Claude Thau

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 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.

Savings-based long term care insurance products (generally life insurance policies which have LTCI provisions) are experiencing rapid sales growth.  Although such products have existed for more than 30 years, I believe savings-based product development is at an inflection point.  As excellent as these products are, there are simple ways to make savings-based products more attractive, as well as easier for financial planners to explain and for potential buyers to understand.

In Broker World’s July 2016 issue, the annual Milliman LTCI Survey was presented, including a statement that this September issue of Broker World magazine would have survey results for savings-based life/LTCI products that offer extension of benefit features.  For 18 years, Broker World authors have been able to get lots of data from stand-alone LTCI (“SALTCI”) insurers, enabling Broker World to provide detailed insight regarding a very broad array of SALTCI sales and underwriting distributions.

In the intended savings-based survey, Milliman and I expected to report limited data, asking only for sales distributions by issue age for premiums, premium-paying periods, benefit periods and compound benefit increases.  Of the eight carriers we identified as offering such products, three (Nationwide, Transamerica and Trustmark) provided data.  A fourth carrier committed to providing data if two of the three largest sellers of such products participated.  Prior to starting the survey, I had contacted one of the “big 3”.  It had tentatively agreed to participate, so we expected to be able to present valuable data without exposing any particular insurer’s distributions.  Unfortunately, in the end, none of the “big 3” felt comfortable sharing the requested data.  Therefore this article will discuss the market (primarily for policies with life insurance and an extension of benefits) without such data.

It is worth reviewing the attractiveness of savings-based products (“SBP”) as compared to SALTCI.  The primary attraction to SBP is that it is not a “use it or lose it” policy.   If the insured never needs long term care, the family gets the death benefit, or in the case of a surrender, the cash surrender value.

In past eras, a policyholder could surrender a SBP at any time, recovering at least his full premium.  Even though very few insureds surrender their policies, these moneyback guarantees became increasingly expensive in a low-interest rate environment because it is difficult for insurers to invest the additional required reserves attractively. Therefore insurers have cut back on such guarantees. In addition, as noted by Carl Friedrich, a consulting actuary and principal at Milliman Inc., there is a risk that if interest rates were to meaningfully increase, policy exchange activity could increase which would dilute insurers’ profits on these plans.

Because the “100 percent moneyback guarantee” had been marketed heavily, insurers were concerned about the impact of softening the “cash back” guarantee.  So they typically are now providing the 100 percent moneyback guarantee only after 5 years, sometimes as an alternative choice.  It appears that, when financial advisors and consumers can quantify the additional benefits that can be obtained by sacrificing cash value, they generally favor the additional death and LTCI benefits.

For example, a 65-year-old single female who pays a single premium of $100,000 and accepts a permanent cash value floor equal to $80,000 can get a $141,775 specified amount (minimum death benefit) generating a LTCI benefit of up to $5907 per month which would last six years if the full amount was used each month.  If, instead, she opts to have her cash value floor grade up from 80 percent initially to 100 percent after 5 years, her specified amount would reduce to $126,719 and her monthly maximum LTCI benefit would drop to $5280, reflecting a 10.6 percent reduction in death and LTCI benefits in order to enjoy a 25 percent increase in cash value floor after five years.

Therefore the lower-cash-value design is experiencing increased market share.  Offering a moneyback guarantee has appeal and encourages purchase even if the buyer opts not to include that feature in his policy.

Some savings-based buyers would not typically consider SALTCI.  People who intend to self-insure their long term care risk often recognize that SBPs are a better way to self-insure.  For the first two to three years of needing long term care, SBP purchasers self-insure, as the insured’s long term care benefits are funded by a corresponding decrease in the policy’s death benefit.  Such acceleration of the death benefit costs proportionately less because the insurer would have typically paid the death benefit before too long anyway.

If the long term care need is so expensive and/or long that it uses up the entire original death benefit (generally a small residual death benefit remains), the insurer continues to pay. The continuation of LTCI benefits is attractive because many people who self-insure are happy to have protection for a catastrophic long term care need that lasts more than two or three years.  Savings-based policies are a catastrophic-type of insurance policy: if your need is less than two to three years, your beneficiaries pay for it; to the degree that it lasts longer, the insurer picks up (some of) the tab.  This “stop-loss” coverage (perhaps more appropriately “slow the loss” coverage because the benefit may be insufficient to cover the full cost of care at that time) is not very expensive because it has the equivalent of a long elimination period as it is not tapped into until the insured has needed care for at least two to three years (plus the SBP elimination period).

