Claude Thau is president of Thau Inc., and works to help build a sound long term care insurance industry. Thau wholesales long term care-related products for brokers nationwide as Marketing Manager at BackNine Insurance. In addition to his duties at BackNine, Thau consults for insurers, consulting firms, regulators, etc., creates unique software to help advisors educate clients, and does LTCI and long term care pro bono work, as LTCI’s value relies on quality long term care being available.
He also sells a little LTCI himself, as current sales experience is important to be a good wholesaler and consultant.
Thau’s LTCI experience is unusually broad and deep. After a career as an actuary, he led a major insurer’s LTCI division, which then grew five times as fast as the rest of the LTCI industry for each of three consecutive years. Since setting up Thau, Inc. in 2000, he has consulted for the Federal government’s LTCI program, chaired the Center for Long-Term Care Financing, and, since 2005, led the Milliman LTCI Survey, published annually in the July and August issues of Broker World.
A former inner-city public school teacher, Thau enjoys mentoring brokers individually to help them grow their business.
Thau can be reached by telephone at 913-707-8863. Email: claude.thau@gmail.com.
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
Trapped at home, trying to remember what day it is, finishing the “must-do’s” for work and for the family, has prompted many people to become short-term focused. There is going to be life after the pandemic, and we all need to be thinking in terms of the long term, and what retirement can look like if we are proactive now and in the immediate future. It is our responsibility to provide alternatives and solutions to our clients as they come out of their individual bunkers blinking in the light of day as they attempt to adjust to the post-pandemic world’s New Normal.
Risk of Recession or Depression More than ever in our lives, we fear an extended recession or major depression because of COVID-19.
The reality is that many restaurants will not re-open; some had marginal profitability even before COVID-19, and the strain of takeout and curbside delivery, with reduced sales in a dining room, will doom many of these veritable institutions not to re-open.
Retail stores with inventory already faced tough competition from the internet; now an ever increasing number of buyers have bought more things over the internet, and previously-valued face-to-face interaction is less cherished.
Movie theaters are endangered, as people become more aware of the dangers, as well as the inconveniences, of leaving home compared to the relative ease and convenience of “streaming.”
With employers and employees having adapted to remote work, Gartner determined that 25 percent of employers expect 20 percent of their employees to work remotely while another 50 percent expect five percent more of their employees to work remotely,* impacting the transportation and its supporting industries and the clothing and dry-cleaning industries, as well as restaurants and food trucks, etc.
Commercial real estate will suffer from business closures and remote employment.
Commercial and residential construction will be depressed.
While more virtual meetings could benefit productivity and generate savings for employers, this will greatly and adversely impact the travel and convention industry.
The overall demand for energy will reduce.
Unemployment in any sector can lead to unemployment in other sectors. Suppliers and vendors will be impacted. For example, reduced advertising will hurt PR agencies, newspapers, broadcast media, printers, the post office, etc.
State and local government revenues will decrease leading to layoffs and reduced services.
Mortgage delinquencies threaten residential real estate, banks, and other lenders.
The insurance industry, which has been reeling from low investment yields for years, will continue to suffer from poor returns and some lines of business will have increased claims prompting carriers to implement changes in available coverages.
While facing more demand for services, donation-dependent non-profits will receive less funding because donors’ incomes and assets will be depressed.
International trade is likely to reduce.
Colleges may be harmed if the value of a diploma is depreciated by poor job prospects, applicants cannot afford attending or people choose not to be on college campuses (the last item seems to be only a short-term threat, though some colleges and universities have already announced no on-campus classes for the Fall 2020 term).
Artists will face reduced demand.
Childcare businesses may be harmed by unemployment and more people working from home, or simply from the fear of exposing their children.
Pollution and other environmental challenges might ease because of some of the above factors, as it has in China, Europe, and parts of California, but people’s fiscal and physical health will most likely deteriorate.
Reduced Profitability Many people do not understand that a small drop in business can plunge an otherwise-healthy business into a loss position and downward spiral. Most businesses, even those which do not suffer reduced revenues, will experience increased expenses and risk.
Equipping employees and possibly customers with protective equipment involves both capital and on-going expenses. Social distancing, ventilation changes, and other necessary business practice changes require re-modeling and reduce the number of clients who can be served. Testing increases operational costs. These factors can also reduce efficiency in serving clients.
Crime rates generally increase when the economy suffers, leading to losses as well as increased security costs.
As a result of these environmental and cultural issues, insurance costs are likely to rise.
Litigation has been an increasing threat in our society and COVID-19 risks elevating litigation risk to an even higher level.
Tax rates are likely to rise as governments try to keep operating at the same level despite reduced taxable income and as the Federal government tries to post-fund its unprecedented legislative responses to the pandemic.
Investment Options Investment options look bleak. Many of us fear further stock market sell-offs amid a long road to recovery. Of course, we can all identify some industries/businesses which will thrive in the post-COVID-19 economy, but the price of such stocks may be driven up too quickly and to unprecedented levels.
Converting to bonds is scary. With the government printing unprecedented amounts of money, inflation is a threat. Coupled with current low interest rates, the risk of capital losses on current bond purchases seems huge.
Commercial and residential real estate and mortgages could remain safe forms of investments. Taking a look at a Charleston, SC house for sale indicates the market remains resilient. And those businesses that are yet to invest in commercial or industrial real estate, ought to carry detailed research before investing. That is, financing, understanding the business goals, and more importantly, finding the right property. Fortunately, resources like https://patmcbride.com/industrial-property-buyers-guide/ and similar real estate guides can help them plan better.
Commodities also seem riskier.
As in other post-Black Swan periods, many people will value stodgy reliable investments.
Financial advisors are likely to be very busy consulting with clients about allocation and security of assets as well as recent losses. Clients are also more concerned about outliving their own (reduced) assets and the time and money their elders’ potentially debilitating need for long term care could demand.
Financial Services’ Client Mentality Whether or not their income suffers, most clients have experienced a reduction in the value of their assets and estate. Even those who believe the market will bounce back fear volatility and that the recovery period might outlast their available time frame. That is, they may not have enough years left in their lives to experience the next boom. This might seem to be pessimistic thinking, but pessimism will dominate many people’s investment choices and strategies in the next three to five years.
The proverbial two-edged sword is that not only are their assets and estate lowered, but perceived future risk has increased. People feel a stronger need to protect their children and grandchildren as well as their own lifestyle and ancillary retirement.
Clients may feel both more physically and financially vulnerable than at any other time in history. The fear or mere risk of a sudden disease taking its toll, may prompt many to take preventive or protective measures to deal with such a situation if it were to arise.
People who intended to rely upon their family as caregivers may now question whether they can really count on their family for support. They may recognize that their spouse may not be alive or might not be capable of being a caregiver. They may anticipate that their children might be so stressed trying to protect the child’s spouse and offspring that they may be unable to provide care. Having seen their children trying to balance working from home with home-schooling, etc., they may realize more strongly that they do not want to rely on their family members even if they could do so.
Some people who were convinced that the government would take care of their long term care needs may become less confident because of the COVID-19-related government debt. People with income and assets are now more likely to understand that they will continue to be ineligible for government programs funding long term care costs. Furthermore, government long term care financing has gone almost exclusively to nursing homes, which are a much less attractive caregiving venue post-COVID-19 given the horrific loss of life in these facilities due to the lack of available social distancing, the physical plant, as well as air recirculation in the facility.
If we are to look for silver linings to the otherwise very dark cloud known as COVID-19, then it must be that for an ever growing number of people they are treating it as a wake-up call or fire drill, and are proactively pursuing remedies that will protect depleted portfolios and retirement accounts while taking stock of how the pandemic impacted their families. How many children were available to be of assistance to their parents while at the same time attempting to meet the needs of their own (remote) employment, the home schooling and care of children, as well as the demands of life in general?
In good times many people do not prepare adequately for the unexpected. Like the COVID-19 crisis, the development of a need for long term care suddenly changes the world radically (albeit, unlike COVID-19, only one family at a time). Crisis management, time demands, and financial pressures (increased expenses, loss of income, and potentially untimely liquidation of assets or penalty-laden withdrawals from retirement accounts) dramatically converge and can last a long time, disrupting a family’s future-possibly permanently.
COVID-19 demonstrates how these crises catch us by surprise and the stress of being amid an emergency of uncertain length and impact. Like COVID-19, once the need for long term care starts to develop it is too late to prepare in ways that would have made the situation easier to manage. Stock market, general economy and personal finance fluctuations demonstrate that there is a good chance that a family might have to cope with a long term care situation and economic challenges simultaneously. Indeed, if a family is experiencing a financial setback, a long term care need could absolutely overlap with other economic challenges with disastrous outcomes. How would a family maintain income while providing care? Because of experiencing today’s uncertainty, many people treasure downside protection more than they did in the past.
Clearly, reduced cash flow and assets make it harder to commit to a new on-going insurance premium commitment. But if a commitment is possible, it is more likely to be made.
Linked-Benefit Products are Particularly Attractive Post-COVID-19 Of course, just as one size does not fit all, some people will favor different strategies, but many people will be responsive to linked-benefit life insurance/LTCI products (LB) and may be eager to fund such products by transferring, or re-allocating, assets from low-performing or risky assets.
Insurers will be concerned about profitability but will value the LB market because LB products offset mortality and longevity exposure. If mortality costs increase, long term care costs are likely to decrease and vice versa.
Clients will find LB products very attractive now, for the following reasons:
Many LB policies are guaranteed. At this time of increased risk and conservatism, guarantees look great to both analytic and emotional buyers.
The death benefit immediately replenishes some of the client’s estate that has withered in the recent stock market.
LB products also protect against long term care needs. Earlier, we commented on the increased costs of doing business. The long term care industry will be a magnet for such higher expenses, which means that the cost of long term care services will increase. In turn, those higher costs mean that people will be more inclined to insure.
LB policies are a better way to self-insure as your beneficiaries risk their death benefit (generally over the first two years of needing long term care) but then inexpensive catastrophe coverage kicks in. The value of such a “stop-loss” type coverage is more appreciated in an era when asset value and income are less secure.
Maximum long term care benefits can compound at three percent or according to a medical cost index depending on product. An index could be particularly attractive for those who fear inflation.
Some LB products permit (out-of-work, perhaps) family members to be paid for providing care, which can be a nice alternative for generations who are concerned about one another or simply wish to be together.
An inability to afford separate LTCI and life insurance protection may also accelerate interest in linked-benefit products.
LB policies can do well in any economic environment. In a deflationary economy such as the 1930s, the increasing benefit is further leveraged by reduced cost of care. In an inflationary economy, a medical cost index helps. In a gyrating muddle economy, steady performance is appreciated.
For clients looking for guaranteed rates, this could be another safe haven for them.
The tax advantages for employer-paid coverage may have increased value in the future if the USA grapples with spiraling debt by increasing tax rates.
Time to Act Some of our clients are feeling vulnerable, while others will simply be more receptive to well-placed comments by you on the necessity for insuring themselves against what some consider to be the greatest singular risk that we each face in our retirement.
The need for these insurance products is greater now than ever before; advances in medicine and pharmaceuticals are extending our lives, allowing us to live longer and to die slower. With fewer children in the nuclear family, often scattered across the country (or even the world), and more women in the workplace, we are simply no longer the Walton clan with multi-generational families living under the same roof.
This may be a good time to revisit long term care planning with some clients who did not establish an LTCI plan. Reassure/compliment clients who purchased such coverage (from you or someone else); they may like to purchase more or may have family or friends interested in your help.
While our focus should always be on the best interests of our clients, we must also consider the fact that for any and all of us who shoulder any form of fiduciary responsibility there is an accompanying liability that squarely places targets on all of our chests if we are not addressing this risk with our clients. The Doctrine of Reliance has become a very powerful weapon being successfully utilized by the plaintiffs’ bar before ever increasingly sympathetic courts of law and juries.
Combination life insurance (life insurance with long term care insurance features) continues to grow and evolve.
Table 1 (from LIMRA) shows the number of combination life insurance policies and related new premium from 2007-2018. It excludes work-site sales and combination annuities. Two percent more combination life insurance policies were sold in 2018 than in 2017. Premium dropped two percent, but that’s misleading as will be discussed.
Table 2 shows the distribution of those combination life policies in 2018. As will be discussed later, “CI” means “chronic illness” as opposed to “LTCI” which means “long term care insurance” and “ADB” means “accelerated death benefit” only as opposed to “EOB” which means that an “extension of benefit” is available as well as an ADB.
There are many ways the combination market can be divided, one of the most significant ones being in terms of coverage provided (risk borne by insurers). As Table 2 shows, only nine percent of 2018 combination policies were sold on products that permitted more than the death benefit to be used, if a need for long term care (LTC) occurs, by offering an EOB feature. More than 90 percent of the policies were sold on products which offered only an accelerated death benefit (ADB) for LTC.
