 percent (2015) drops previously.
Nonetheless, year-end inforce premium per policy continues to increase (3.0 percent in 2018) to $2,169. Inforce premium increases from sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.
Participants’ individual claims rose 5.9 percent. Overall, the stand-alone LTCI industry incurred $11.0 billion in claims in 2017 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2017 to $129.9 billion. (Note: 2017 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2017 incurred claims is similar to the $11.1 billion of incurred claims reported in 2016. Combo LTC claims are in their infancy and amounted to $5.9 million. The claim figures are even more startling considering that only a small percentage of the 7 million covered individuals were on claim at the end of 2017.
The average processing time in the industry was eight percent faster in 2018 than in 2017. Nonetheless, active policies resulted from only 58.8 percent of applications, even lower than 2017’s record low of 59.0 percent. Financial advisors often are reluctant to risk a bad experience by recommending that clients apply for LTCI. As noted in the Market Perspective section, the industry may be able to improve placement rates in a variety of ways.
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 11 insurers
Partnership Programs discusses the impact of the state partnerships for LTCI.
Product Exhibit (click here for PDF) shows, for nine insurers: financial ratings, LTCI sales and inforce, and product details.
Click here to view the following additional information available only online.
Product Details, a row-by-row definition of the product exhibit entries, with a little commentary.
Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three percent or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
Premium Adjustments (from our published prices) by underwriting class for each participant.
Distribution by underwriting class for each participant.
State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
Market Perspective (more detail in subsequent parts of the article)
The stability of current prices bears no resemblance to the past instability because today’s prices reflect much more conservative assumptions based on far more credible data and low investment yields. Unfortunately, many financial advisors presume that new policies will face steep price increases. It is likely to take a long time before the market becomes comfortable that prices are stable.
Combo products have increased market share because: i) their other benefits mean that regardless of whether the policyholder has a long term care claim, they will receive benefits, ii) they often have guaranteed premiums and benefits, and iii) they now offer alternatives besides single premium.
According to LIMRA, combo life policies (LTCI combined with life insurance) represented 16 percent of new 2017 annualized life insurance premium (25 percent and $4.1 billion, if you include 100 percent of single premium sales). Fourteen percent of the 260,000 combo policies included LTCI benefits after the death benefit had been fully advanced (“extension of benefits; EOB”). Of the 86 percent in which LTCI benefits could not exceed the death benefit, nearly six in 10 (57 percent) used “chronically ill” provision that is not allowed to be called “long term care insurance”, rather than a §7702 LTCI provision.
Looking at the total LTCI market, stand-alone policies accounted for 20.0 percent of the 2017 policies sold, policies with extensions of benefits (EOB) accounted for 11.2 percent and policies with accelerated death benefits but no EOB accounted for 68.8 percent.
As anticipated in last year’s report, a new entrant offers unisex LTCI pricing for the worksite market, another carrier re-entered the worksite market and a third carrier is test-marketing a worksite product for possible release. In addition, more combo products are being proposed in the worksite market. For businesses with employees residing in multiple jurisdictions, consistent product availability can be a challenge. Worksite LTCI is more attractive to employers when packaged with solutions for employees who are caregivers for their elders.
As noted earlier, fewer than 59 percent of applications have resulted in issued policies in the past two years. The low placement rate makes financial advisors hesitant to recommend that clients consider LTCI. The industry may be able to improve placement rates in a variety of ways.
E-applications make the process faster, secure better health information (some applications may then not be submitted) and avoid long delays on apps that are “not in good order” when submitted. In our 2018 survey article, we reported that eApps were 71 percent more likely to be in good order and were less likely to be declined. It would be helpful if brokerage general agents could populate an eApp with quote information, then forward that partial eApp to the broker for completion.
Better pre-qualification of prospects’ health will guide applications to an insurer most likely to accept the applicant. As noted above, eApps help. If advisors are reluctant to discuss health issues with their clients, some general agencies interview the client on behalf of the advisor or provide a link to a website where the client can answer health questions. Data quantifying the positive impact of thorough pre-qualification would be helpful.
Higher placement rates result when cash is required with the application (CWA). This year, we asked insurers for data regarding placement (excluding worksite business) based on whether cash was required with the application. Carriers who accept applications with or without cash reported a combined placement rate of 58.1 percent with cash and 54.0 percent without cash. Insurers which reported only CWA data placed 60.4 percent of their cases. Insurers which reported only data without CWA placed 55.0 percent.
Faster processing may help. However, as noted earlier, the average processing time was 10 percent faster in 2018 than in 2017, yet the placement rate still dropped 0.2 percent. Maybe it would have dropped more without the faster processing.
Better messaging regarding the value of LTCI and about the value of buying now (rather than in the future) would improve the placement rate (as well as increase the number of applications).
Insurers may be able to educate their distribution system more effectively, such as with drill-down questions in on-line underwriting guides.
Three participants have never increased premiums on policies issued under “rate stabilization” laws. Three insurers reported that their highest cumulative increase on such policies has been about 40 percent and two had increased prices 100 percent or more. Two carriers did not indicate their maximum increase, one of which we believe was in the lower end and one in the higher end.
All the insurers allow clients to reduce the maximum daily/monthly benefit (typically not below the original minimum) with a proportionate reduction in future premium. All allow clients to move to a shorter originally-available benefit period with premiums the same as they would currently be had they purchased that benefit period originally. Eighty percent of the insurers allow clients to select a longer elimination period, with premiums the same as they would currently be had they purchased that longer elimination period initially. Some insurers may not offer this option because they do not have longer elimination periods available.
If a client drops a compound benefit increase rider, most insurers freeze the current benefit and charge the premium that the client would be paying today had the client purchased the current amount originally with no compound benefit increases. One insurer takes a more consumerist approach, freezing the benefit and reducing the current premium by the cost of the benefit increase rider. Some policyholders may face reversion to the original maximum daily or monthly benefit.