Some policyholders anticipate that it will be easier to get claims paid with savings-based products than with SALTCI.  They reason that the savings-based insurer has less interest in resisting payment as the money will be due in the fairly near future as a death benefit anyway.  The insurer loses only the investment income which would have been earned between long term care claim payment and a not-too-distant death claim.  Once the accelerated death benefit portion is being paid, the insurer is largely committed to continue to pay the subsequent extension of benefits.

Another reason why people perceive that savings-based claims may be paid more readily is that SBPs are much more likely to use an indemnity or disability (“cash”) basis than are SALTCI policies.  With such designs, insureds need only prove that they satisfy the triggers (“disability”) or that they have incurred a qualified expense (“indemnity”) without having to provide bills to justify payment of the full claimed benefit.

On the other hand, as noted by Carl Friedrich, there is a higher cost for indemnity or disability-based policies than expense reimbursement policies. In addition, he observes that not all insurers will necessarily loosen their claim practices for SBP policies since they have an exposure to the long term care benefits payable after accelerations.

Large increases in premium in the SALTCI market have contributed to savings-based sales growth in two ways.  First, now that SALTCI policies cost more than in the past, it costs less to add SBP’s death benefit and cash value than it previously did.  Secondly, financial advisors and their clients appreciate the stability of SBPs, fearing uncertainty in SALTCI pricing.

Of course, another attraction of savings-based products has been that they are available on a single premium basis, so the client can get it “all done” immediately.  Many SBP sales have been funded with money from low-yielding certificates of deposit.

The availability of single premium also has made savings-based products more capable of supporting §1035 exchanges.  A §1035 exchange is a replacement of an existing non-qualified life insurance or annuity contract to a new contract.  Money transfers without creating a taxable event, which is a very attractive aspect if the value in the original life insurance or annuity contract significantly exceeded the cost basis.  Life insurance policies (with or without LTCI benefits) can be exchanged in such fashion to similar life insurance policies or to annuities (with or without LTCI benefits) or to SALTCI.  Annuities (with or without LTCI benefits) can be exchanged to annuities (with or without LTCI benefits) or to SALTCI, but not to life insurance policies.

Another advantage is that, in 16 jurisdictions (those which opted for wording from the Deficit Reduction Act rather than wording promulgated by the NAIC), LTCI certification is not required when financial advisors sell SBPs.  With the increasing attractiveness of SBPs vs. SALTCI, advisors in those jurisdictions are less likely to invest the time to secure/renew certification.

Savings-based products have attractions relative to other asset classes.  SBPs are often guaranteed and, even if not guaranteed, perform well under a wide variety of economic scenarios.  Although they don’t build outstanding cash value, they are secure.  Their death benefit can replenish an estate that might have been ravaged by stock market losses, while the LTCI benefit protects their remaining estate from volatile long term care exposure.  The safety of SBPs combined with their insurance protections make them an attractive asset, especially for risk-averse people.  Thus, as noted above, SBP sales are often funded with money from low-yielding certificates of deposit.

Critical analysis of the attractions to savings-based may be helpful.  Some of the attractions are more emotional than logical.

Although the “use-it-or-lose-it” appeal is strong, some buyers (particularly of savings-based annuities) may not fully internalize that the only way they may personally benefit is by using the SBP’s LTCI benefits.  If the insured never needs care, it is the beneficiaries who gain if the insured purchases SBP instead of SALTCI.

More important, the stability argument favoring savings-based products largely results from “looking through the rear-view mirror”.  Because past LTCI policies have incurred large price increases, a policy sold today is much less likely to incur an increase and any increase is likely to be much lower.  Regulators and insurers have reacted to past under-pricing, taking steps to make LTCI premiums much more stable.  A Society of Actuaries study to be published in 2016 concludes, based on predictive analysis, that policies issued in 2014 had a 10 percent chance of a rate increase.  Based on a discussion I had with the author of that paper, the risk of a rate increase appears to be even lower, as the paper ignored interest yield considerations.  (The paper ignored interest rate considerations because interest yields are generally not permitted to justify an inforce policy rate increase.  However, favorable investment yields might enable an insurer to absorb operational SALTCI losses, hence avoid a request for an inforce policy premium increase.)