Product differences explain some of the price variations between insurers shown below. Insurers may differ in their assumptions of LTC incidence and in their assumptions regarding how often insureds choose to access their ADB when they do need LTC. Different lapse assumptions or ADB election assumptions based on market can have a significant impact. Also, insurers may differ as to whether they assume that an LTC feature improves product persistency and how such persistency improvement is reflected in pricing. ADBs and EOBs can generate different capital requirements for various insurers based on their mix of business, and insurers vary in how they allocate expenses to “riders” (for example, optional features that add additional cost). Underwriting requirements or classification can make a difference (there are definitely distinctions of that type below), because a healthier class should have a lower mortality premium but may have a higher LTCI premium because more survive to ages of LTC incidence. Differences in pricing techniques (particularly for newer features) might cause inadvertent differences.
Accelerated Death Benefit (ADB) ADBs are an inexpensive way for insurers to help consumers cover LTC costs, by giving them the flexibility to use their ADB, if they wish, when LTC is needed. The insurer does not pay out more money; instead the insurer simply pays it out earlier (a loss of investment income). If a lot of the death benefit is paid out as an ADB benefit, it seems likely that the insured would have died fairly soon thereafter; a short period of foregone interest involves low cost. If little was advanced, the foregone interest on that advanced money is low. Furthermore, the cost is low to the degree that people save their death benefit for their beneficiaries, using the ADB as a last resort.
Comparing only two carriers, I found significant difference in the cost of adding an ADB provision as shown in Table 3.
ADB costs more (in dollars) for females than for males because females are more likely to need LTC (hence to use ADB), are likely to need LTC longer (hence are likely to use more of their ADB) and are more likely to continue to live after the full ADB has been advanced (which means more loss of interest from advancing the death benefit). The gender difference in percentage add-ons for ADB is even larger, because the female’s life premiums (denominator) are lower.
It is interesting that the percentage add-ons for ADB differ so much by insurer. One insurer’s percentage add-on increases as age increases, whereas the other insurer’s add-on generally decreases as age increases. At the end of the previous section, I explained some of the factors that can impact pricing.
Extension of Benefits (EOB) Extension of benefits (EOB) provisions continue to pay benefits after the death benefit has been used up (and often provide a residual death benefit). Thus, the insurer takes a much more meaningful LTC risk, rather than simply lost investment income.
From a consumer’s perspective, a life insurance policy with an extension of benefits provision is a better way to “self-insure.” The consumer “self-insures” the first two or three years of LTC with their beneficiary’s death benefit, as that death benefit is used to pay for LTC. After the death benefit is used up, the consumer has an inexpensive partial stop-loss or catastrophe type of coverage because the self-insurance portion represents a two-year or three-year elimination period before true LTCI risk transfer occurs.
Table 4 (see page 22) shows that EOB provisions add more cost than ADB provisions, even though they are much less likely to be used, particularly by males. Of course, that’s because the EOB is a marginal additional cost for the insurer, rather than only paying cost earlier.
The four leftmost columns in Table 4 show the percentage additional cost of adding EOB to a life insurance policy that already includes ADB. The Carrier C product is a work-site product with unisex pricing. Because it has a shorter extension of benefit period (25 months compared to 3 years) and because the extension starts a bit later (after 25 months compared to after 24 months), I would expect the EOB cost add-on to be lower for Carrier C than for Carrier B. Some possible explanations for Table 4 differences were mentioned earlier.
The rightmost two columns are different, showing the ratio of the extra premium to add EOB to a policy to the extra premium to add ADB to a policy. Not surprisingly, the additional cost of the EOB compared to the ADB is smaller for men than for women, because few men outlive the ADB benefit. The ratio increases with issue age because more older buyers will have coverage in their 80s.
A longer EOB would cost more; a shorter EOB would cost less.
Insurance products which offer only an ADB typically have no discounts for married people, whereas products with EOBs often discount prices for married people (for example, 10 percent). Stand-alone LTCI policies typically have the largest discounts for couples but require that both buy.
Compound Benefit Increases (CBIO) Compound benefit increase features (CBIO; the maximum monthly benefit and potential lifetime benefit compound) add more cost than either ADB or EOB. When ADB is exercised, most (perhaps all) insurers subtract only the base benefit (not the portion attributable to compounding) from the death benefit.*
Whereas the ADB does not create additional benefits (solely paying an ultimate benefit earlier) and the EOB creates additional benefits but not until after the ADB is used up, the CBIO feature creates additional marginal benefits as soon as the insured goes on claim. Therefore, it can cost many multiples of the cost of ADB, depending on the compounding percentage and on the benefit period, etc.
Table 5 shows the cost of adding CBIO to a five-year benefit period linked-benefit product.
The percentages in Table 5 are applied to a bigger base than the percentages in Table 4 as the Table 5 denominators include the cost of the EOB feature.
*Insurers differ in how they handle benefits that are less than the maximum. Consider a base benefit of $3000/month which has grown to $6000/month. If a policyholder uses only $3000 in a month, one insurer may deduct that full $3000 payment from the death benefit, while another might consider the $3000 payment to be half base and half compounding thereby reducing the death benefit by only $1500.
Single Premium vs. Recurring Premium Tables 1 and 2 combine single premium sales and recurring premium sales, thereby obscuring some significant differences. LIMRA shared some data with me, permitting me to determine the distributions mentioned below.
ADB sales are most commonly made to satisfy a life insurance need. The ADB feature may be automatically included because of the insurer’s product design or may be added at the suggestion of the financial advisor. Fewer than two percent of ADB policies are paid for with a single premium.
On the other hand, when EOB policies were first created, they 100 percent were sold with single premiums. The concept was to move “lazy assets” (low-yielding assets) to an EOB policy to leverage the investment for LTCI purposes. In these sales, the primary motivation was generally LTCI, the life insurance component being attractive to avoid “use it or lose it.”
However, as inforce stand-alone LTCI policies started having large price increases, and large price increases applied to new stand-alone LTCI sales also, the EOB carriers recognized an opportunity to grow by making their product available on a recurring premium basis. Originally the expansion was limited to 10 premium years at most, but in 2018 we continue to see more lifetime-pay products becoming available. In 2018, 57 percent of the EOB sales were single premiums compared to fewer than two percent of the ADB sales.
All other things being equal, I would expect EOB policies to have higher premiums because they add on an additional LTCI benefit. However, in 2018 and 2017, ADB average single premiums were roughly 50 percent larger than EOB single premiums. Perhaps the ADB single premium cases had larger death benefits, were sold at higher ages, or were more often rated due to health conditions.
On the other hand, the average recurring premium on EOB policies was more than twice the average recurring premium on ADB policies. Besides the additional cost of EOB (and sometimes CBIO), this difference might reflect that a higher percentage of ADB policies have premiums scheduled to be paid a very long time as opposed to 10 years or less.
Single premiums accounted for 61 percent of LIMRA’s reported new 2017 premium, but only 58 percent of new 2018 premium. Correspondingly, the market share of recurring premium increased. Thus the “drop” in 2018 premium seems to be balanced by an increase in future premiums. A decrease in average issue age, which seems likely with the shift toward recurring premiums, could increase the present value of future premiums.
Section 7702(b) vs. Section 101(g) Another way that combination policies can be distinguished from one another is by which provision of the legal code applies to them. Section 7702(b) policies have LTCI benefits that can legally be called “long term care insurance” and must satisfy all the LTCI legal requirements. Most ADB policies have chronic illness provisions, which comply with Section 101(g) which permits incidental coverages to be added to life insurance policies if they do not exceed 10 percent of the value of policy benefits.
Financial advisors (FAs) are not allowed to refer to Section 101(g) policies as “long term care insurance.” I believe that puts FAs in a very tough spot. Section 101(g) provisions can be more favorable than Section 7702(b) provisions because Section 101(g) provisions are more likely to pay the full LTC benefit regardless of the cost incurred, rather than limiting the benefit to reimburse the amount of LTC cost incurred. They may satisfy requirements for Section 7702(b) policies and any such requirements they don’t satisfy may be less important to the consumer than the advantages Section 101(g) provisions may have. Rather than forbidding them to be called “LTCI,” it might be better to require that the insurer disclose any LTCI requirements which they violate.
The Deficit Reduction Act (DRA, 2006) required certification (training) to sell LTCI policies which qualified for the State LTC Partnership programs. The NAIC’s recommended wording (to implement DRA) required certification for all LTCI policies whether the policies qualify for Partnership programs or not. I prefer the NAIC wording so that all (at least all stand-alone) LTCI consumers can have access to Partnership policies.
Some states adopted the NAIC wording, while others adopted wording straight from the DRA. In states which have adopted either the DRA wording or the NAIC wording, most (if not all) insurers selling stand-alone LTCI have uniformly required certification regardless of whether a policy is Partnership-qualified or not. Insurers selling combination policies (including linked-benefit policies), on the other hand, have generally not required certification in states with DRA wording.
Evolution Sales are shifting from stand-alone long term care insurance toward combination products, but not as much as many industry watchers think. In 2018, 56,288 stand-alone LTCI policies were sold1 vs. 35,431 EOB linked-benefit policies. The huge “wave” of combination policies consists of ADB-only policies.
Although approximately 60 percent more stand-alone LTCI policies were sold than EOB policies, the EOB market produced ten times as much new premium as the stand-alone LTCI market ($1.78 billion vs. only $0.172 billion1). To judge relative stand-alone and combination LTC sales based on premium is misleading because:
The inclusion of life insurance generates a higher premium, not attributable to LTC risk.
The prevalence of single-premium and limited-pay (e.g., 10-year-pay) sales in the EOB market tilts the comparison. One dollar of recurring premium sales is worth a lot more than one dollar of single premium sales.
I mentioned previously the shift from single premium EOB policies to recurring premium EOB policies. The availability of recurring premiums has opened the market to younger and less affluent buyers. Unfortunately, we don’t have data to demonstrate those trends.
In order to sweeten the death benefit and LTCI benefit value propositions, EOB policies have reduced their “money-back” guarantees. Whereas consumers were previously guaranteed that they could get their money back at any time, now many policies are sold with cash values equal to 80 percent of premiums paid.
A third evolution for EOB policies has been that they are now more often sold with CBIO than in the past, as they are seen as an alternative to stand-alone LTCI, but that trend might temper as the price for CBIO might increase for new sales.
With CBIO seemingly more common on linked-benefit products than in the past, and fewer CBIO sales on stand-alone policies than in the past, and with shorter benefit periods being more common on stand-alone policies than in the past, the total amount of new LTCI risk transfer seems to be shifting toward linked-benefit policies.
ADB and linked-benefit policies are also extending into the work-site market, with some linked-benefit policies on a Section 101(g) chassis. Guaranteed-issue stand-alone LTCI has disappeared but guaranteed-issue coverage is available with work-site linked-benefit products.
For younger-age employees, combination products have greater appeal than stand-alone LTCI because life insurance is important to their young families. At those younger ages the cost of ADB and EOB is reduced because the premium-paying period is long and because a lot of coverages will no longer be inforce when the young employee reaches 80 or more years old.
A potential concern in the work-site market is that buyers (especially young buyers) might think they have more LTC protection than will be the case when they need care. The lack of CBIO, possibly exacerbated by a small death benefit, may limit ultimate purchasing power for LTC services.
As the work-site market for combination products grows, if work-site policies are included in the data we’ll see more sales at younger ages and more recurring premium.
Other than in the work-site, underwriting seems to be narrowing between stand-alone LTCI and linked-benefit policies. However, linked-benefit policies are more likely to be underwritten on an “accept-reject” basis with fewer attending physician reports. “Accept-reject” underwriting generally allows a few more policies to be issued, but sometimes a deeper underwriting dive allows a policy to be issued that wouldn’t pass “accept-reject” analysis. Because of the limited risk in ADB-only policies, LTC underwriting is less important for them.
Combination policies are less likely than stand-alone policies to limit benefits to the cost of actual LTC expenses. Not only is such a “cash” or “indemnity” policy more attractive, but it is also easier to explain, which is important in the work-site.
Generally, the public is more confident of premium stability in the linked-benefit product. However, the large price increases on older inforce stand-alone LTCI policies have led to pricing and regulatory changes which greatly reduce the risk of large price increases on stand-alone LTCI policies issued today.