One insurer explained that the above approaches for dropping a compound benefit increase rider result in higher future premiums as a result of sacrificing future benefit increases if the maximum daily/monthly benefit has increased beyond the additional percentage cost for the compound benefit increase rider. Therefore, that insurer suggests that clients reduce the daily/monthly maximum benefit and retain compounding.
Our projected amount of issued protection on new policies increased significantly in 2018 because an insurer with negative-election FPOs (negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request) submitted FPO election rate data this year but not last year. For the average 57-year-old purchaser in 2018, we project a maximum benefit in 2041 of $313/day, equivalent to an average 3.0 percent compounded benefit increase. Had he/she purchased last year’s average policy at age 56, he/she would have had $279/day by age 80, equivalent to 2.3 percent compounding. Without the change in insurers providing FPO data, the age 80 maximum daily benefit would have dropped from $279 to $276. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
Claimants rarely challenge insurer claim adjudications. Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR). The IR determination is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. At least four participating insurers report never having a request for IR. Four other insurers have reported a total of 72 IR requests resulting in the insurers’ denials being upheld more than 90 percent of the time. This data is consistent with the experience of LTCI Independent Eligibility Review Specialists, LLC. Steve LaPierre, president of that firm, indicated that they have performed approximately 125 IRs and have upheld the insurer more than 90 percent of the time. The existence of IR, the insurers’ voluntary expansion of IR and the insurer success rate when appeals occur help justify confidence in claim decisions.
Only four participants offer coverage in all U.S. jurisdictions and no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which are slow to approve new products, restrict rate increases, or have unfavorable legislation or regulations.
Seven of our 11 participants use reinsurers and seven use third party administrators (TPAs). The reinsurers are Reinsurance Group of America, LifeCare, Manufacturers, Swiss Re and Union Fidelity. The TPAs are Long-Term Care Group, Life Plans, LifeCare Assurance, and CHCS. Other reinsurers and TPAs support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.
A significantly-changed LTCI Shopper’s Guide was recently adopted by the NAIC. We’re interested in readers’ reviews of the new Guide and comments as to how much it is used to educate consumers. (Please email comments to claude.thau@gmail.com.)
Claims
Ten participants reported 2018 claims. The consistency of the data is improving, but some companies were not able to respond to some questions or could not respond in a way that justified including their data for some questions.
For the ten insurers which reported individual claims for both 2018 and 2017, claim dollars rose 5.9 percent, despite a 1.1 percent decrease in inforce policies.
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.
LTCI claims paid by insurers no longer selling LTCI likely differ significantly from data reported below as their claimants are more likely to have facility-only coverage, be older, etc.
Table 1 shows the total dollar and number of individual LTCI claims paid by those carriers which provided information to use.
Table 2 shows the distribution of those claims by venue. In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line. Individual claims in general continue to shift away from nursing homes. We expect on-going shift away from nursing homes due to consumer preferences and more claims coming from comprehensive policies.
Six of eight carriers that submitted their number of open claims at year-end reported a pending number of claims between 57 percent and 84 percent of the number of claims paid during the year.
Table 3 shows average size individual claims since inception, all of which rose compared to 2017. Because claimants can submit claims from more than one type of venue, the average total claim generally exceeds the average claim paid for any particular venue. Nonetheless, individual ALF claims are consistently high, probably because:
a) ALF claims appear to last long compared with other venues.
b) Nursing home costs are most likely to exceed the policy daily/monthly maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.
c) People who maximize the use of their maximum monthly benefits can spend as much on an ALF as on a nursing home.
d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or more substantial care for levels of assistance that align more closely with nursing home care. And upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.
Some people may have expected ALF claims to be less expensive than nursing home claims because ALFs cost less per month. But that has not been the case. Some observers applaud insurers which have extended ALF coverage to policies which originally did not include ALF coverage, even though such action has contributed to rate increases on in force policies.
The following factors cause our average claim sizes to be understated.
Roughly 1/8 of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
People who recover, then claim again, are counted as multiple insureds rather than adding their various claims together.
The range of average claim results by insurer (see Table 3) is startling. What can contribute to such differences?
Different markets (by affluence; worksite vs. individual; by geography; etc.).
Different lengths of time in the business. A newer issuer may have a higher percentage of open claims bringing down the average.
Percentage of policies sold to women or with compound benefit increases, monthly home care determination, or 50 percent home care benefits or reduced benefits for ALFs.
Distribution by elimination period. Zero-day EP policies might result in a lot of small claims. Ironically 180-day or longer EPs could also result in relatively small claims.
Perhaps erroneous reporting. In some of our calculations we have eliminated some submitted data because it seemed very unlikely to be accurate.
Average claim data understates the value of buying LTCI because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. The primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.
Six insurers were able to provide data regarding their current monthly exposure. The average current monthly maximum nursing home benefit per inforce claimant ranged from $4,575 to $8,182.
The six insurers’ total monthly exposure (including non-claimants) exceeds $5.5 billion, more than thirty times their corresponding monthly premium income. Recognizing that claims can continue up to the full benefit period, these insurers’ potential claim exposure is about 120 times their monthly premium income.
Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.
Statistical Analysis Eleven insurers contributed significant background data, but some were unable to contribute data in some areas. Four other insurers (Auto-Owners, LifeSecure, Transamerica and United Security) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales. Sales characteristics vary significantly among insurers. Year-to-year variations in policy feature distributions may reflect changes in participants, participant practices and designs, participant or worksite market shares and industry trends.
Market Share Table 4 lists the top 10 participants in 2018 new premium, among those still offering LTCI. Because we include FPO elections, Northwestern surpassed Mutual of Omaha. Without FPOs, Mutual of Omaha would have been number one. Together, they produced 57 percent of annualized new premium in 2018 and 52 percent of annualized premium on new policies. They are followed by five insurers with four percent to 10 percent market share each.