Another under-appreciated characteristic of SALTCI is that insureds are less hesitant to utilize benefits to secure desired care.  When a choice not to claim benefits results in more money for beneficiaries, an insured may be reluctant to submit a claim and family members may disagree among themselves regarding the desirability of filing a claim.  Not surprisingly, LTCI claims incidence rates on SBPs have been lower than on SALTCI products.

Finally, few savings-based products provide benefits such as shared care and some new SALTCI products present more attractive pricing than existed earlier in this decade.  It can also be attractive to purchase SALTCI for tax advantages and State Partnership qualification.

Even though the logic behind the shift to savings-based policies is not as strong as some people may think, there are logical reasons to buy SBPs as well as strong emotional reasons.  In 2015, 102,970 stand-alone LTCI policies were sold, compared to 26,000 SBP life policies, according to LIMRA, but SBPs seem likely to continue to increase their market share.  SBPs produced more premium because a lot of single premium to 10-year-pay SBPs were sold.

The increasing savings-based sales have resulted in changes in the distribution of SBPs, aspects we hoped to document in the intended survey and future updates.  For instance, SBPs used to be sold almost entirely as single premiums.  Now most appear to be sold with premium-paying periods longer than one year.

With on-going premiums, savings-based products are more affordable to younger and less affluent markets.  Thus, the SBP market is much broader (and issue age distribution is younger) than in the past.

Partly as a result of being sold at younger ages, many more savings-based policies are sold with benefit increase features than was the case in the past.  Another reason that benefit increases are being sold more often is that advisors and buyers are looking at SBPs more often as an alternative to SALTCI.  However, in some cases, the benefit increase features apply only to benefits paid as part of the extension of benefits provision.  Obviously, it is important that advisors and clients be aware if the first few years of benefit will not increase over time.

For people who are interested in LTCI benefits, the savings-based “2+4” design (or similar designs mentioned below) is preferable.  A “2+4” design means that the insurer is willing to pay the death benefit over the course of two years.  (Example: a $72,000 death benefit spread over 24 months produces a $3000 monthly LTCI benefit).  The “+4” indicates that, after the death benefit has been paid out for long term care needs, the insurer will continue paying benefits for up to another 4 years (or longer if the full amount is not used each month).

A “3+4” or “3+2” would spread that $72,000 death benefit over 36 months, resulting in a $2,000 per month maximum benefit instead of $3000.  People interested in LTCI generally prefer a higher monthly LTCI benefit.  Hence they usually prefer a “2+” design to a “3+” design. 

For example, a 65-year-old single female who purchases a $144,000 death benefit with a 3+4 design would get a $4,000 maximum monthly benefit for seven years for a cost of $89,601. If she bought a 2+4 design, her monthly maximum would be much higher ($6000) but it would last only six years and would cost her $101,569, as she is likely to use more LTCI benefits.

People interested in LTCI favor “+4” to “+2” because “+4” adds little to the cost of the SBP compared to "+2", yet provides a lot more coverage by adding two years. The 2+4 design in the previous paragraph cost $101,569.  Dropping it to a 2+2 forfeits one-third of the potential LTCI benefit yet reduces the premium only to $97,591, less than four percent.  Carl Friedrich points out that the increase in cost from 2+2 to 2+4 is low because a large part of the premium is attributable to the unchanged death and cash value benefits.

Some savings-based policies are designed to pay two, three or four percent of the death benefit each month.  Clearly, with such designs, the four percent per month benefit is preferable for those wanting to maximize the LTCI benefit.  Four per cent per month can pay the death benefit out in 25 months, which is very similar to the “2+” design mentioned above.

In another change from the past, savings-based products often have longer benefit periods for LTCI than do SALTCI policies.  As reported in July’s “2016 Long Term Care Insurance Survey” article, 51.5 percent of SALTCI policies had benefit periods of three years or less, with the overall average benefit period being 4.01 years, ignoring the additional coverage provided by shared care.  Six years of LTCI coverage is popular with SBP plans.