A new development in 2019 is that at least two EOB policies now have separate premiums for the ADB portion of the LTCI benefit as well as for the EOB and CBIO portions. The result is that all three of those premiums (ADB, EOB and CBIO) can be tax-favored as LTCI for Section 7702(b)-type policies. Without a CBIO feature, the portion of the entire policy premium which is tax-deductible may be in the 18 percent to 20 percent range for men and the 25 percent to 33 percent range for women. When CBIO is added, the tax-deductible percentage of premium can increase to 43 percent to 57 percent for males and 58 percent to 66 percent for females.
Other recent innovations include:
Marketing a stand-alone LTCI policy with a return of premium benefit option and cash value option to compete against linked-benefit products.
Designing a linked-benefit product with a seven-year LTCI benefit period where the death benefit gets spread over two years. At least most (if not all) previous seven-year benefit periods had death benefits spread over three years, which required 50 percent more death benefit to get the same monthly LTCI benefit. The new design provides more LTCI benefit but less death benefit for the same premium.
New approaches exist to help clients decide whether to purchase stand-alone or linked-benefit products, but that discussion is beyond the scope of this article.
The ability to do §1035 exchanges and/or to use qualified assets to fund LTC insurance has increased. From my perspective, this is a market which financial advisors have barely scraped. There are wonderful things they can do for clients who have large gains in life insurance contracts or annuities.
Going forward:
The pricing and underwriting differences cited herein seem likely to narrow.
Conversion to Principles-Based Reserves and a new mortality table may increase the cost of linked-benefit products.
If/when interest rates rise, new combination products may have stronger LTCI benefits.
Increasing interest rates and Principles-Based Reserves might also result in fewer linked-benefit policies being fully guaranteed than is the case today.
§1035 transfers from non-qualified annuities open the possibility for gains to never be taxed. Gary Forman, SVP of Long Term Care Associates, suggested that the Federal government might decide to provide a tax incentive to use qualified funds to purchase LTC protection.
Viatical settlements (of existing life insurance policies which lack ADBs) seem to be increasingly used to pay for LTC. Might those insurers start competing with the viaticals to avoid policy surrender? It wouldn’t hurt to ask an insurer without an ADB whether they would be willing to negotiate.
A new Shoppers’ Guide was adopted by the NAIC in April and is available at https://www.naic.org/prod_serv/LTC-LP-19.pdf. It discusses combination products much more than its predecessor. I was involved in designing the new Shoppers’ Guide and respect the attention the regulators paid to these issues and their interest in learning what the industry thinks of the new Shoppers’ Guide and how the industry uses the guide (any differently than the previous one?). I would be happy to be a conduit for any comments readers might have (claude.thau@gmail.com).
Terminology has also evolved The insurance industry has used many names to describe these types of policies, but wording is consolidating and may consolidate more.
“Linked-benefit” is used by LIMRA and herein solely for products which might pay LTC benefits greater than the death benefit (i.e., an extension of benefits is available), regardless of whether the EOB is purchased or not. One advantage of this nomenclature is that “linked-benefit” is unique, which reduces confusion. Another is that it distinguishes from products which offer only ADB.
“Combination” (or “combo”) is used by LIMRA and herein to include both ADB policies and EOB (“linked-benefit”) policies. One way to remember the terminology is to think of “Combo” totals as “combining” ADB and EOB.
“Hybrid” has been used a lot in the industry but is often associated with cars today. To avoid confusion, it is preferable that we avoid using different terms for the same feature.
“Asset-based” or “Savings-based” is relevant when clients are moving assets to purchase a single premium combination product. With the great expansion of recurring-premium linked-benefit sales, these terms seem less relevant.
Reference:
2019 Milliman Long Term Care Insurance Survey, Broker World magazine, July 2019, page 30.
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.
Q What is your outlook for the stand-alone LTCI market? In what market segments are you seeing sales activity and/or optimism?
Glickman The stand-alone LTCI market will continue to be a major part of the LTCI solution, with over 50 percent of the present value of the long term care premiums on new policies being generated by stand-alone policies, and almost all of the rest being generated by the hybrids where most of the premium is actually life insurance premium. With the stand-alone LTCI new business premiums now quite stable and the future rate increase risk on those new policies minimal, I expect the new business volume for stand-alone LTCI to start increasing, especially among those carriers involved in offering tax advantaged, benefit advantaged, or worksite solutions.
In addition, everyone at the state and federal regulatory level realizes that a vibrant stand-alone market is necessary to help deal with the long term care crisis that will be created by the baby boomers if better penetration of LTCI does not occur. Both the National Association of Insurance Commissioners and the Federal Insurance Office are working with the industry, the ACLI, and non-profit think tanks to develop potential changes (including possible tax incentives) to spur the market.
All of this bodes well for not only the stand-alone market, but for the hybrid market as well, and most important for society at large.
Hughes My personal outlook on the stand-alone LTCI market is hopeful. Hopeful that the advisors will continue or start the long term care conversation. You can’t have a fire unless you create a spark! I’m finding that if my agents/advisors make the initial contact with their clients, instead of waiting to be asked about it, there are more chances for success. Now with that being said, I never miss an opportunity to turn every phone call into something related to long term care and always ask about any business opportunities due to the tax deductibility of some or all of the premiums.
Levin We are on the verge of a tsunami that will quickly overtake the United States in terms of caring for the elderly. China faces an even more dire set of circumstanced due to the failed policies associated with one child per family and the wanton killing of female babies.
Even with the need for long term care increasing annually, market penetration has never exceeded 10 percent of the market over the last twenty years. That means that there are still over 72 million baby boomers and 84 million Gen X-er’s who need to talk to us!
Sales continue in the Baby Boomer market, but have definitely reached down to the GenX-ers and the following generations. The younger generations are clearly looking at the lessons learned by their parents in terms of being caregivers and are making long term care planning part of their long term financial plans and portfolios.
Financial advisors, estate planning attorneys, and other insurance producers are grasping the significance of not addressing long term care with their clients and, as a result, are embracing the products as well as working with experts like us for this one specific aspect of their clients long term plans.
For all of these reasons, I remain optimistic that the industry overall (to include hybrids, combo products, and life insurance with long term care riders) will continue to rise to meet the ever growing needs of our country as it ages in place.
Thau a) It will probably rebound somewhat.
b) We can improve our consumer messaging significantly, both in the individual market and the work-site market (messaging to employers, as well as employees).
c) To help the middle market, we can sell more smaller policies, leveraging the State Partnerships.
d) People will arrange a variety of financial resources to address their potential long term care needs; stand-alone policies will be only one piece.
e) The industry raised prices, limiting the market to the affluent (especially with the benefit designs we were selling), yet took away the endless benefit period which is what affluent people want. We now have an endless benefit period available again. It leads to more sales, even of shorter benefit periods. Yes, I do mean to say that the availability of an endless benefit period increases the sales of shorter BPs as well as generating endless BP sales.
Q In your view what can the industry, and perhaps legislators, do to make stand-alone LTCI affordable for a larger percentage of the population?
Glickman As I mentioned in the prior question, the industry, the trade organizations, the state regulators, and the federal regulators are all focused on potential legislative solutions that will spur more LTCI adoption across a cross section of potential insureds.
Chief among these potential solutions are:
Tax advantaged solutions to pay premiums, including penalty free/tax free withdrawals from retirement accounts (401Ks, 403Bs, IRAs), allowing FSAs to elect, and above the line deductions. While this option seems remote, it can be actuarially demonstrated that the savings available from privately financed LTCI on a broad scale will more than offset the cost of the foregone taxes initially.
Employer based solutions such as an LTCI savings plan for paying LTCI premiums or direct LTCI expenses on an opt out basis (where the employee is automatically enrolled and must choose to opt out) similar to how 401Ks are handled. A Department of Labor determination in December, 2018, allows employers to payroll deduct disability insurance for all employees automatically. Employees then need to opt out to avoid paying for the disability coverage. A similar provision for LTCI would vastly expand the LTCI market. A smaller and easier change in the ERISA law, specifically exempting LTCI, would expand the offerings of voluntary purchase LTCI in the workplace.
Changes in the IRS code such as allowing cash values to spur new and consumer exciting products such as Universal LTCI policies. Eliminating the minimum two ADL requirement from the TQ policy definition would allow for deferred annuities to be included as a basic LTCI benefit, creating a product that would start paying monthly benefits once a person became old and frail, even if they were not yet ADL dependent. Expanding the current 1035 exchange rules to allow NTQ annuities to fund LTCI premiums for one or both insureds who are married and filing taxes jointly. This modest enhancement would vastly expand LTCI coverage to trillions of dollars in NTQ annuities which cannot be utilized for long term care expenses (or premiums) without severe tax consequences.
Changes in state regulation that are widely and uniformly adopted, such as partnership plans allowing, without additional rules, the non-partnership policies approved in their state. In particular, this would allow insureds to avoid unaffordable compound inflation and minimum benefit amount requirements. Another easy change would be to eliminate the risk based capital penalty that currently prevents insurers from seriously considering noncancelable LTCI policy designs.
Some companies are already starting to expand their product within current laws through offerings that appeal to a broader base of consumers by offering a unisex product through employers, creating single and ten pay alternatives, offering lifetime benefit periods, and offering return of premium death benefits that are payable in addition to LTCI benefits.
Hughes In my opinion we missed the mark on the LTC Partnership Program. It appears the hybrids have found their home with those that can afford single premium transfers or higher than traditional LTCI premiums and traditional LTCI has found its home on a budget. I don’t mind that view, however where we missed the mark is by requiring inflation on the traditional plans. If the biggest swath of buyers that could really benefit from LTCI plans is middle America, then don’t force them to add the most expensive rider to their contract. Don’t get me wrong, I believe inflation is important and, quite frankly, that’s what sets LTCI apart from hybrids—the ability to grow the benefits—but if we have something to lose, but not millions to lose, let us build the proper policy without having to slap inflation protection on there. Maybe just a higher daily/monthly benefit for a shorter duration is the answer.
Levin Tax qualification of the Section 7702(b) stand-alone long term care insurance plans was a huge step. The availability of State Partnership to all fifty states an even larger one. Now we need to be able to offer clients the ability to pay for these plans with qualified funds, especially if it is a hybrid or combo plan falling under Section 101(g). They may be running their cash reserves down by paying for their parents’ care and childrens’ college educations, leaving them non-qualified cash poor. Being able to use qualified funds would require additional federal legislation. While this has been bantered about for many years, I firmly believe that the time for action is now. I hope that organizations like NAIFA, NLTCN, the Society of Financial Service Professionals, et al, as well as insurance carriers currently in the marketplace offering these products, will expend appropriate levels of lobbying to bring forth this necessary legislation—providing relief to consumers and promoting even greater sales.
Thau I suggest expanding the question to include regulators as well as legislators and to include media. As noted in my first response, there is a lot the industry can do to provide improved messaging.
Government and media could provide better messaging as well. Things we/they could do: a) Explain that past price increases on existing business have led to today’s prices being more stable. (Government and media reports on rate increases lead financial advisors and consumers to fear rate increases on policies being issued today. This is a “look through the rear window” approach, as I can explain.)
b) Government and media have publicized and questioned claim denials, sometimes being right but sometimes falsely accusing carriers. Why not publicize evidence that the industry is doing a good job?
The Federal government engaged LifePlans to do a study regarding claim payment. The study concluded that the industry was doing very well.
California published a study that was hugely biased against the industry. For example, if a client contacted an insurer during the elimination period and the insurer provided the desired information, CA counted that as a denied claim because no claim payments were due. Furthermore, their methodology ignored that claim later when it was paid! I successfully got CA to agree that their method was flawed, but they refused to issue a correction.
The Independent Review (IR) process helps protect consumers. Each year, our Broker World survey publishes some data relative to IR. That data has been impressive for the industry, but we are limited in what we can obtain. I’ve asked regulators to get data themselves, or to ask me to act on their behalf, so that we can get better data.
c) Of course, the government and politicians continually give mixed signals, making it easy for people to conclude that the government will pay for care “by the time I need it.” Many years ago, some states did “Own Your Future” mailings in which they informed consumers that the consumer is primarily responsible for long term care expenses. We reported on results in the Broker World survey. It would be timely to send more such mailings now.
d) More states could adopt State Partnerships and the original four states could shift to the Deficit Reduction Act Partnership to provide more consistency.
e) The LTCI certification process could be improved in a variety of ways, leading to better education of advisors.
f) Slowing the fiduciary bandwagon might help. Emphasis on fiduciary responsibility discourages financial advisors from discussing long term care issues because:
With increased documentation, they have less time to discuss ancillary issues, particularly as those issues then generate more need to document.
The threat of fiduciary charges causes them to focus on the areas of their expertise. Discussing areas in which they are less familiar (long term care) exposes them to what they perceive to be disproportionate fiduciary risk.
You might think FAs would then outsource long term care discussion to LTCI specialists. It does not always work that way because:
Advisors are fearful of referring people to third-party experts because, if the third party screws up, they could lose their client.