Worksite Market Share Worksite business produced 15.0 percent of new insureds (see Table 5), but only 9.1 percent of new premium (including FPOs) because of its younger issue age distribution and less robust coverage. Worksite sales consist of three different markets:
Voluntary group coverage generally is less robust than individual coverage.
Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are least likely to insure spouses.
Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.
The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Although Table 5 reflects the full market, this year’s policy feature distributions underweight the voluntary and core/buy-up markets because carriers in those markets shared less policy feature distribution data. More information about worksite sales will appear in the August issue of Broker World magazine.
Affinity Market Share The affinity sales percentage is based on the participants who provide significant statistical data. Their reported affinity sales produced 7.8 percent of their new insureds (see Table 6), but only 6.2 percent of premium. Only about 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage.
Characteristics of Policies Sold Average Premium As noted last year, our inclusion of FPOs as new business premium overstated the average premium per new insured and buying unit (Table 7) increasingly over time. More precise queries this year allow us to quantify the impact. The average premium per new life ($2,544) is 18 percent less than we would have quoted including FPOs in the numerator. Three insurers reported average premiums for new insureds below $1,700, while five insurers were over $2,800. The average premium per new buying unit (counts a couple only once) was $3,598.
The lowest average new premium (including FPOs) was in Puerto Rico ($1,960), followed by Kansas ($2,448), while the highest was in New York ($4,243), followed by Connecticut ($3,886).
Due to rate increases, FPO elections and termination of older policies, the average inforce premium jumped to $2,168, 3.0 percent more than our restated 2017 figure.
Issue Age Table 8 summarizes the distribution of sales by issue age band based on insured count. The average issue age was 56.6. The higher average issue ages of the past two years are partly caused by not having issue age distribution for some worksite business. Furthermore, two participants have a minimum issue age of 40, one won’t issue below 30, and two won’t issue below 25.
Benefit Period Table 9 summarizes the distribution of sales by benefit period. The average notional benefit period slightly increased from 3.73 to 3.74. Because of Shared Care benefits, total coverage was higher than the 3.74 average suggests. For the first time, a single benefit period (3-year) accounted for half the sales.
Monthly Benefit Table 10 shows that monthly determination applied to 77.8 percent of 2018 policies. With monthly determination, low-expense days leave more benefits to cover high-expense days. When it is offered as an option, we conclude that more than 50 percent of buyers opt for monthly determination. Measuring election rates for optional monthly determination can be challenging due to influences such as insurers switching products during the course of a year and state variations.
Table 11 summarizes the distribution of sales by maximum monthly benefit at issue. Sales were more clustered between $4,500 and $5,999/month than in any year since 2011. The average initial maximum monthly benefit was $4,763, almost exactly the average of 2015-2017.
Benefit Increase Features Table 12 summarizes the distribution of sales by benefit increase feature. “Other compound” has grown a lot in the past two years; most involve three percent compounding.
The increase in “FPO: Indexed” and the decrease in policies having “no benefit increases” were caused by a reclassification of an insurer’s sales. The insurer guarantees to offer FPOs of indeterminate amount, but the insurer bases its decision on interest rates.
Five percent compounded for life, which represented 56 percent of sales in 2003 and more than 47.5 percent of sales each year from 2006 to 2008, now accounts for only two percent of sales. Simple five percent increases for life were 19 percent of 2003 sales but are now only 0.4 percent of sales.
“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).
We project the age 80 maximum daily benefit by increasing the average daily benefit purchased from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates, a five percent/year offer for fixed FPOs and assuming a long-term three percent CPI. The maximum benefit at age 80 (in 2041) for our 2018 average 57-year-old purchaser projects to $313/day (equivalent to 3.0 percent compounding). Had our average buyer bought an average 2017 policy a year ago at age 56, her/his age 80 benefit would be $279/day (equivalent to 2.3 percent compounding). This healthy increase in age 80 maximum benefit (from $279/day to $313/day) is attributable to the inclusion of an additional carrier in the data (see Table 14 discussion). Without that insurer, the projected age 80 maximum daily benefit would have dropped from $279 to $276. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.
Eight insurers reported new premium from FPO elections; the percentage of their new premium that came from FPOs ranged from two percent to 43 percent.
Seven insurers provided the number of available FPOs in 2018 and the number exercised. Six of those insurers provided similar data last year; overall, they had a small increase in election rate from 34.7 percent to 36.8 percent. By insurer, election rates varied from 13 percent to 91 percent. The insurers with the three lowest FPO election rates averaged a 25.8 percent election rate; they probably use a “positive election” approach. The other four insurers averaged 90.0 percent election; they probably use a “negative election” approach; i.e., the increase applies unless specifically rejected. The carrier which did not contribute such data last year caused the huge increase in election rate (Table 14); it probably uses a negative election rate.
Elimination Period Table 15 summarizes the distribution of sales by facility elimination period. Ninety percent of buyers opt for 90-day elimination periods, however, two carriers report fewer than 60 percent of their policies have 90-day EPs (one has many shorter EPs and the other has many longer EPs). The percentage of purchasers buying 180-day or longer EPs hit a record (6.7 percent vs. 6.1 percent in 2012).
Table 16 shows that the percentage of policies with zero-day home care elimination period (but a longer facility elimination period), with adjustments for two carriers which reported only sales, but we know has either type of provision. With most insurers, fewer than 25 percent of buyers purchased a zero-day home care elimination period, but one insurer had nearly a 50 percent election rate.
The percentage of policies with a calendar-day elimination period (EP) definition (33.7 percent) also dropped back toward 2017 levels. For insurers which offer calendar-day EP, 79.4 percent of policies had the feature; in some cases, it was automatic. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.
Sales to Couples and Gender Distribution Table 17 summarizes the distribution of sales by gender and single/couple status.
The percentage of purchasers who consisted of couples who both buy (55.5 percent) and the percentage of all buyers who were female (67.7 percent) were the lowest percentages since at least 2010.