Advisors often complain that it is difficult to compare savings-based and SALTCI policies.  The savings-based and SALTCI products are issued by different insurers, with different financial strength, underwriting requirements, underwriting standards and couples’ discounts; different guarantees and premium-paying periods; different elimination periods and other provisions and different Partnership and tax considerations.  However, it is also difficult to compare two SBPs, because the illustrations do not show what happens if someone has a one-year, two-year, three-year, etc. need for long term care then dies.  Results under such circumstances can differ significantly from one SBP to another.  

It is possible to make it much easier for advisors and clients to consider alternative insurance solutions for funding long term care needs.  One such approach was unveiled in July, when National Guardian Life introduced a SALTCI policy with options to add a return of premium death benefit or a return of premium death benefit with a cash value.  With this product, advisors and consumers can easily evaluate stand-alone vs. SBP, because there are no other “moving parts”.

As was the intent with the proposed survey, this article has dealt with life/LTCI savings-based products.  It should be acknowledged that annuity/LTCI SBPs also exist, have uniquely different product designs, and sometimes are available with more lenient underwriting standards.  In today’s low-interest market, such annuities seem to be most favored when life/LTCI SBPs are not available (because of §1035 restrictions or poor health) or when a client has no person or entity to name as a life insurance beneficiary.  When interest rates rise, I expect the annuity/LTCI market to soar.

Also consistent with the proposed survey, so far this article has dealt with life/LTCI SBPs which include an extension of benefits, during which insurers pay pure LTCI costs, rather than simply advancing the death benefit.  The article has discussed situations in which LTCI is a driving force in the purchasing decision.

However, often long term care risk is not the driving force.  When life insurance is the dominant desire, extension of benefits is less likely to be sold.  Instead, life insurance policies are sold with accelerated death benefits, either using a §7702 (B) long term care design or a §1.01(g) chronic illness design. In these designs, the benefits for cognitive impairment or ADL deficiencies cannot exceed the death benefit.

§7702 (B) provisions are legally considered to be LTCI, hence must include specified consumer protections and require LTCI certification in all but 16 jurisdictions.  

However, §1.01(g) accelerated death benefits can be more attractive because they are “disability” based (hence can be used to pay family caregivers) and can be triggered by the same events that trigger §7702 (B) provisions (earlier, most §1.01(g) accelerated death benefits had the disadvantage that they required cognitive and ADL needs that were expected to be permanent, but that requirement no longer exists under the Interstate Compact standards).  The fact that §7702 (B) designs are legally required to include consumer protections does not, of course, mean that §1.01(g) designs fail to include such protections.

Financial advisors understand that §1.01(g) provisions are often more attractive solutions for ADL deficiencies and cognitive impairment, but they are legally prohibited from referencing “long term care” when speaking about these provisions.  This prohibition puts financial advisors in a difficult bind as they are forbidden from accurately describing what may be their client’s preferred approach to deal with cognitive and ADL risk. By interfering with clear communication, the law may inadvertently encourage financial advisors to favor what may be a less-attractive solution for consumers.

In 2015, 174,000 life insurance policies included accelerated death benefits according to LIMRA, which reported that 32 percent of those policies had §7702 (B) provisions and 68 percent had 1.01(g) provisions.  The percentage of §1.01(g) sales may increase in the future.

There are many different insurance approaches to protect against long term care risk.  As products improve and sales techniques simplify, the market will be served better which will be good from every perspective. 

The Milliman Long Term Care Insurance Survey has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011.  The Worksite multi-life market (“WS”) consists of individual policies sold with discounts and/or underwriting concessions to groups of people based on common employment. “Core” programs involve the employer paying for a small amount of coverage for generally a large number of employees; the employees can buy more coverage.  “Carve-out” programs involve the employer paying for more substantial coverage for generally a small number of executives and usually their spouses. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.)

The July 2016 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica).  Four other participating companies (John Hancock, MassMutual, New York Life and National Guardian) showed worksite discounts in their display of their “street” products.  Mutual of Omaha’s common-employer discount is expressly not a worksite program. 

Here we compare the survey’s WS sales to its individual LTCI policies that are not worksite policies (“NWS”) and to its total individual sales (“Total”).  References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.