They also fear that if the third party screws up, they could be blamed (fiduciary).
They also fear that the third party might poach their client or inadvertently introduce the client to a competitor.
g) The industry, media and others often suggest that LTCI should not be bought before age 60 (or so). That advice is incorrect, as we can demonstrate.
h) Protect the industry from people doing genetic testing, then buying LTCI if they have the APOE gene. We may need an assigned risk pool for people who fall into that category.
i) Tax breaks would help, but we should be able to sell without tax breaks.
j) One percent CBIO qualifying for Partnership can be important for core/buy-up programs.
k) By the way, the new NAIC Shopper’s Guide is significantly better than its predecessors. It will be interesting to see its impact. I’m not expecting much impact, because I think it is treated as a compliance document and is very long.
l) This strays to the combo side, but §101g features can be excellent contributions to long term care planning. Yet the regulators forbid the use of “long term care” relative to such features. I think that is a very counterproductive position.
The industry needs to improve significantly the quality of pre-qualification of health conditions. Doing so would lower the decline rate and also get more people insured. It would result in noticeably more interest in LTCI among financial advisors. How might we do so?
a) General agents could perhaps do analysis demonstrating the improved results for cases which were pre-qualified.
b) The message should be trumpeted repeatedly.
Q Much of the current long term care risk abatement activity seems focused on asset-based long term care solutions. What are your thoughts and/or experience with these products?
Glickman Asset-based LTCI is quite attractive to many insurance companies due to its minimal LTCI cost structure and its maximal appeal to consumers. It makes a lot of sense for anyone purchasing a life insurance policy to have this additional flexibility to use the life insurance proceeds to pay for their LTCI expenses, as long as they realize that if they need to do so, they will no longer have the life insurance benefits that instigated the original purchase. Likewise, if someone determines they need LTCI, and doesn’t need the life insurance coverage, this is a very expensive way to purchase LTCI. I would be hard pressed to advise anyone to buy one of these types of hybrids that only pay LTCI benefits up to the death benefit, if it is being bought for its LTCI coverage, while I would equally oppose not including it, at a minimal additional charge to a life insurance policy being bought for the client’s need for life insurance, just in case.
However, one of the hybrid designs, only offered by a handful of companies, is one that provides life insurance with LTCI and an extension of benefits rider that continues the LTCI coverage after the life insurance benefits are essentially exhausted, providing much more significant LTCI coverage especially if the compound inflation option is elected. With the liberalization of underwriting rules that are generally available on the life hybrids when compared to the stand-alone policies, it is a good fall back plan for even stand-alone LTCI specialists to have access to sell.
Hughes I have lots of experience with asset-based long term care planning solutions. They work where they work but they are not the be all, end all, for long term care planning. I still say you will never get more out of a life/long term care contract then you will out of a traditional LTCI policy. Now I have found that I have younger agents, who don’t have a history of explaining rate increases on older traditional blocks, and they are ok selling traditional LTCI—as they should be. You must understand the pricing of today’s policies and the rate increase regulations. On the flip side I have those that don’t ever want to have a conversation with a client about why their policy took a rate increase, so they gravitate to the life-based solutions. As an advisor to the advisors I have to keep my eyes and ears open to the industry and listen to what agents’ clients want their long term care solutions to do for them and pick the best one. Nothing is one size fits all.
Levin There is no doubt that a great deal of the demise of the traditional long term care insurance market (declining from $1.024 billion of sales in 2002 to 2017’s $176 million—LIMRA statistics) can be attributed to fewer carriers in the marketplace and a decline in interest rates, as well as the attrition of the career agent forces with several of the major players. Factor in the advent of a wide range of asset-based products giving producers the ability to better tailor solutions to the desires of their clients—this has led to unprecedented growth in this market to the point that it is now surpassing the traditional market.
All of that notwithstanding, we are discovering that many financial advisors are not thrilled about losing the assets under management required to purchase these asset-based products because such purchases serve to deprive them of an ongoing stream of income. For this reason alone the pendulum is swinging back towards stand-alone LTCI.
In the same vein, all professionals (advisors, attorneys, other insurance producers) in positions that can be construed as possessing a fiduciary responsibility to their clients who do not broach the subject of LTCI in the course of regular reviews run the risk of being held personally liable under the Doctrine of Reliance. Courts are becoming increasingly sympathetic to the plaintiff bar bringing these claims.
I also believe that there is still no better way to leverage a client’s money than with a stand-alone LTCI insurance product. Factoring in the ability for the monthly maximum and pool of benefits to grow by virtue of inflation protection riders, as well as the tax qualification and partnership considerations of these plans, I suspect that the pendulum will continue to swing back in the direction of traditional stand-alone coverage.
Thau a) Linked products could appropriately be called “asset-based” in the past because they were usually sold as single premium policies which involved moving an asset into the combo policy. Today, most of these policies are not sold as a single premium. Therefore the “Combo,” “Linked” and “Hybrid” terms fit, but “asset-based” no longer fits well.
b) These are excellent alternatives to stand-alone LTCI. For many clients, linked benefit should be the default solution.
c) However, often they are sold illogically. For example, as indicated above, stand-alone LTCI policies issued today do not have the premium instability of the older LTCI policies. However, regardless of whether the client favors linked policies for a sound reason or not, it often makes sense to provide what they are requesting. We don’t do people a favor if our educational efforts result in them doing nothing, especially if they otherwise would have secured valuable protection.
d) The industry and regulators could make it easier to compare linked benefit products to each other.
e) Comparing linked to stand-alone also is difficult. Insurers could position linked products more effectively in their portfolio, etc.
f) The shift toward linked benefit policies is not as momentous as people think. The statistics are distorted because:
They are based on premium rather than eventual coverage.
Single premium linked benefit policies and 10-pay linked benefit policies distort the results.
A higher percentage of stand-alone policies may have benefit increase features, which is significant to future coverage.
However, the average benefit period of linked policies with extensions of benefits might be longer than for stand-alone (although shared care should be factored in).
Lots of statistics include, in the linked benefit totals, policies with no extension of benefits. Depending on the purpose of the analysis, including such policies can be misleading.
Q In your opinion, should LTCI professionals be shifting a significant amount of their effort to point-of-care planning?
Glickman Although I would not encourage agents to emphasize selling to those already needing care, and with a very limited life expectancy, I would always encourage LTCI professionals to be knowledgeable and have access to all possible LTCI solutions for their clients. However, I believe that point-of-care solutions (essentially substandard annuities packaged inside an LTCI policy form) are a very limited market opportunity for anyone involved in any other form of LTCI planning.
Hughes If by that you mean maximizing their assets, using all avenues to maintain choice, then I would say that we’ve forgotten the definition of insurance. Why would one use every penny from every dollar of their own money when they could pay a premium and transfer the larger risk to the insurance company. If choice or control is the concern, there are options still available that allow for that flexibility. It’s called a cash benefit or an indemnity contract. That’s your maximum flexibility. Therefore, working with someone that maintains knowledge of the long term care industry is critical. If this isn’t your focus, let someone else do the hard work and you just keep options open for your clients. I have found that I would rather have a plan in place before, rather than having to plan at point of crisis. Planning is the key to anyone’s financial future and, of course, all well laid plans can change, but you must have a road map to know where you are going.
Levin This business remains all about it being client-centric.
The wide array of products (despite the shrinking number of carriers in the marketplace) both allows and requires us to genuinely listen to the client, perform serious fact-finding, and then serve as their advocate by providing them with both suitable and appropriate coverage—whether it is stand-alone, hybrid, combo, short term, or critical care coverage.
Remaining client-centric, demonstrating the utmost of professionalism, and constantly growing in product and industry knowledge, will allow LTCI professionals—Planning Advocates—to better serve their clients.
Thau a) I think we can and should be doing a lot more to help people who currently need care and/or are caregivers.
b) I think we should be doing more to help people who are uninsurable.
c) I think we should do more to help even insurable people reduce their exposure to long term care and reduce the likely cost and caregiver burdens.
d) However, I’m not comfortable with the word “shifting.” I think doing a) through c) will give us an opportunity to do more effective family long term care planning which might result in more LTCI policies being sold.
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.
The 2018 Milliman Long Term Care Insurance Survey is the 20th consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products.
This year, in addition to individual policies sold directly to individuals or through multi-life groups (primarily small groups) with discounts and/or underwriting concessions, the survey also includes Genworth group sales as part of the multi-life sales. (Genworth is the only insurer issuing new LTCI policies on group policies and certificates.)
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 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), annuity, or disability income benefits.
Highlights from This Year’s Survey
Participants
Ten carriers participated broadly in this survey. Seven others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.
CalPERS (the California Public Employees’ Retirement System) is a first-time participant. As shown in the Product Exhibit, its product is comparable to others. However, CalPERS is unique in the long term care space in that it is not an insurance company or a third-party administrator.
As noted above, Genworth’s group line is new to the survey. Genworth’s individual and group lines are counted as a single participant.
The two carriers which sell the most worksite LTCI reported statistical distributions last year but not this year, so this year’s distributions are over-weighted toward individual sales. The inclusion of Genworth’s group product reduces that shift in distribution.
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 provided background statistical information. Auto-Owners, John Hancock, LifeSecure, National Guardian, State Farm, Transamerica and United Security Life contributed to the sales total but did not provide broad statistical information.
Sales Summary
The 17 carriers reported sales of 70,080 policies and certificates (“policies” henceforth) with on-going premiums ($181,956,656 of new annualized premium, including exercised FPOs) in 2017, compared to our 2016 reported sales (increased to reflect 2016 production from CalPERS and Genworth group and adjusted for small corrections to prior data) of 94,353 policies ($225,838,660 of new annualized premium), a 26 percent drop in the number of policies and a 19 percent drop in the amount of new annualized premium. (A small amount of unreported single premium sales also occurred.) However, as noted in Market Perspective, sales of policies combining LTCI with other risks continue to increase.
Six insurers (three in the Product Exhibit and three others) sold more premium than in 2016 and five sold more policies.
Mutual of Omaha and Northwestern reversed position as the top two carriers, combining for more than half of the new sales in terms of premium.
For the third straight year (and 3rd time ever), our participants’ number of inforce policies dropped, this time by 5.1 percent after 0.3 percent (2016) and 0.2 percent (2015) drops previously.
Nonetheless, year-end inforce premium increased 6.0 percent in 2017 (2.9 percent in 2016). 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 6.1 percent and group claims rose 10.3 percent. Overall, the stand-alone LTCI industry incurred $11.1 billion in claims in 2016 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2016 to $118.9 billion. (Note: 2016 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. This compares with $9.5 billion of incurred claims in 2015, a 14 percent increase. Combo LTC claims are in their infancy and amounted to $5.9 million. The claim figures are even more startling considering that only 4 percent of 7 million covered individuals were on claim at the end of 2016.
Only 59.0 percent of applications resulted in active policies. This low success ratio contributes to financial advisors’ reluctance to recommend that clients apply for 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 10 insurers.
Partnership Programs discusses the impact of the state partnerships for LTCI.
Product Exhibit shows, for nine insurers: Financial ratings, LTCI sales and inforce, and product details.
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 five percent annual compound benefit increases for life. Worksite premiums 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.
Market Perspective (more detail in subsequent parts of the article)
Recently priced policies are based on assumptions that rely on far more credible data, hence premiums should generally be more stable.1 However, consumer access to genetic testing seems to pose a potentially significant threat to insurers, as explained in the “One-Time Risk-Related Questions” area in the Sales Statistical Analysis section.
Despite the anticipated more stable pricing, many financial advisors presume that currently-issued policies will face steep price increases. It is important to educate them that assumptions underlying current market pricing should produce a lower chance of needing a rate increase. For example, one of the biggest assumptions that is better understood today is voluntary termination assumptions, originally often priced closer to eight percent per year compared to often now less than one percent per year. Because voluntary termination rates in pricing are now close to a “theoretical floor” of zero percent, it is far less likely that rate increases will be required on products priced today, all else equal.
About half of the participants have increased premiums on policies issued under “rate stabilization” laws. For most of those insurers, the highest cumulative increase on such policies has been 30 percent to 60 percent.
“Combo” policies (LTCI combined with life insurance or annuity coverage) increased to 256,000 sales totaling more than $4 billion of new premium in 2016 (88 percent life; 12 percent annuity) much of which was from single premium sales, compared to $3.6 billion in 2015. (2017 combo sales were not available when this article was written.) Combo products have increased market share because they include a death benefit (so premiums are not “wasted” for those who never need LTC), are perceived to be more stable, and now offer alternatives besides single premium.
There are many ideas being discussed by the industry to address LTC financing, including the following:
Stand-alone LTCI with guaranteed premium and with benefits that float up or down based on experience.