The 77.8 percent of accepted applicants who purchased coverage when their partners were declined was the highest over that time period. Three factors contributed approximately equally to the increase: General improvement; change of practice to allow a lower marital discount instead of no discount when one spouse is declined; and a change in participants reporting this data.
Fifty-five percent (55.1 percent) of all buyers were female, the lowest percentage since 2012. Insurers’ sales ranged from 47.2 percent female to 61.4 percent female, varying based on market (older age; fraternal, worksite vs. individual) and whether unisex rates were offered. Likewise, insurers ranged from 54.4 percent of single buyers being female to 79.8 percent.
Among couples, 51.0 percent are females, with insurers ranging from 47.9 percent (no other insurer showed less than 49.9 percent) to 52.1 percent. When only one of a couple buys, 56.4 percent are females, probably because the male partner is likely to be older and less likely to be insurable.
Shared Care and Other Couples’ Features Table 18 summarizes sales of Shared Care and other couples’ features.
Shared care—allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
Survivorship—waives a survivor’s premium after the first death if specified conditions are met.
Joint waiver of premium (WP)—both insureds’ premiums are waived if either qualifies for benefits.
Changes in distribution by carrier can greatly impact year-to-year comparisons in Table 18, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature. These percentages are lower than in the past, because one carrier reported the number of sales to couples last year, but not this year.
In the top half of Table 18, the percentages are based on the number of policies sold to couples who both buy. The bottom half of Table 18 shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. Two insurers sold Joint WP to 56 to 60 percent of their couples and Survivorship to 10 to 12 percent of their couples.
Table 19 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 19, three-year and four-year benefit period policies are most likely (nearly 30 percent) to add Shared Care. Partly because three-year benefit periods comprise 50 percent of sales, most policies with Shared Care are three-year benefit period policies (61.1 percent, as shown on the left side of Table 20).
Above, we stated that Shared Care is selected by 33.4 percent of couples who both buy limited benefit period policies. However, Table 19 shows Shared Care comprised no more than 29.8 percent of any benefit period (it was elected by 25.4 percent of purchasers overall). Table 19 has lower percentages because Table 18 denominators are limited to people who buy with their spouse/partner whereas Table 19 denominators include all buyers. Shared care is more concentrated in two- to four-year benefits periods (89.4 percent of shared sales) than are all sales (72.6 percent). Couples seem more likely to buy short benefit periods, perhaps because couples plan to help provide care to each other, because Shared Care makes shorter benefit periods more acceptable and because single buyers are more likely to be female, hence opt for a longer benefit period. On the other hand, we also see a relatively high percentage of Shared Care on longer benefit periods; these people are probably trying to cover catastrophic risk and might prefer an endless benefit period. Some insurers were more likely to sell Shared Care on their short benefit-period policies, while others were more likely to sell Shared Care on their long benefit-period policies.
Existence and Type of Home Care Coverage One participant reported home-care-only policies, which accounted for 0.7 percent of industry sales. Four participants reported sales of facility-only policies, which accounted for 0.9 percent of total sales. Ninety-five percent (95.1 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. These percentages are all lower than in 2017.
Partial cash alternative (and similar) 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 41.3 percent of sales (lower than last year’s 44.1 percent).
Other Characteristics As shown in Table 20, return of premium (ROP) features were included in 12.7 percent of all policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 79 percent of policies with ROP arise from ROP features embedded automatically in the product, compared to 93 percent in 2016. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.
Twelve percent (12.4 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured does not need services for at least six months. Approximately 87 percent of policies with ROB arose from ROB features automatically embedded, compared with 79 percent in 2016.
Shortened benefit period (SBP) nonforfeiture option was included in 1.8 percent of policies. Although every insurer is obligated to offer SBP, some carriers did not report any SBP sales. It seems appropriate to remove their sales from the denominator when determining the percentage of purchasers who selected SBP. On that basis, the percentage was 2.9 percent. Only one insurer reported a percentage above six percent (13.3 percent). SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.
Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.
“Captive” (dedicated to one insurer) agents produced 55.8 percent of the policies. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies. The 1.5 percent “other” sales did not involve a broker or agent.
Sales distribution by jurisdiction is posted on the Broker World website.
Limited Pay and Paid-Up Policies In 2018, only two insurers sold policies that become paid-up, accounting for fewer than 0.5 percent of sales.
Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the tenth year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.
Partnership Program Explanations 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 Partnership-qualified policy. Partnership sales were reported in 44 jurisdictions in 2018, all but Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).
The Partnership rules in California, Connecticut, Indiana and New York (“original” Partnership states) are significantly different than in other Partnership jurisdictions (“DRA” jurisdictions). The “original” states legislated variations of the Robert Woods Johnson Partnership proposal, whereas the “DRA” jurisdictions use more consistent rules based on the Deficit Reduction Act of 2005. For example, the “original” states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and assess a fee for insurers to participate (none of which applies in DRA states). As a result, only two to four insurers sell Partnership policies in CA (2), CT (3), IN (4) and NY (2).
National Reciprocity Compact (NRC) requires member states to recognize Medicaid Asset Disregard earned in any other member state. States creating Partnerships under the Deficit Reduction Act of 2005 were automatically enrolled in the NRC but had the right to secede. The four original Partnership states (California, Connecticut, Indiana and New York) had the right to opt in. California is now the only jurisdiction with a Partnership program that is not a member of the NRC. However, New Hampshire (NH) created a unique regulation in 2018, limiting asset disregard related to policies sold in other jurisdictions to coverage issued on or after April 1, 2007, and only if the policy form was approved by the NH Insurance Department. We’ve asked NH about this regulation in 2018 and 2019, but have not received an explanation yet, so we’ll venture some thoughts below.
NH natives did not have an opportunity to purchase a Partnership policy until April 1, 2007. NH’s April 1, 2007, deviation from NRC standards seems intended to avoid extending asset disregard to an insured who moved in from another state if a NH resident who purchased on the same date can’t benefit from asset disregard.