Some business owners buy individual policies and pay for them through their business.  Such policies may not be reported as “worksite” policies by our participants.  In other circumstances, businesses might sponsor general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site.  Such sales are not included here.

About the Survey

Six (identified above) of the 13 insurers whose products are displayed in the 2016 Milliman LTCI Survey offer discounts for WS LTCI.  All, except National Guardian who did not start sales until 2016, contributed data.  In addition, Genworth, Northwestern and MedAmerica contributed data.  Genworth and MedAmerica did not sell new worksite cases in 2015, but new policies were issued on cases sold in previous years.  Other than true group sales, our data may represent the entire worksite LTCI industry.

Highlights from this year’s survey

• In 2015, participants reported sales of 12,690 worksite policies for $22.1 million of new annualized premium, an 10.2 percent increase in new annualized premium compared to 2014, despite a 6.0 percent drop in policies.  The average worksite premium rose from $1,496 to $1,740.  2014’s average premium had been low compared to $1,684 in 2013.  (The amount of core business drags the average worksite premium down a lot and the amount of carve-out business pulls it up.  It appears that core business was a lower percentage of worksite sales this year.)  

• Worksite market share (See Table 1) continued to concentrate.  The top 3 carriers jockeyed positions, but sold 81.7 percent of our new reported premium (78.1 percent in 2014).

• Reported worksite LTCI sales accounted for 12.5 percent of the policies sold in the industry (up from 10.2 percent in 2014) and 7.2 percent of the annualized premium (up from 6.1 percent).  For two carriers, about 40 percent of their new annualized premium was from worksite sales and for another two, about 12 percent of their new premium was from worksite.

• One insurer reported an average size of 56 policies per worksite case; another reported 14 and two carriers averaged only three policies per case.

• For the first time, a higher percentage of worksite policies were sold to females (58.0 percent) than of non-worksite sales (55.9 percent).  While we initially attributed this statistical change to anti-selection by females eligible for unisex worksite premiums, further analysis suggested that such anti-selection was not primarily responsible.

• The benefit increase features for 2015 WS sales were similar to the benefit increase features for NWS sales, a major difference compared to the past when NWS policies had much more robust benefit increase features.  Hence, worksite policies were as likely to qualify for Partnership as non-worksite policies.

• Shared Care became tremendously more popular for employees whose spouse also bought coverage.  In 2014, only 27.9 percent of such couples bought Shared Care.  In 2015, 49.2 percent did. 

Market Perspective

In previous survey reports, we’ve signaled that the impact of the industry’s shift to gender-distinct pricing outside the worksite would impact worksite sales too.  Insurers worry that worksite sales weight more toward females when females receive a large price discount from “street” prices and males pay more than “on the street.”  In previous years, the percentage of female sales in the worksite was 1.4 percent to 8.8 percent lower than the percentage of females in overall LTCI sales, but in 2015 the percentage of female sales in the worksite exceeded the “street” percentage by 2.1 percent.  Surprisingly, much of this dramatic change may be a fluke, as explained later in this article.

However, as we anticipated, insurers have responded to their concern by moving worksite unisex prices closer to female “street” prices.  As a result, some insurers charge same-age couples in the worksite a higher price than their standard-class “street” price.  As the male spouse is generally older and as one or both spouses might qualify for a “preferred health” discount on the “street,” the possibility of a couple paying (perhaps significantly) more through the worksite increases 

After the remaining street product with unisex rates is re-priced, it seems likely that single males will pay at least 25 percent to 50 percent more through the worksite than their standard price “on the street.”  With one carrier, even single women pay a higher price through the worksite than they pay “on the street.”

As a second precaution, some insurers have based worksite case approval on gender distribution.

Insurers have also raised their minimum age to avoid anti-selection (few people buy below age 40 and many don’t go to the doctor regularly, hence the applicant may know something the insurer does not know) and to reduce exposure to very long claims.  Three of the six insurers showing worksite discounts in our July display won’t issue worksite below age 40.

With low participation rates, the risk of a skewed distribution is exacerbated, as is the risk of anti-selection if health concessions are granted.  It is not surprising that insurers feel a need to tighten up price and health concessions, particularly for voluntary cases.