Life insurance partly pre-paying for LTCI and converting to LTCI at a specified age.
A tax-favored retirement program that supplements retirement benefits if LTC is needed.
Industries are becoming more electronic, so we asked one-time questions regarding electronic applications (eApps). Six of 12 respondents currently have eApps. Another three are likely to have eApps by the end of 2018. All but one of the eApps drill down for further information when a question is answered “yes” (the other eApp is used only for simplified underwriting) and all but one send a skeletal record to the advisor. One eApp can be completed by a consumer without advisor assistance. Based on data from two participants, eApps are 71 percent more likely to be in good order and significantly less likely to be declined than previous experience with paper apps (overall, eApps had 19 percent lower declines, despite one carrier having a higher decline rate because their eApps had an older age distribution). Paper apps submitted after an eApp system has been installed are two percent to four percent more likely to be “not in good order” (NIGO) than paper apps prior to the eApp system being installed. That is probably because the most prolific submitters of applications submit fewer applications that are NIGO and also are more likely to adopt eApps quickly. There are mixed results on the decline rate of paper apps after an eApp system is installed. It is surprising that the “cleaner” apps did not reduce processing time; perhaps that is due to an older age distribution. We measured processing time from when the app reaches the insurer, thus ignoring quicker submission by the advisor and possibly speedier movement from advisor to carrier.
During the course of 2017, the brokerage worksite market reduced to a sole insurer. However, three new unisex offerings appear likely by the end of 2018. Despite that welcome news, it can be hard to find stand-alone LTCI for employers with many young, lower income or female employees, particularly if the employer does not contribute to the cost.
The average potential future covered LTC costs dropped again for 2017 sales. For the average 57-year-old purchaser in 2017, we project a maximum benefit in 2040 of $254/day, equivalent to an average 2.1 percent compounded benefit increase. The same average purchaser, had he/she purchased last year’s average policy at age 56, would have had $281/day by age 80, equivalent to 2.4 percent compounding. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time. In addition to the monthly maximum, the average benefit period also dropped, which is not reflected in this calculation.
If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to independent third-party review (IR), which is binding on insurers. We are aware of only 53 times claimants have resorted to IR, and the insurers’ denials were upheld 89 percent of the time. Most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. The existence and voluntary expansion of IR and the insurer success rate when appeals occur help justify confidence in the industry’s claim decisions.
Only four participants offer coverage in all U.S. states and no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which are slow to approve a new product, restrict rate increases, or have unfavorable legislation or regulations.
Six of our participants use reinsurers and six use third party administrators. We’d like to recognize their contribution to the LTCI industry. The reinsurers used are General Electric, LifeCare, Manufacturers, Munich, Reinsurance Group of America and Swiss Re. The TPAs are CHCS, Life Plans, LifeCare Assurance, and Long Term Care Group. Other reinsurers and TPAs support insurers which are not in our survey.
Claims
Ten participants, including one new participant, reported 2017 individual claims but two carriers that contributed claims data last year did not contribute statistical data this year. Only two carriers submitted group claims data. Some companies were not able to respond to some questions or could not respond in a way that justified combining their data with the other carriers for some questions.
For the nine insurers which reported individual claims for both 2017 and 2016, claim dollars rose 6.1 percent, despite a 6.3 percent decrease in inforce policies.
For the two group carriers, claim dollars rose 10.3 percent.
Combining individual and group claims, these 10 insurers paid $3.2 billion in LTCI claims in 2017 and have paid $29.9 billion from inception.
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 might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, etc.
Table 1 shows claim distribution based on dollars of payments, whereas Table 2 shows distribution based on number of claims.
Individual claims shifted significantly away from nursing homes (from 37.4 percent to 32.1 percent) to ALFs (31.2 percent to 35.3 percent). We’ve expected on-going shift away from nursing homes (because of consumer preferences and because an increasing percentage of claims are on comprehensive policies), but about 60 percent of the change in Table 1 is attributable to different insurers providing 2017 claims information than in 2016.
In the distribution based on number of claims (Table 2), a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.
Eight carriers reported their number of open claims at year-end. Six of the eight insurers reported that their pending number of claims at year-end was between 67 percent and 82 percent of the number of claims they paid during the year.
Table 3 shows average size individual and group claims since inception. Because claimants can submit claims from more than one type of venue, the average total claim should generally be larger than the average claim paid relative to a particular venue. Nonetheless, ALFs consistently show high average size individual claims, probably because:
a) ALF claims appear to last longer compared with other venues.
b) Nursing home costs are more likely than ALF costs to exceed the policy maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes. (Quantified below.)
c) If people maximize the use of their maximum monthly benefits, they’ll spend nearly the same 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 care provided in a nursing home. Also upscale ALFs seem to cost a higher percentage of upscale nursing home costs than is true of the average ALF.
Some people may have expected that ALF claims would be less expensive than nursing home claims because ALFs cost less per month. But that has not been the case.
Except for home care, the individual average claims rose about one-third in 2017. These increases were also significantly attributable to a change in participants.
The following factors cause our average claim sizes to be understated:
Roughly ten 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 though they are multiple insureds. We are not able to add their various claims together.
Past 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 purpose of insurance is to protect against a non-average result, so the amount of protection, as well as average claim, is important.
The average group claim is smaller than the average individual claim, but closer this year than in the past due to a change in insurers providing the data. Group claims tend to be smaller because of shorter benefit periods, lower maximum daily benefits, fewer benefit increase features, and more common reduced maximums for home care.
Only two participants were able to answer our one-time questions to study what percentage of claims use the full maximum monthly benefit. One had a higher percentage of claims use the maximum benefit in each cell, especially for ALFs and community care (home care and adult day care), but the two insurers showed the following consistent patterns:
Nursing home (NH) claims were more likely to use the maximum benefit than ALF claims, which were more likely to use the maximum benefit than adult day care and home care claims.
Policies with flat benefits were more likely to use the maximum than were policies with increasing benefit maximums (which included policies with FPOs).
Home care claims with monthly determination of benefits are more likely to pay the maximum monthly benefit than home care claims with daily maximums. We did not distinguish claims based on that characteristic, but believe the insurer with fewer community care claims using the full maximum had a higher percentage of policies with daily determination.
Table 5 conveys the false impression that home and adult day care (“community care”) claims are more likely to use the maximum if they have increasing benefits. That result occurred because the insurer with fewer policies using maximum benefits, sold mostly flat community care benefits, while the insurer with more policies using maximum benefits sold mostly increasing community care benefits. As noted above, both insurers found that flat benefits were more likely to be entirely used.
We also asked one-time questions about the average monthly benefit paid by venue. To control the fact that ALF coverage is more common on more recent policies, we limited the question to policies issued between 2000 and 2005 which were on claim in 2017. Three insurers responded:
The average ALF claim was 0.3 percent higher than the average NH claim for one carrier and only 3.3 percent less for another carrier. For the third carrier, it was 20.4 percent less because their policies did not reimburse 100 percent of the ALF cost up to their NH maximum. Per Table 3, if we mix all years and include more insurers, the average total cost of an ALF claim is 54 percent higher than the average nursing home claim.
The average home care claim differed markedly by carrier. For one, it was a surprising 87.5 percent of the average nursing home claim. For another it was 47.4 percent (many policies had lower maximums for home care). For the third, it was only 13.1 percent (because of a 50 percent home care maximum and daily determination). Per Table 3, if we mix all years and include more insurers, the average total cost of a home care or adult day care claim is 69 percent as high as the average nursing home claim.
Six insurers were able to provide data regarding their current monthly exposure. The average current monthly maximum benefit per inforce policy ranged from $5,008 to $6,989, with a weighted average of $6,117. Expressed as a percentage of monthly inforce premium, the range was 2433 percent to 3948 percent, with a weighted average of 3148 percent. That means that the maximum monthly (annual) benefit is about 31.5 times the average monthly (annual) premium. Based on past studies, we believe the average inforce benefit period is more than four years, suggesting that the average protection is 126 times as large as the average annual premium, including premium increases which have occurred and ignoring future benefit increases.
While we were putting this article together, a state regulator expressed concern that payment of unjustified claims contributes to LTCI rate increases. We don’t think such claims have had a major impact on rate increases, but we have been glad to see the industry’s strong focus in recent years on ferreting out and resisting fraudulent claims.
Sales Statistical Analysis
Ten insurers contributed significant background data, but some were unable to contribute data in some areas. Seven other insurers (Auto-Owners, John Hancock, LifeSecure, National Guardian, State Farm, 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 6 lists the top 11 carriers in 2017 new premium among those still offering LTCI. Mutual of Omaha continued its surge, moving into first place, with Northwestern a strong second. Together, they produced more than 50 percent of annualized first year premium in 2017. They are followed by five insurers with five percent to 10 percent market share each.
Worksite Market Share
Worksite business produced 22.0 percent of new insureds (see Table 7), but only 13.9 percent of premium because of its younger issue age distribution and less robust coverage. We’ve restated 2016 sales to include Genworth group, demonstrating that the percentage of sales from worksite sales has not changed much from 2016. 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, particularly modest coverage levels because a lot of people don’t buy-up and are least likely to insure spouses.
Executive carve-out programs generally are the most robust. 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 our analysis.
The amount of worksite sales reported and the distribution of worksite sales among the three sub-markets significantly impact product feature sales distributions. This year’s distributions underweight the voluntary and core/buy-up markets because carriers in those markets shared less statistical data than in the past. More information about worksite sales will appear in the August issue of Broker World magazine.
We asked a one-time question: Recognizing that combo life/LTCI policies are available in the worksite on a guaranteed issue basis (if there is satisfactory participation), do you envision offering worksite stand-alone LTCI policies on a guaranteed issue basis or with underwriting concessions within the next five years? No participant envisioned guaranteed issue, but three insurers envisioned instituting worksite health liberalizations.
Affinity Market Share
Reported affinity sales produced 7.3 percent of new insureds (see Table 8), but only 6.8 percent of premium. About 75 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. Prior to 2016, affinity sales did not include AARP sales.
Characteristics of Policies Sold Average Premium
As shown in Table 9, the average premium per new insured ranged between $2,322 and $2,497 between 2011 and 2016, then surged to $2,596 in 2017. If we had had the same participants each year, the increase would have been larger. The increase was partly attributable to FPOs, hence overstates the average new sale premium. Three insurers reported average premiums below $1,600, while four insurers were over $3,000, with another at $2,995. The average premium per new purchasing unit (i.e., one person or a couple) also rose, from $3,496 to $3,734 (also inflated by FPOs). The lowest average premium was in Kansas ($2,278) followed by Louisiana ($2,310), while the highest average premium was in New York ($3,942) followed by Connecticut ($3,888). The average inforce premium jumped 8.5 percent to $2,296, due to rate increases and, to a much lower extent, FPO elections and termination of older policies.
Issue Age
Table 10 summarizes the distribution of sales by issue age band based on insured count. The average issue age rose to 56.7, the highest since 2013. The change in participants explains about 25 percent of the increase. 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 11 summarizes the distribution of sales by benefit period. The average notional benefit period dropped from 4.07 to 3.73, about 40 percent of which was attributable to the change in participants. Because of shared care benefits, total coverage was higher than the 3.73 average suggests. Nearly 62 percent of the sales had two-year or three-year benefit periods.
We asked a one-time question: How likely is it that your company might offer a lifetime/endless benefit period within the next five years, assuming that you could price it as conservatively as you might like? All nine respondents said it was unlikely, eight saying it was too risky, five each saying it was too expensive to generate many sales and would require too much risk-based capital or reserves, and three being concerned about anti-selection. However, one non-respondent has begun to offer a lifetime benefit period.
Maximum Monthly Benefit
Table 12 shows that monthly determination applied to 77.9 percent of 2017 policies, down from 81.0 percent in 2016. Without the change in carriers, the use of monthly determination would likely have increased. With monthly determination, low-expense days can leave more benefits to cover high-expense days. It was included automatically in 49.0 percent of policies (vs. 69.6 percent in 2016). Where it was optional, 56.7 percent purchased monthly determination (vs. only 37.5 percent in 2016).
Table 13 summarizes the distribution of sales by maximum monthly benefit at issue. The average maximum benefit decreased 1.5 percent to about $4,700 per month. It would have dropped more had the participants not changed.
Benefit Increase Features
Table 14 summarizes the distribution of sales by benefit increase feature. “Other compound” has grown a lot in the past two years. Many of those policies have compounding that stops after a fixed number of years. Some of the changes in distribution from 2016 are related to changes in participants.
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 1.5 percent of sales. Simple five percent increases were 19 percent of 2003 sales, but are now 0.2 percent of sales. All simple increase designs together account for one percent of sales (not shown in the table).