The requirement that the policy form need have been approved by the NH Insurance Department is puzzling. Why should a NH citizen be harmed because they bought a policy as a resident of another jurisdiction? The impact may be limited because NH has been a member of the Interstate Insurance Product Regulation Commission since June 1, 2007. The IIPRC (“Compact”) approves LTCI policy forms for about 40 states. Policyholders with IIPRC-approved Partnership coverage issued since April 1, 2007, might still qualify for asset disregard if they move to NH.
It seems unlikely that individuals considering relocating to NH and their financial advisors will understand the potential Partnership ramifications. In the unlikely event that they are aware of NH’s unique law, it seems unlikely that they would know whether their policy form was approved by NH.
Partnership Program Sales Insurers sometimes delay certifying policy forms as “Partnership” because of other priorities (e.g., needing time to comply with state-specific requirements to notify existing policyholders or offer an exchange). Such delay is not harmful, as certification is retroactive to policies already issued on that policy form if the policies have the required characteristics. For this reason and the “original” Partnership issues mentioned above, none of our participants sold Partnership policies in more than 40 jurisdictions in 2018. Five sold Partnership in 35-40 jurisdictions, three sold Partnership in 26-32 jurisdictions, one sold Partnership in eight jurisdictions, one in one jurisdiction (it sells in only one jurisdiction) and the other has never certified Partnership conformance and apparently does not intend to do so.
In the DRA states, 52.5 percent of policies qualified for Partnership status, whereas in the original states only 1.0 percent qualified. In Minnesota, more than 82 percent of the policies sold qualified as Partnership and Wisconsin and Wyoming both had 75 percent of their policies qualify.
Generally speaking, experts have expected Partnership policies to have higher average premiums because of the benefit increase requirements for Partnership policies. Only 26 of the 44 Partnership states demonstrated that pattern, with the other 18 having higher average premiums on non-Partnership policies.
In past survey articles, we noted that Partnership programs could be more successful if states broadened the eligibility requirements. Now, approximately 60 percent of Partnership states allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies should qualify for Partnership in the future if insurers and advisors leverage these opportunities. Currently only three insurers offer one percent compounding.
Partnership programs could be more successful if:
Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class citizens would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work where a Partnership initial maximum monthly benefit must be at least $8608 (CT) and $9114 (NY). When policies reflecting CA SB 1248 become available in California, California’s minimum size policy will drop to $3000/month.)
Middle-class clients were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
The four original Partnership steps migrate to DRA rules.
More jurisdictions adopt Partnership programs.
Programs that privately finance educational LTCI direct mail from public agencies were adopted more broadly.
Financial advisors were to press reluctant insurers to certify their products.
More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
More insurers offer one percent compounding.
Combo products became Partnership-qualified.
Underwriting Data Case Disposition Ten insurers contributed application case disposition data to Table 21. In 2018, 58.8 percent of applications were placed, including those that were modified, a new low slightly below 2017’s previous record low of 59.0 percent.
One insurer reported a 77.1 percent placement rate; the second highest being 56.0 percent. The lowest placement rate was 34.0 percent. Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates can discourage advisors from discussing LTCI with clients. In addition to wasting time and effort encouraging clients to apply for LTCI, advisors fear disappointment for clients who are rejected.
Although the placement rate dipped slightly, the decline rate also dipped slightly to 25.1 percent of applications (28.2 percent of insurer decisions). Unfortunately, both the suspended/withdrawn and the Free Look refusals/not takens increased. The decline rate by carrier varied from 12.0 percent to 39.3 percent, affected by factors such as age distribution, market, underwriting requirements, underwriting standards.
Perhaps the best way to improve placement rates is to do a better job of pre-qualifying clients’ health profiles prior to submitting applications. General agencies and insurers are promoting approaches which make it easier for advisors to get detailed health information or have a third party ask health questions. For example, eApps should develop better health information and result in speedier processing which may help placement rates.
Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secure coverage because applicants denied by one carrier may be issued either stand-alone or combination coverage by another carrier or may receive coverage with the same insurer after a deferral period.
Underwriting Tools Nine insurers contributed data to Table 22, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 86 percent of the number of applications. That does not mean that 86 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.
Insurers are trying to speed underwriting to increase placement rates. Thus, phone interviews without cognitive screening, prescription profiles and MIB have increased significantly compared to levels of several years ago.
Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic.
*MIB Underwriting Services alert underwriters to errors, omissions, misrepresentations and fraud on applications for life, health, disability income, long term care and critical illness coverage. MIB, Inc. provides its Underwriting Services exclusively to authorized individuals in MIB Group, Inc. member companies.
Underwriting Time Table 23 shows that the average time from receipt of application to mailing the policy was the lowest since 2012. The improvement came at both ends of the spectrum, a much higher percentage processed within 29 days and many fewer taking 60 or more days. One insurer averaged only 29 days and four others average about 5 weeks or less. Three insurers averaged 51 to 59 days.
Rating Classification In 2017, a higher percentage of policies was issued in the most favorable rating classification (and in the top two most favorable rating classifications) than in any year since 2012. Table 24 shows 2018 showed similar results, with 48.3 percent in the most favorable classification and 89.5 percent of the policies in the two most favorable classifications. The “most-favorable” results in the past two years benefited from lack of reporting of rating classification distribution from insurers which do not offer preferred health discounts in the worksite and because one insurer eliminated its preferred health discount (hence “standard” ratings were its “best”). However, the reduction in the third-best and less attractive categories were not influenced by fewer worksite business participants being included in this part of the survey.
Table 25 shows that the percentage of policies issued in the most favorable category increased for each age range in 2018 and Table 26 shows that the decline rate went up in each age range except for ages 70+. Perhaps insurers are declining cases that previously might have been placed in the third-best or less attractive rating classifications. Tables 25 and 26 exclude most (perhaps all) policies underwritten with health concessions.