“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 and assuming a long term three percent CPI. The maximum benefit at age 80 (in 2040) for our 2017 average 57-year-old purchaser projects to $254/day. Had our average buyer bought an average 2016 policy at age 56, her/his age 80 benefit would be $281/day.
Five insurers provided both the number of available FPOs (at attained age rates) in 2017 and the number exercised, with 34.7 percent of insureds exercising FPOs (Table 15). By insurer, election rates varied from 13 percent to 73 percent. Insurers at the high end use a “negative election” approach; i.e., the increase applies unless specifically rejected. Insurers at the low end use “positive election” (the increase occurs only if specifically requested). Approximately half of the increase from 2016 is due to different participants.
Elimination Period
Table 16 summarizes the distribution of sales by facility elimination period. As an overwhelming percentage of policies opt for 90-day elimination periods, we may see reduced flexibility offered in the future.
Table 17 shows that the percentage of policies with zero-day home care elimination period (but a longer facility elimination period) has dropped from 38.9 percent in 2013 to 13.4 percent in 2017 and that the percentage of policies with a calendar-day elimination period (EP) definition jumped to 43.7 percent. Those changes are caused by a change in sales distribution among carriers. For insurers which offer calendar-day EP, 45.5 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 18 summarizes the distribution of sales by gender and couples status. The data in this table was not affected by the change in participants.
The biggest change was that 67.6 percent of healthy partners completed her/his purchase when the unhealthy partner was declined, compared to 71.4 percent in 2016. The drop is attributable to an insurer which shifted to a new product which removed the couples’ discount entirely under such circumstances. Their previous product h
The Milliman Long Term Care Insurance Survey has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011. The worksite multi-life market (WS) consists of individual policies sold with discounts and/or underwriting concessions to groups of people based on common employment. “Core” programs involve the employer paying for a small amount of coverage for generally a large number of employees; the employees can buy more coverage. “Carve-out” programs involve the employer paying for more substantial coverage for generally a small number of executives and usually their spouses; usually the insureds can buy more coverage. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)
The July 2017 issue of Broker World reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Three other participating companies (MassMutual, National Guardian, and New York Life) showed worksite discounts in their displayed “street” products. Mutual of Omaha’s common-employer discount is expressly not a worksite program.
Here we compare the survey’s WS sales with individual LTCI policies that are not worksite policies (NWS) and to total individual sales (Total). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.
Some business owners buy individual policies and pay for them through their businesses. Some participants may not report such policies as “worksite” policies. In other circumstances, businesses might sponsor general long term care/LTCI educational meetings, with employees pursuing any interest in LTCI off-site. Such sales are not included here.
About the Survey Five insurers (identified previously), of the 12 whose products are displayed in the 2017 Milliman LTCI Survey, offer discounts for WS LTCI. All, except National Guardian, which did not place sales until late in 2016, contributed data. In addition, Northwestern contributed data. John Hancock discontinued LTCI sales in 2016 and chose not to report its data. Genworth sold true group policies and Unum added new lives to existing group policies. Our data does not include those group sales.
Highlights from This Year’s Survey
In 2016, participants reported sales of 14,929 worksite policies for $23.7 million of new annualized premium, increases of 22.1 percent in the number of WS policies and 12.4 percent in new annualized WS premium. These increases contrast with the declines in total 2016 LTCI sales compared with 2015 (13.6 percent fewer policies and 14.2 percent less new annualized premium).
Worksite LTCI sales accounted for 18.5 percent of the policies sold in the industry (up from 12.5 percent in 2015) and 11.9 percent of the annualized premium (up from 8.7 percent).
For one carrier, 64 percent of its new premium came from WS sales. Another carrier had 37 percent of its sales from WS. The other three carriers sold seven percent to 11 percent of their new premium in WS.
The average worksite premium dropped from $1,740 in 2015 to $1,590 in 2016. Among participants, the average varied from $1,344 to $3,453, so a change in distribution by carrier can significantly affect the overall average premium. Core business drags the average worksite premium down a lot and carve-out business pulls it up, so a change in distribution by core versus carve-out can also have a big impact on average premium.
Two insurers reported 25 to 30 policies per group. Two others had two to six policies per case and one insurer did not report average case size. Last year, one insurer reported an average of 56 policies per group.
Market Perspective The WS share of the total market has been increasing for the past three years despite pressures affecting the worksite market. Most of the increase in WS market share reflects the decline in NWS stand-alone LTCI. The popularity of combo products has eaten into the NWS stand-alone LTCI market much more so than in the worksite market. However, the number of policies in the worksite market increased in 2016 and new premium has increased for the past two years.
Most insurers interpret Title VII of the 1964 Civil Rights Act to require that employer-involved sales use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current (or previous) year.
When both NWS and WS had unisex pricing, WS business was a more attractive market for insurers because the distribution of sales was more heavily weighted toward males. More males were eligible for executive carve-out programs and single males were probably significantly more likely to buy LTCI when LTCI was presented to them with their employer’s endorsement. Our data indicates that the WS market has become increasingly dominated by female sales, perhaps because females are becoming informed about the attractiveness of unisex premiums and because the WS market charges males a lot more than males are charged in the NWS market.
Because of the expense involved in having separate pricing for WS sales and NWS sales and partly due to the additional gender risk mentioned above, insurers are less likely to have products in both the WS and NWS market. Furthermore, insurers are more concerned than in the past about having a sufficient number of employees who are likely to be financially able to pay for LTCI, the likely participation rate, and the gender distribution. (Our July article reported on insurers’ answers to specific questions on these issues.)
In the past, an executive carve-out for two partners of a company with more than 15 employees could have been served by any LTCI company. Increasingly, it is hard to find a carrier for such a group. Thus, it is harder for executives to benefit from the tax advantages of employer-paid coverage.
We are also seeing a trend toward the unisex WS premium approaching the NWS female price level. As a result, WS couples may also pay more than NWS couples, particularly as male spouses are generally older and one or both spouses might qualify for a “preferred health” discount “on the street.”
Insurers have also raised their minimum ages to avoid anti-selection (few people buy below age 40) and, to reduce exposure to very long claims, stopped insuring people who don’t go to the doctor regularly. Two of the five insurers showing worksite availability in our July display won’t issue worksite below age 40. An age 40 minimum makes sense in the NWS market, but it hurts sales to people over age 40 as well as under age 40 in the WS market because employers don’t want to exclude under-age-40 employees, especially in the executive carve-out market.
Uncertainty related to the Patient Protection and Affordable Care Act (ACA) continues. The waves of confusion and work for employee benefit brokers and employee benefit managers continue to make it hard for brokers and clients to consider WS LTCI.
Voluntary worksite LTCI sales may gravitate toward combo products, which have the added advantage of providing valuable life insurance coverage that is viewed as a more immediate potential need.
A shift away from worksite voluntary LTCI would be unfortunate because the worksite is a great avenue to reach the middle class. These potential buyers could benefit from LTCI and the state Partnership programs that also provide relief to Medicaid programs. Unfortunately, only 30.7 percent of WS sales in 2016 had characteristics that would qualify for Partnership programs. (The July issue of Broker World demonstrated the value of the Partnership programs and outlined a number of ways to increase Partnership success.)
Statistical Analysis In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the submarket they serve and how they serve it. Furthermore, our results may vary from year to year due to a change in participating insurers or in market share among insurers.
Sales and Market Share Table 1 shows historical WS sales levels and Table 2 shows market share (WS as a percentage of total sales). The WS market had much more stable sales than the total market, thereby driving up the WS share of total sales. The NWS market has been more affected by the growing popularity and flexibility of combo products. Also, the increase in unit premiums is less detrimental in WS executive carve-out sales to the degree that premiums are pre-tax.
But the worksite market has been hampered because our nation’s health insurance gyrations have consumed the attention of employee benefit professionals and employers. In addition, since the advent of gender-distinct “street” prices, fewer insurers have been attracted to the worksite market and the criteria for acceptance of worksite cases has tightened, as noted earlier. Furthermore, many people believe that employers with more than 15 employees expose themselves to civil rights complaints if they use gender-distinct pricing. It has grown increasingly difficult to serve that market. Given such headwinds, the WS sales have been very impressive, especially as fewer very large groups appear to have been written.
As shown in Table 3, the five top worksite carriers were the same in 2016 as in 2015, with only one insurer causing rank changes. WS market share among carriers is distributed very differently from the NWS market. The top two WS carriers combined for 70.4 percent of the market (compared with 63.3 percent for the top two in 2015), while collectively producing 16.7 percent of total LTCI sales.
Issue Age Table 4 shows that the WS buyer continues to draw nearer to the NWS market in average age. In 2014, the average age difference was 7.5 years (49.5 vs. 57.0), dropping to 5.9 years in 2015 and 5.3 years in 2016. For each market, the most common age range is 50 to 59, but 34.9 percent of WS sales were under age 50, compared with only 16.6 percent of NWS sales.
Rating Classification Not surprisingly, as Table 5 shows, despite its younger age distribution, the worksite market has a much lower percentage of policies issued in the best underwriting (UW) classification because many worksite programs do not offer “preferred health” discounts. This difference between the markets broadened in 2016.
Benefit Period Table 6 demonstrates a sharp reversal from 2015. For the third time in the past four years, the average WS benefit period (BP) was longer than the average NWS BP. Prior to 2013, that had not occurred. The difference in 2016 was a little greater than in 2013 and 2014. One carrier sells a lot of eight-year BP policies, which had a large impact on the data.
Furthermore, as reported in the “couples” section below, WS buyers were more likely to purchase shared care, which can increase an individual’s benefit period.
Maximum Monthly Benefit Table 7 shows that the difference in average initial monthly maximum benefit narrowed between the WS and NWS markets in 2016, dropping from $810 ($4,890 in NWS vs. $4,080 in WS) to $645 ($4,924 in NWS vs. $4,279 in WS), as the WS average increased more than the NWS average.
Benefit Increase Features Different carriers offer different benefit increase features. As a result, the difference in distribution of NWS sales versus WS sales by carrier explains why the WS market has more step-rated, deferred, and age-adjusted benefit increase features, as shown in Table 8. In addition, WS has a little more five percent compounding and a lot more future purchase options (FPO).
In the WS market, 60.0 percent of policies had either no increases, a deferred option, or future purchase options (FPO), compared with 53.8 percent of NWS policies.
Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2016 study), the typical worksite sale’s average maximum monthly benefit of $143 would cover 7.1 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $164 would cover 8.3 hours of care per day at issue.
To determine the coverage at age 80, we project, based on the distribution of benefit increase provisions, the daily maximums from the average issue age (which was different for WS and NWS) to age 80, using the methodology reported in the July article.
As shown in Table 9, we project the cost of care at age 80 using various inflation rates to determine how many hours of home care would be covered at age 80. The worksite line shows about 20 percent fewer non-professional home care hours than we projected last year, because the WS market had a higher issue age this year and less robust compounding. From the table, we can infer that the average compounding on WS sales is 2.1 percent, as home care purchasing power increases from 7.1 hours at issue to 7.3 hours at age 80 if the inflation rate turns out to be only two percent.
Projecting the average NWS design at the WS average age and at the NWS average age shows that the younger age of the WS market hurts age 80 coverage if the inflation rate is three percent or higher. From the table, we can infer that the average NWS compounding is about 2.4 percent. Thus, if average home care cost inflation exceeds 2.4 percent, NWS sales will have decreasing purchase power on average.
It is important to remember that:
The results vary significantly based on an insured’s issue age, initial maximum daily benefit, and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.
It is important to educate buyers that their purchasing power may deteriorate over time.
Table 9 does not reflect the cost of professional home care or a facility. According to the 2016 Genworth study, the average nursing home private room cost is $253/day, which is comparable to 12.5 hours of non-professional home care. Readers can use this fact and the above data to determine what percentage of typical nursing home costs might be covered.
Table 9 could be distorted by some simplifications in our calculations. For example, we assumed that each size policy is as likely to exercise benefit increase options and that everyone buys a home care benefit equal to the facility benefit.
Partnership Qualification Rates The benefit increase requirement to qualify under the state Partnership programs varies by age. Generally a level premium with a permanent annual three percent or higher compound increase or an otherwise similar consumer price index (CPI) increase is required for ages 60 or less. For ages 61 to 75, five percent simple increases also qualify, and for ages 76 or older policies qualify without regard to the benefit increase feature. We presumed that age-adjusted compound policies would also qualify. Table 10 identifies the percentage of policies that would have qualified for Partnership if Partnership programs existed with those rules in all states. However, if Partnership programs were available in all states (with the rules cited in this paragraph), the percentage of Partnership policies would exceed the percentages shown in Table 10, because Partnership programs could cause the distribution of sales to change in those states that don’t currently have Partnership programs.
The WS market provides an opportunity to serve less-affluent people efficiently, employees and relatives who would most benefit from Partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet Partnership qualifications fell from 56.6 percent in 2012 to 41.7 percent in 2014 and hit a new low of 30.7 percent in 2016. Our July survey article identified several ways to improve these percentages.
Elimination Period About 90 percent of the NWS market buys 90-day elimination periods (EPs). For that reason, most WS programs offer only a 90-day EP and 97.8 percent of 2016 WS sales had a 90-day EP. Every other EP became less common in the WS market in 2016. In the NWS market, EPs longer than 100 days became a bit more popular in 2016.
Because of a shift in sales distribution between insurers, a zero-day home care (HC) elimination period (in conjunction with a longer facility EP) was less common in WS sales in 2016 than in 2015, yet still 50 percent more common than in the NWS market.
For the same reason, calendar-day EPs surged in the WS market in 2016, nearly doubling, while the NWS market was similar to 2015. As we have noted in the past, a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. When receiving facility care, a service-day EP is effectively the same as a calendar-day EP. If that carrier’s EP was classified as “calendar-day,” 83 percent of WS sales would show up as “calendar-day” EP, compared with 75 percent in 2015.
Sales to Couples and Gender Distribution In 2015, for the first time, the WS market had a higher percentage of sales to females than the NWS market (2.1 percent higher). Table 12 shows that, in 2016, this difference broadened to 3.2 percent, as the percentage of females among WS sales ticked up by 0.1 percent of buyers while the percentage of females in the NWS market dropped by one percent of buyers.
Reflecting insurers’ fears, 74.2 percent of single WS buyers were female. Fortunately for the insurers, the percentage of WS couples who both buy increased from 50.7 percent to 52.1 percent.
In 2016, WS purchasers were a little more likely to also insure their spouses than in the NWS market. In the past, marketing and core programs often insured the employee but not the spouse. When WS marketing is directed toward securing spouse applications, the percentage of both spouses buying should be higher than for the NWS market because there should be fewer declines, as at least one spouse/partner is employed and the age distribution may be younger.
Surprisingly, for the second straight year, couples who both purchased coverage were more likely to include shared care in the worksite market than in the NWS market, with the difference increasing substantially compared with 2015.
Table 13 shows the percentage of females in each market annually since 2011. When unisex pricing applied in both markets, the WS market had a higher percentage of males than the NWS market, perhaps because males were more likely to be eligible for executive carve-out programs and because single males (who might not normally consider buying in the NWS market) were solicited with their employers’ endorsements in the WS market. As mentioned earlier, insurers are concerned that single males will be less likely to buy in the WS market now, as their prices are typically significantly higher than “street” prices.
Type of Home Care Coverage Table 14 summarizes the distribution of sales by type of home care coverage. Historically, the WS market sold fewer policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, policies with the same maximum for home care and facility care are now almost always sold and are more common in the WS market than the NWS market. WS policies were more likely to include monthly determinations in 2016 than in 2015 because of a shift in distribution among carriers.
Other Features Return of Premium (ROP) regressed from 2015’s 54.7 percent of WS policies to 37.2 percent, still more common than in 2014 (29.3 percent) and more common than in the NWS market (24.3 percent). In both the WS (94.3 percent) and NWS (92.4 percent) markets, the vast majority of ROP features were embedded automatically. In the WS market, 82 percent of the embedded ROP sales had death benefits that expired (such as expiring at age 67). Such ROP is an inexpensive way to encourage more young people to buy coverage.
In a shift from 2015, partial cash alternative was slightly less common in the WS market (29.6 percent) than in the NWS market (30.5 percent). One major WS carrier has a provision similar to partial cash alternative but it is limited to purposes listed in the plan of care. If that feature is included here, such alternatives were included in 82.5 percent of WS sales compared with 34.7 percent of NWS sales.
For the third straight year, shortened benefit period was less common in 2016 in the WS market (0.3 percent) than in the NWS market (1.5 percent).
Restoration of Benefits was also less common in the WS market (11.5 percent) than in the NWS market (13.6 percent) but was twice as likely to be purchased for an extra premium in the WS market (38.6 percent vs. 17.3 percent).
Limited Pay Table 15 shows that limited pay policies accounted for less than one percent of the market in 2016.
Closing We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Derek Montgomery of Milliman for managing the data expertly.
We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.
The 2017 Milliman Long Term Care Insurance Survey is the 19th consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products.
The data includes certificates or individual policies sold to multi-life groups (primarily small groups) with discounts and/or underwriting concessions, but excludes group policies aimed only at the large group market.
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 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), annuity, or disability income benefits.
Highlights from This Year’s Survey
Participants
Thirteen carriers participated broadly in this survey. Four others provided sales information so we could report accurate aggregate industry individual and multi-life sales.
Although not displaying products, Northwestern LTC provided background statistical information. Auto-Owners, John Hancock, MedAmerica, and United Security contributed to the sales total but did not provide other statistical information.
Sales Summary
The 17 carriers reported sales of 88,922 policies ($220,501,539 of new annualized premium) in 2016, which we believe represents 100 percent of the stand-alone LTCI industry’s 2016 individual and multi-life sales.
Overall, the number of policies sold was 13.6 percent less than in 2015 and the annualized premium was 14.2 percent less than in 2015. “Combo” policies (i.e., LTCI combined with life insurance or annuity coverage) and policies that offer LTC-related accelerated death benefits more than made up for the sales reductions.
Six insurers increased sales compared to 2015.
The average issue age dipped from 55.9 to 55.8, the lowest ever reported in this survey. Fewer insurers offer coverage to people under issue age 40 or above issue age 75.
The average premium per new insured dropped slightly from $2,497 to $2,480 (reflecting 17 insurers), and the average premium per new buying unit (recognizing couples as one buying unit) dropped slightly from $3,526 to $3,496.
Reported worksite business produced 12.6 percent of new insureds (12.5 percent in 2015 and lower percentages in 2014 and 2013), but only 8.5 percent of premium because of the younger issue age distribution. Worksite sales may be understated because small cases that do not qualify for a multi-life discount may not be labeled as worksite. More information about worksite sales will appear in the August issue of Broker World magazine.
Reported affinity business amounted to 6.1 percent of the 2016 new insureds (down from 6.8 percent in 2015 and 7.8 percent in 2013 and 2014) but only 5.1 percent of the premium (consistently a lower percentage of premium than policy count).
Northwestern and Mutual of Omaha continued as the number one and number two carriers, combining for 45 percent of the new sales in terms of premium.
In 2015, the number of in-force policies for our participants dropped for the first time (0.2 percent). In 2016, the number of in-force policies dropped again, by 0.3 percent.
Nonetheless, year-end in-force premium increased 2.9 percent in 2016 (2.4 percent in 2015). In-force premium is increased by sales, price increases, and benefit increases, and is reduced by lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.
Participants’ individual claims rose 6.9 percent and group claims rose 4.7 percent. Overall, the stand-alone LTCI industry incurred $9.7 billion in claims in 2015 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2015 to $107.8 billion. (Note: 2015 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. This compares with $8.7 billion of incurred claims in 2014, roughly an 11 percent increase.
The average time from receipt of the application until a policy is issued dropped from 44 days to 38 days, the fastest time since 2012.
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 12 insurers (our 13 participants other than National Guardian, which had no sales last year).
Partnership Programs discusses the impact of the state partnerships for LTCI.
Policy Exhibit shows information such as financial ratings and sales results for each carrier and details about their product offerings.
Product Details provides a row-by-row definition of the product exhibit. We have 16 products displayed.
Premium Rate Details explains the basis for the product-specific premium rate exhibit.
Market Perspective (more detail in subsequent parts of the article)
Insurers continue to deal with disheartening price increases on existing policies and unsatisfactory results for those older blocks. Recently priced policies are based on assumptions that rely on far more credible data, hence premiums should generally be more stable, but many financial advisors presume that currently issued policies will face steep increases.
Unfortunately, the potential future covered long term care costs from current sales continue to drop compared with previous years. For the average 56-year-old purchaser in 2016, we project a maximum benefit in 2040 of $281/day, or approximately an average 2.4 percent compound benefit increase. Purchasers may be disappointed in their selected designs if the purchasing power of their LTCI policies deteriorates over time.
We are aware of only 37 times claimants have resorted to independent third-party review (IR), and the insurers’ denials were upheld 89 percent of the time. (If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding IR.) Most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. The existence and voluntary expansion of IR and the insurer success rate when appeals occur all work to justify confidence in the industry’s claim decisions. Such confidence may be reflected in the media, as the industry has received little criticism regarding claims adjudication in the past few years.
The annual number of life insurance policies sold with long term care benefits is now more than twice the number of stand-alone policies sold. More than 80 percent of those policies limit the long term care benefits to no more than the policy face amount. The number of life insurance policies sold with a long term care benefit that exceeds the death benefit has increased to about one-third of the stand-alone policies sold. The increasing popularity of such products is attributable to having a death benefit (so premiums are not “wasted” for those who never need long term care), perceived greater pricing stability, and expansion to more premium flexibility and long term care coverage potential with such products.
This year, we asked some questions regarding the future of the LTCI industry. We asked how many insurers would be in the stand-alone LTCI market in five years. Nine participants answered, with an average response of 14.2 and a range of 8 to 20 insurers. In response to the same question for life insurance products with a long term care benefit that exceeds the death benefit, seven participants answered, with the same 8 to 20 range and an average of 13.0 insurers. Five participants thought there would be about 20 percent more insurers in the stand-alone space than in the combo market, and the other two participants thought there would be the same number in each market.
Only one participant believes there will eventually be a government LTCI program and expects that program to provide limited benefits. Seven insurers responded that they do not expect such a program, and the other participants chose not to answer this question.
One insurer has made both single premium sales (which constitute a noncancelable product) and endless (“lifetime”) benefit periods available once again with a stand-alone LTCI policy. It will be interesting to see how these offerings affect 2017 sales. Another insurer offers an “endless” benefit period on a combo product.
The shift to gender-distinct pricing is nearly complete, but the impact continues to evolve. At the beginning of 2013, all products used unisex pricing. Now only one insurer uses unisex pricing outside the worksite. (Note: two carriers use unisex pricing for couples.)
The additional effort required to create unique unisex pricing for the worksite, coupled with insurers’ fear of gender anti-selection (when unisex worksite prices offer women large discounts compared with gender-distinct “street” pricing), make it more difficult to find attractive worksite LTCI programs, especially for small carve-outs in companies with more than 15 employees and for employers with a largely female staff. The worksite market has also narrowed because fewer companies offer coverage to applicants below age 40. Similarly, it is hard to satisfy members of business associations with affinity LTCI programs. Such members generally want to pay through their business to earn tax breaks but affinity programs generally utilize gender-distinct pricing.
We asked additional questions this year relative to the worksite market. Insurers that do not sell in the worksite market often did not answer these questions. Distributors might answer some of these questions differently from insurers.
Is the worksite market large enough to justify an ongoing commitment to having a separate product in that market? Five insurers responded that the worksite market is large enough to justify the effort and two specifically said it is not large enough. Some carriers that answered positively do not currently have a worksite product, while some that have a worksite product either did not answer the question or answered “no.”
Is the lack of product availability (or are product differences) by jurisdiction a barrier to worksite sales? Two insurers selected the “meaningfully” choice, three selected “a little,” and one selected “not at all.” Insurers do not expect much change in terms of jurisdictional differences.
Only one insurer felt that the availability of the Partnership Program is significant in the worksite market.
We asked if a minimum issue age of 40 is a meaningful barrier in the voluntary, core/buy-up and carve-out markets. Only one carrier perceived the minimum age to be a meaningful barrier and only in the core/buy-up and carve-out markets. Three insurers said it would become harder to purchase under age 40 while two said it would become easier to purchase under age 40.
We asked if combo sales with an extension of benefits would increase in the voluntary, core/buy-up and carve-out markets. Only one insurer envisioned an increase and that was only for the voluntary market. It should be noted that we questioned executives in the stand-alone LTCI market, not executives in the combo market.
Single males generally pay much more through the worksite than “on the street.” Single women generally have been paying a lot less through the worksite than “on the street.” Couples may pay less or more. We offered several ways the gender pricing dichotomy will affect the market. Only one insurer checked the “fewer employers will sponsor programs” box. That same insurer was the only one agreeing that “both-buy” discounts would become more common and larger in the worksite. On the other hand, five insurers agreed that the minimum number of employees would increase, the minimum participation requirement would increase, and that unisex prices would grow closer to female prices. Four insurers selected “worksite gender distribution will shift more to females.”