The by-age decline rates are a little high compared to the overall decline rate reported above. That’s because a significant carrier with a low decline rate was unable to provide their data by age.
Click here to view the following additional information available only online.
Product Details, a row-by-row definition of the product exhibit entries, with a little commentary.
Premium Exhibit, which shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent monthly) benefit, 90-day facility and default home care elimination period (other aspects vary), three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three percent and five percent annual compound benefit increases for life. The exhibit includes facility-only policies, as well as comprehensive policies. Worksite products do not reflect any worksite-specific discount.
Premium Adjustments (from our published prices) by underwriting class for each participant.
Distribution by underwriting class for each participant.
State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.
Closing We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Alex Geanous of Milliman for managing the data expertly.
We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.
The 2018 Milliman Long Term Care Insurance Survey, published in the July issue of Broker World magazine, was the 20th consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzed individual product sales and Genworth group sales, reporting sales distributions and detailed insurer and product characteristics.
From 2006-2009, Broker World magazine published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank. In 2011, Broker World magazine began annual analysis of worksite sales of individual products in August to complement the July overall market analysis.
The worksite market (WS) consists of individual policies and group certificates (“policies” henceforth) sold with discounts and/or underwriting concessions to groups of people based on common employment. In this eighth annual worksite report, we include group certificates for the first time.
About the Survey As noted above, the survey intends to include group LTCI certificates henceforth. Currently, Genworth is the only insurer accepting new cases on group policies. Genworth’s group sales are included here, but new certificates on other insurers’ inforce group cases are not included (only one other insurer is issuing new certificates on inforce group cases; excluding those sales does not change our results meaningfully).
Genworth was the only company displaying a worksite product in the July issue. Transamerica and LifeSecure, which ranked #1 and #2 in worksite sales in 2017, provided their total and worksite sales, but no statistical background data. Hence their products were not displayed in the July issue.
MassMutual provided sales and a statistical distribution for worksite business. Mutual of Omaha did not provide worksite sales information.
Besides Genworth and MassMutual, New York Life and Northwestern provided worksite statistical background data this year.
The July issue also included the California Public Employees Retirement System (CalPERS) program. CalPERS eligibility is based on California public employment, but the program operates more like an affinity group than a worksite group so it was counted as affinity sales in July and is not included as a worksite product in this article.
In this August article we compare WS sales to individual LTCI policies that are not worksite policies (NWS) and to total sales (Total).
We limited our analysis to U.S. sales and we excluded future purchase options and “combo” products unless specifically indicated. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
Some business owners buy individual policies and pay for them through their businesses. Some participating insurers 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 included in our total industry analysis but are not identified herein as worksite sales.
Highlights from This Year’s Survey
In 2017, participants reported sales of 15,415 worksite policies for $25.3 million of new annualized premium.
Because we added Genworth group sales this year, we also added Genworth group sales to last year’s sales. Thus 2017 saw a decrease of 26 percent in WS policies sold and a decrease of 17 percent in new annualized WS premium compared to restated 2016 results.
The worksite market and total market had nearly identical percentage decreases in the number of policies, but the worksite market had a lower drop in new annualized premium.
Market Perspective The worksite market is comprised of three different types of programs (which may apply to different employee classes in a single case):
In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees; the employees can buy more coverage. “Core” programs generally have lower average ages, short benefit periods, low daily maximum benefits and few spouses insured.
In “carve-out” programs, employers pay for substantial coverage for generally a small number of executives and usually their spouses; usually the insureds can buy more coverage. Carve-out programs cover more married people and more spouses, have higher age distributions, and provide much more robust coverage than “core” programs.
In “voluntary” programs, employers pay nothing toward the cost of coverage. Coverage is much more robust than “core” programs, but less robust than carve-out programs. They tend to be most weighted toward female purchasers.
MassMutual, New York Life and Northwestern write mostly executive carve-out programs, whereas Genworth, Transamerica and LifeSecure business includes a lot of voluntary and core buy-up business as well. With Transamerica and LifeSecure not reflected in the statistical distributions and Genworth’s group business added in, some 2017 worksite distributions look quite different than in 2016.
Prior to gender-distinct NWS pricing, insurers offered a five percent or 10 percent worksite discount for a product that was already designed, state-approved and had illustrative and administrative support. At that time, WS sales were more heavily weighted toward males than NWS sales. More males than females were eligible for executive carve-out programs and single males were probably more likely to buy LTCI when LTCI was presented to them with their employer’s endorsement than left to their own inclinations. Broker World’s first analysis of the WS market, in 2011, found that 43 percent of NWS sales insured males but 52 percent of WS sales insured males.
Most insurers interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI 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. As a result, insurers must have a separate unisex-priced product in order to sell in the WS market.
The added expense involved in separate pricing and administration for WS sales discouraged insurers from serving both the WS and NWS markets. With the increase in LTCI prices this century, participation rates in (especially, voluntary) LTCI programs has ebbed, making insurers less confident that they would be rewarded for the effort of establishing a WS product.
Because healthy, young, less affluent people are less likely to be willing and able to bear today’s higher cost of LTCI, insurers and enrollers are now more concerned about income levels and age distribution of potential WS clients.
While females get a good deal in a WS program compared to NWS pricing, males pay more in the WS. Hence, insurers fear that single male employees might buy the NWS product while single females buy the WS product, hurting WS profitability. Indeed, from 2011 to 2016, the percentage of females among WS insureds rose from 48 percent to 58 percent while the NWS percentage of sales to females dropped from 57 percent to 55 percent. In 2017 the trend continued but, as explained later, the data is not comparable.
As a result, WS pricing has become closer to gender-distinct female pricing. Heterogeneous couples might pay more for a WS policy than a corresponding NWS policy if the male spouse is older and one or both spouses would qualify for a “preferred health” discount in the NWS market. In the carve-out market, tax advantages can enable a more costly LTCI product to still produce savings on an after-tax basis.
Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and reduce exposure to extremely long claims. Such age restrictions can discourage carve-out programs with young executives or spouses.
To control risks and/or reduce premiums, some insurers have shied away from very small cases and/or have reduced the health concessions offered in the WS market. There is no “guaranteed issue” stand-alone LTCI coverage in the WS market anymore; however, some combo products offer some guaranteed issue. In general, the industry is more careful about the gender, age and income distributions of the WS cases it accepts.
Not surprisingly, the number of insurers in the WS market decreased not only because some insurers stopped selling stand-alone LTCI altogether but also because others stopped selling in the WS market. However, in 2018, at least 3 insurers are rolling out new worksite products.
With increased remote work, more employers have employees stretched across multiple jurisdictions. But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. Thus, occasionally it is difficult to find an insurer offering WS LTCI in all jurisdictions where employees live.
With products available in fewer jurisdictions, it is less likely that non-household relatives are able to get coverage in WS programs. More significantly, to reduce underwriting effort and protect the product’s gender distribution, some insurers are tightening up on the availability of WS LTCI to non-household relatives. Reduced availability for such relatives does not have much impact on sales, because few non-household relatives are insured in the WS market. However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.
In the past, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company. It is harder now to find a carrier that will offer unisex pricing under such circumstances. Thus, it is harder for some executives to benefit from the tax advantages of employer-paid coverage.
The uncertainty and heavy workload surrounding acute medical insurance continues to make it hard for employee benefit brokers and their clients to consider WS LTCI. In addition, some employee benefit brokers are reluctant to embrace LTCI because of certification requirements, their personal lack of expertise, and other perceived complications or risks in the LTCI market. Increased WS sales are likely to depend upon LTCI specialists forming relationships with employee benefit brokers.
The new tax law (Tax Cuts and Jobs Act of 2017) reduces the tax savings for C-Corporations buying LTCI for their employees and employees’ life partners. Pass-through entities may be the more attractive market now. Although the eligible premium is capped in a pass-through entity, a much higher marginal tax rate might apply.
Voluntary worksite LTCI sales, which lack the tax advantages of employer-paid coverage, may, like the NWS market, gravitate toward combo products which have the added advantage of providing valuable life insurance that is viewed, by young employees with families for instance, as a more immediate potential need.
The worksite is a great venue to reach the middle class who can benefit substantially from LTCI and the state Partnership programs (described in the Partnership section below). Unfortunately, only 27 percent of WS sales in 2017 had characteristics that would qualify for Partnership programs.
Regulators have “stepped up,” as more than 20 jurisdictions now embrace policies in their state Partnership programs even if maximum benefits compound by only one percent. There is a great opportunity for insurers to add a one percent compounding option to make their product more attractive for core and voluntary WS programs.
With increased awareness of long term care exposure coupled with attractive tax breaks for employer-paid coverage and Partnership and combo opportunities in the core and voluntary market, there appear to be significant growth opportunities in WS LTCI.
Statistical Analysis In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the submarket they serve (core, voluntary or carve-out). Therefore, our results may vary significantly from year to year due to a change in participating insurers, in distribution within an insurer or in market share among insurers.
Sales and Market Share Table 1 shows historical WS sales levels and Table 2 shows WS sales as a percentage of total sales. In each case, the restated 2016 numbers and the 2017 numbers include Genworth group business, but the earlier figures do not. As noted earlier, CalPERS sales are not considered to be worksite sales.
Although the WS market has lost carriers due to the move to gender-distinct pricing on the street, as well as due to insurers discontinuing LTCI sales entirely, the WS market has had more stable sales than the total market. The NWS market has been more affected by the growing popularity and flexibility of combo products. Secondly, the increase in unit premiums is less detrimental to the extent that premiums are pre-tax. Thirdly, WS programs generate new sales from existing programs. Therefore, Table 1 shows that the WS market share has generally been trending upward.
As shown in Table 3, the six top worksite carriers were the same in 2017 as in 2016 and WS market share among carriers is distributed very differently from the NWS market. One carrier now sells 100 percent of its LTCI business through the worksite. Two other insurers sell about 40 percent of their business through the worksite.
Issue Age In recent years, we had been reporting an increasingly similar issue age distribution for WS and NWS sales. Table 4 shows that our 2017 WS data veered much more to younger age buyers. We believe that the change in participants produced a higher percentage of core programs in our data. The difference in average age increased from 5.3 years to 9.5 years (see Table 5).
Rating Classification The percentage of sales in the “best” underwriting class for WS business increased in 2017. Core and voluntary programs generally do not offer a “preferred health” discount. Carve-out programs may offer a “preferred” discount. Besides the differences caused by a shift between types of programs, many insurers in the past would offer their NWS product in the WS, but without the preferred rate discount. As that product technically had a preferred class, participants reported those WS sales as being in the second-best underwriting class. The major players last year reported negligible sales in their best class. This year’s distribution changed because a major carrier issued all of its WS in one class, which naturally it called its “best” class. Had we moved those sales to the second-best underwriting class (on the theory that a preferred rate discount was not available), only 16.8 percent of WS sales would have been in the most favorable rating classification.
Benefit Period Table 7 demonstrates a sharp reversal from 2016. Three times from 2013 through 2016, the average WS benefit period (BP) was longer than the average NWS BP. In 2017, that relationship reversed dramatically (3.11 in WS vs. 3.80 in NWS). The large increase in two-year benefit period WS sales justifies our belief that our data this year is more influenced by core programs. Table 8 shows historical variation in our reported average WS benefit period.
Maximum Monthly Benefit Table 9 shows that the average initial monthly maximum benefit dropped by $138 in the NWS market from 2016 to 2017, but $264 in the WS, because of the large increase in WS benefits of less than $100 per day. We attribute the change to the increase in core benefits. Table 10 shows how our reported WS initial monthly maximum has varied over time.
Benefit Increase Features As shown in Table 11, the WS market has a lot more future purchase options (FPO; 69.1 percent vs 22.5 percent in the NWS market) because of its core programs. Correspondingly, only 18.3 percent of WS policies had automatic increases, compared with 51.1 percent of NWS policies.
However, WS also has more level premium five percent compounding (2.2 percent vs. 1.4 percent) because of its executive carve-out programs. The carve-out impact is further highlighted by noting that 12.8 percent of WS buyers with level premium compound increases select five percent compounding, whereas in the NWS market, only 2.9 percent of such buyers select five percent compounding.
The WS market has a higher percentage of the richest benefit increases and also a higher percentage of the skimpiest benefit increases, underscoring the varied nature of different segments of the WS market and why distributions in the WS market can change dramatically depending on the percentage of core vs. voluntary vs. carve-out business in the data.
Future Protection Based on a $22/hour cost for non-professional personal care at home ($22 is the median cost according to Genworth’s 2017 study—https://www.genworth.com/aging-and-you/finances/cost-of-care.html), the average WS initial maximum daily benefit of $134 would cover 6.1 hours of care per day at issue, whereas the typical NWS initial daily maximum of $160 would cover 7.3 hours of care per day.
To determine coverage at age 80, we project, based on the distribution of benefit increase provisions, the above $134 and $160 maximums from the average issue age (48 for WS and 58 for NWS) to age 80, using the methodology reported in the July article. The WS projected age 80 daily benefit is $299, whereas the NWS projected benefit is only $264. The WS projected benefit came out higher because it had 10 more years of compounding to age 80 (as the average WS buyer was 10 years younger) and because a large percentage of the WS had fixed FPOs which we presumed were exercised 34.7 percent of the time with five percent compounding, while the NWS had a large percentage of policies with no benefit increase feature. The average compound increase was 2.5 percent for WS and 2.3 percent for NWS. (Note: the overall projected age 80 value in the July survey was understated by $6.)
As shown in Table 12, we project the cost of care at age 80 using various inflation rates (two percent to six percent) to determine how many hours of home care would be covered at age 80. The average WS policy covers, at issue, 6.1 hours of daily nonprofessional home care. If inflation is only two percent, 7.2 hours of daily care could be covered at age 80. However, if inflation exceeds 2.5 percent the average WS purchasing power decreases over time. If home care costs inflate at six percent, the average WS policy would cover only 2.1 hours of non-professional home care per day; many policies would provide fewer hours. Despite having a lower age 80 daily benefit, the average NWS policy would provide between 0.5 and 1.2 more hours per day of non-professional home care at age 80 if the home care inflation rate is between two percent and six percent, because age 80 occurs 10 years earlier for the ten-years-older at issue NWS buyer, hence home care costs have not inflated to the level they will reach when the younger WS buyer reaches age 80.
It is important to remember:
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.
Buyers should consider purchasing power at age 80 because long term care is most likely to be needed around age 80 or later.
Table 12 does not reflect the cost of professional home care or a facility. According to the 2017 Genworth study, the average nursing home private room cost is $267/day, which is comparable to 12.1 hours of nonprofessional home care. If the relative cost of home care vs. a private room in a nursing home remain the same as today, a policy that would cover 3.6 hours of home care (see Table 12, assuming four percent inflation in LTC costs and the average WS age 80 coverage) would cover about 30 percent of the costs of a private room in a nursing home.
Table 12 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the facility benefit.
Partnership Programs and Qualification Rates When someone applies to Medicaid for long term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Partnership sales were reported in 44 jurisdictions in 2017, all but Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).
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. As noted above, many states now confer Partnership status with compounding as low as one percent, but few insurers offer one percent compounding yet.
Table 13 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) and particularly if one percent compounding qualifies, the percentage of Partnership policies would exceed the percentages shown in Table 13, because Partnership programs could cause the distribution of sales to change, particularly 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 to a new low of 17.4 percent in 2017. Historical data is shown in Table 14. 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 98.4 percent of 2017 WS sales had a 90-day EP, as shown in Table 15.
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 much less common in WS sales in 2017 than in 2016, but the percentage of WS policies with calendar-day EP definitions varied little.
Sales to Couples and Gender Distribution Since 2015, our data has shown a higher percentage of sales to females in the WS market than the NWS market. Tables 16 and 17 show that the gap widened substantially for our data in 2017, because of changes in participants.
For insurers selling mostly executive carve-out programs, the percentage of females averaged 54.5 percent, which is almost exactly the same as the NWS market (54.4 percent), but the core and voluntary programs were heavily female.
Twenty-one percent of the insured females were single in the NWS market (20.8 percent) as well as for WS insurers selling primarily carve-out programs (20.7 percent).
Reflecting insurers’ fears, more than three-quarters of single WS buyers were female. However, the overall female distribution is a lot lower due to couples.
Other marital data was not meaningful (“NM”) because some insurers can’t identify if a buyer has a spouse or not.
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.
Table 17 shows the impact of gender-distinct NWS pricing and unisex WS pricing.
Type of Home Care Coverage Table 18 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.
A change in participants drastically reduced the percentage of WS policies that include monthly determinations in 2017. In the NWS market, the percentage increased.
Other Features Return of Premium (ROP) dropped from 54.7 percent of WS policies in 2015 to 37.2 percent in 2016 to 14.8 percent in 2017 (different participants). In the WS, 86.4 percent of the ROP benefits were embedded automatically, down from 94.3 percent in 2016. In the WS market, 80 percent of the embedded ROP sales had death benefits that expire (such as expiring at age 67). ROP with expiring death benefits can provide an inexpensive way to encourage more young people to buy coverage.
Limited Pay Table 19 shows that no limited pay policies were reported in the WS market in 2017. One insurer started selling them but did not report sales of limited pay.
Closing We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Alex Geanous 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.