In contrast to the above answers, only one insurer expressed concern about health anti-selection in worksite cases, because there are few health concessions and because of the participation requirements.
We asked about the likely difference in later-policy-year lapse rates between the worksite market and the “street” market, asking separately about the voluntary market, core/buy-up market and executive carve-out market and giving three choices: “less than one percent,” “one percent to two percent,” and “more than two percent.” The average answer was in the one percent to two percent range for core/buy-up and carve-out programs but a little less for voluntary programs. One insurer noted that the difference would disappear after a few policy years.
We asked some questions about “both-buy” discounts (percentage discounts when, generally, a husband and wife or two life partners both purchase coverage). We stated the premise that “With unisex pricing, single person pricing generally reflected an expectation that most buyers would be female. Couples’ both-buy discounts were on the order of 30 percent to 40 percent, partly because couples’ business was very close to 50/50 in gender distribution. That is, gender distribution contributed to the large both-buy discounts.”
Five insurers agreed with this statement. Two insurers disagreed, one stating that reduction in claim costs justifies the discounts, while the other disagreed because of their unique market.
It might be relevant that five insurers have higher “both-buy” discounts in 2017 than in 2013, four have the same discount in 2017 as in 2013, and three have lower discounts now than in 2013.
We asked what justifies large both-buy discounts with gender-distinct pricing. Four insurers cited increased likelihood that a claimant would stay at home and three of those insurers also checked off the “reduced anti-selection” box. One insurer stated that the both-buy discounts are not justified.
The potential impact of regulation continues to be unclear. Last year, we wrote that, “The detrimental impact of the Affordable Care Act on worksite LTCI sales should wane, as the ACA is likely to demand less attention from employers and employee benefit brokers going forward. The new Department of Labor fiduciary rules do not appear to impact LTCI directly, but increased need for detailed documentation may leave financial advisors less time for ancillary services such as LTCI sales. Furthermore, some advisors may become more reluctant to discuss LTCI with their clients, concerned that they lack the expertise to meet fiduciary standards.” As this 2017 article is being drafted, uncertainty relative to the Patient Protection and Affordable Care Act (ACA) and fiduciary rules continues to impact the LTCI market, with no clear resolution in sight.
Only five participants offer coverage in all U.S. jurisdictions and only one worksite insurer does so. When a jurisdiction is slow to approve a new product, restricts rate increases, or has unfavorable legislation or regulations, it contributes to insurers’ reluctance to sell in that jurisdiction.
Claims
Eleven participants reported 2016 individual claims, the same as in 2015 except that one large insurer stopped contributing data and another insurer reported the number of claim payments made during the year, rather than the number of policies that had claim payments. We’ve adjusted the data to avoid distorted comparisons. However, the change in carriers pushed our venue distribution more toward nursing homes. For true group claims, the same three carriers reported as in 2015.
Individual paid claim dollars rose 6.9 percent, despite a slight decrease in in-force policies. Many factors contribute to the increase: Claims increase as insureds get older, benefit increase features including future purchase options increase maximums, long term care costs rise, claims shift to more recently issued policies that have larger maximum benefits, etc.
Group paid claim dollars rose 4.7 percent. Assisted living facilities (ALFs) gained 1.1 percent share of group claim dollars and community care gained 0.3 percent, with a corresponding 1.4 percent drop for nursing homes. Note: Fewer group claims are reported in 2016 than in 2015, because one carrier overstated the number of group policies with claims in 2015.
Combining individual and group claims, these 11 insurers paid $3.3 billion in LTCI claims in 2016 and have paid $29.8 billion from inception.
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 might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc.
Table 1 shows claim distribution based on dollars of payments, whereas Table 2 shows distribution based on number of claims. In the distribution based on number of claims, if someone received care in more than one venue, that person is counted more than once. Claims will shift away from nursing homes because of preference for home care and ALFs and because newer sales are overwhelmingly “comprehensive” policies (covering home care and adult day care, as well as facilities), whereas many older policies covered only nursing homes. Claims that could not be categorized as to venue were ignored in determining the distribution by venue type.
Table 3 shows average size individual and group claims since inception. Because claimants submit claims from more than one type of venue, the average total claim should generally be larger than the average claim paid relative to a particular venue. Nonetheless, ALFs consistently show high average size individual claims, probably because:
ALF claims come from more recent policies with higher daily maximums.
ALF claims appear to last longer compared with other venues.
Nursing home costs are more likely than ALF costs to exceed the policy maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.
The following factors distort our average claim sizes:
Roughly 15 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 though they are multiple insureds. We are not able to add their various claims together.
In-force claim data understates the value of current sales because:
The many small claims drive down the average claim. The purpose of insurance is to protect against a non-average result, so the amount of protection, as well as average claim, is important.
Older policies had lower average maximum benefits and were sold to older issue ages compared with current sales, resulting in smaller claims for shorter periods of time than might result from today’s sales.
The average group claim is smaller than the average individual claim, probably because of shorter benefit periods, lower maximum daily benefits, fewer benefit increase features, and more common reduced benefits for home care.
Statistical Analysis
Twelve insurers contributed significant background data, but some were unable to contribute data in some areas. Four other insurers (Auto-Owners, John Hancock, MedAmerica, and United Security) contributed their number of policies sold and new annualized premium.
Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.
Market Share
Table 4 lists the top 10 carriers in 2016 new premium. Northwestern and Mutual of Omaha repeated as the top two carriers, with Mutual of Omaha cutting Northwestern’s lead by 40 percent compared with 2015. The two top carriers produced 45 percent of annualized first year premium in 2016. They are followed by four insurers with 7.0 percent to 8.5 percent market share each, and then three insurers with 5.0 percent to 5.5 percent market share each. Four of the top 10 had higher sales in 2016 than in 2015.
Characteristics of Policies Sold
Average Premium
The average premium per new sale was $2,480, almost unchanged from $2,497 in 2015. Two insurers had average premiums between $1,505 and $1,565, while three insurers were between $3,070 and $3,129. The average premium per new purchasing unit (i.e., one person or a couple) was also similar to last year, dropping from $3,525 in 2015 to $3,496 in 2016. The average in-force premium rose 0.7 percent to $2,116.
Issue Age
Table 5 summarizes the distribution of sales by issue age band based on insured count. The average issue age was stable (55.8 in 2016 vs. 55.9 in 2015), but still a record low. Table 5 shows that a record high 17.9 percent of buyers were between 30 and 49 and a record low 3.6 percent were 70 or older. All but two insurers had their most sales in the 55-59 block; one had their most sales in the 60-64 block and one had their most sales in the 65-69 block. Three participants have a minimum issue age of 40, two won’t issue below 30, and two won’t issue below 25.
Benefit Period
Table 6 summarizes the distribution of sales by benefit period. The combined percentage of sales for benefit periods of four years or less in 2016 remains the same as in 2015. While most carriers continued to gravitate toward shorter benefit periods, one insurer sold many eight-year benefit period policies, hence the average notional benefit period increased slightly from 4.01 years to 4.07 years. Because of shared care benefits, total coverage was higher than the 4.07 average suggests. Endless (lifetime) benefit period sales may register on this distribution in 2017 because one insurer is now offering such policies.
Maximum Monthly Benefit
A record 81.0 percent of 2016 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum from a consumer’s perspective given the additional flexibility to use benefits. It was included automatically in 69.6 percent of the policies. Where it was optional, only 37.5 percent of purchasers opted for monthly or weekly determinations.
Table 7 summarizes the distribution of sales by maximum monthly benefit at issue. The average maximum benefit decreased about 0.5 percent, staying at about $4,800 per month.
Benefit Increase Features
Table 8 summarizes the distribution of sales by benefit increase feature. Future purchase options (insureds buy more coverage in the future at attained age prices, 36.0 percent), deferred options (purchasers can add level premium compound benefit increases within five years of issue if they have not been on claim, 3.8 percent), and benefits scheduled to be flat (15.2 percent) now comprise 55 percent of LTCI sales, and “other compound” has surged to 10.3 percent of sales as future purchasing power is sacrificed to produce lower premiums.
The level-premium three percent compound increase provision, once called the “new five percent,” has dropped from 30.1 percent of sales to 23 percent of sales in two years; however, 3.2 percent of that 7.1 percent drop has shifted to 3.5 percent compound and step-rated. Five percent compounded for life, which represented more than 47.5 percent of sales each year from 2006 to 2008, now accounts for only 2.3 percent of sales.
The “Age-Adjusted” benefit increase features typically increase benefits by five percent through age 60, by three percent compound or five percent simple from 61 to 75, and by zero percent after age 75.
“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).
A small error in the 2015 distribution has been corrected for one carrier, primarily shifting data from the “Other” category to various compound benefit options.
We project the age 80 maximum daily benefit by increasing the average daily benefit purchased from the average issue age to age 80. We project benefits according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and assuming a long-term three percent CPI. The maximum benefit at age 80 (in 2040) for our 2016 average 56-year-old purchaser projects to $281/day. Had our average buyer bought an average 2015 policy at age 55, his age 80 benefit would be $300/day. The age 80 coverage for 2016’s average buyer is six percent less than if that person had bought in 2015 and 24 percent less than a purchase in 2014. Combining the reduction in sales with the reduction in coverage at age 80 for the average sale, the stand-alone LTCI industry sold about 26 percent as much coverage in 2016 as it did in 2012. The drop in coverage is really greater primarily because the average claim payment age (as opposed to the claim start age) is greater than 80. However, some of the difference has been covered by combination policies with LTCI benefits and policies with accelerated death benefits.
Six insurers provided both the number of available FPOs (at attained age rates) in 2016 and the number exercised. Table 9 shows 32.8 percent of insureds exercised FPOs that were available in 2016 based on their data. By insurer, election rates varied from 17 percent to 74 percent. The high percentage reflects an insurer using a “negative election” approach; i.e., the increase applies unless specifically rejected. Most carriers use “positive election” (the increase occurs only if specifically requested).
Elimination Period (EP)
Table 10 summarizes the distribution of sales by facility elimination period. More than 96 percent of issued policies have facility elimination period selections of 84 days or longer.
The percentage of policies with zero-day home care elimination period (but a longer facility elimination period) has dropped from 38.9 percent in 2013 to 21.3 percent in 2016, which is largely due to change in sales distribution among carriers. In 2016, 35.6 percent of the policies had a calendar-day elimination period definition, compared with only 31.6 percent in 2015. When a calendar-day EP was available, 45.5 percent of policies had the feature; in some cases, it was automatic.
Sales to Couples and Gender Distribution
Table 11 summarizes the distribution of sales by gender and couples status. It shows that 44.4 percent of couples insure only one spouse/partner. Sometimes one spouse already has coverage (perhaps left over from a previous marriage). Sometimes one spouse is declined and the other buys. The percentage of single people was low, but the percentage of females among single insureds was high. It appears the one-of-a-couple sales include a good percentage of males.
When one spouse is declined, the other spouse completes the purchase 71.4 percent of the time.
Shared Care and Other Couples’ Features
Table 12 summarizes the distribution of sales by shared care and other couples’ features. It shows that a lower percentage of both-buying couples bought couples’ features than in 2015:
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 (both insureds’ premiums are waived if either qualifies for benefits)
Changes in distribution by carrier and product designs impact year-to-year differences in results in Table 12, particularly because sometimes survivorship or joint waiver is embedded automatically.
Because some insurers don’t offer these features, Table 12 also shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. On this basis, the percentage of people buying shared care did not drop as much, partly because we refined the calculation this year to reflect a carrier that makes shared care available only for some benefit periods.
Table 13 provides additional breakdown on the characteristics of shared care sales. As shown on the right-hand side of Table 13, eight-year (37.7 percent), three-year (33.2 percent), and four-year (33.1 percent) benefit period policies are most likely to add shared care. Because three-year benefit periods comprise 42.2 percent of sales, most policies with shared care are three-year benefit period policies (as shown on the left side of Table 13).
Above, we stated that shared care is selected by 36.0 percent of couples who both buy limited benefit period policies. However, Table 13 shows shared care comprised no more than 37.7 percent of any benefit period. Table 13 has lower percentages because Table 12 denominators are limited to people who buy with their spouse/partner whereas Table 13 denominators include all buyers.
Existence and Type of Home Care Coverage
One participant reported home-care-only policies, which accounted for 1.0 percent of industry sales. Four participants reported sales of facility-only policies, which also accounted for 1.0 percent of total sales. Ninety-seven percent (96.6 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. These percentages were all within 0.2 percent of 2015 results.
Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 30.3 percent of sales. This is more than double the 14.2 percent of 2014, because the two insurers that dominate such sales include these features automatically and each sold more business in 2016 than in 2014 in an industry in which total sales declined. Another insurer covers some fa