For several years, worksite LTCI has been negatively impacted because employee benefit brokers and employee benefit managers have been absorbed with the Affordable Care Act.  As those pressures abate, worksite LTCI sales may not rebound significantly, because of the above issues and the higher price of LTCI in general.  Voluntary worksite “LTCI” sales may gravitate toward combo products, which have the added advantage of providing valuable life insurance coverage that is viewed as a more immediate potential benefit.

A shift away from worksite voluntary LTCI would be unfortunate because the worksite is a great avenue to reach the middle class which could benefit from LTCI and the State Partnership programs.  Historically, however, the industry has not been effective in providing Partnership coverage to the Partnership’s target market through worksite sales.  Fewer than 40 percent of worksite sales have Partnership-qualifying designs and worksite policies sold to members of the middle class are less likely to qualify for the Partnerships than worksite policies covering executives.  (The July issue of Broker World demonstrated the value of the Partnership and outlined a number of ways to increase Partnership success.)

Employer-paid LTCI is still very attractive because of unique tax advantages.  However, Title VII of the 1964 Civil Rights Act requires that employer-involved sales use unisex pricing if the employer has at least 15 employees.  When all insurers used unisex pricing (until 2013), an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company.  Prospectively, it may be hard to find a unisex product for such clients because fewer insurers offer unisex pricing, because insurers often require minimum participation when they offer unisex pricing and because several insurers don’t offer unisex pricing below issue age 40.

Statistical Analysis

In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the sub-market they serve and how they serve it.  Furthermore, our results may vary from year to year due to a change in participating insurers or in market share among insurers.  For example, it seems that there were fewer employer-paid core sales in 2015, resulting in higher age distribution, average premium, average benefit period, female percentage and percentage of policies that included compound benefit increases.

Market Share
WS market share is distributed very differently than the NWS market.  The top three worksite carriers in 2015 were the same as in 2014.  They sold 81.7 percent of reported 2015 worksite premium, compared to 78.1 percent in 2014.  Their combined market share for non-worksite sales was less than half as much, 33.3 percent.   .

We expect worksite market shares to change more dramatically in 2017 than in 2016.

Issue Age
Table 2 shows that the WS buyer was older in 2015 vs. 2014 (consistent with our belief that there were fewer core programs), while the NWS buyer trended younger. The average age of purchase in 2015 was 5.9 years younger in the WS market than in the NWS market (50.7 vs. 56.6), compared to 7.5 years in 2014 (49.5 vs. 57.0).

Rating Classification
Not surprisingly, despite its younger age distribution, the worksite market has a much lower percentage of policies issued in the best underwriting classification because many worksite programs do not offer “preferred health” discounts. 

Benefit Period  
Table 4 demonstrates that the WS market had a lot more 2-year benefit periods than the NWS market.  It also has more 8-year benefit periods due to different carrier market shares.  The average benefit period for worksite sales dropped from 4.28 in 2014 to 3.89 in 2015, reverting, after two contrary years, to the traditional pattern of being shorter than the 4.02 average benefit period for NWS sales.  

Maximum Monthly Benefit
With a lot fewer sales under $100/day, the average WS initial maximum benefit rose from $124/day to $136/day, compared to $163/day for the NWS market (down from $171/day).

Benefit Increase Features
In 2015, the WS market had a higher percentage of sales with level premiums and three percent and five percent compounding than did the NWS market.  It had a lot of step-rated increases (premiums and benefits increase in lock-step each year).  In the WS market, 45.8 percent (down from 57.5 percent in 2014) of policies had either no increases, a deferred option or future purchase options (FPO), compared to 44.7 percent of NWS policies (up from 38.3 percent).  Historically, the NWS market had much more robust benefit increase features.  Please note that the total distribution has a correction (more 3.5 percent compound; less three percent compound) than was published in our July issue.

Future Protection
Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2016 study), the typical worksite sale’s average maximum daily benefit of $136 would cover 6.8 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $163 would cover 8.2 hours of care per day at issue.

According to the American Association for Long-Term Care Insurance’s Sourcebook, about two-thirds of individual LTCI claims start at age 80 or later.  To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age (which was different for WS and NWS) to age 80, using methodology reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates as shown in Table 7.

Table 7 shows that the average worksite policy gains purchasing power if inflation is only two or three percent, but it does not compound enough to keep up with inflation rates of four percent or more. Using the average worksite issue age, the typical 2015 “street” product provided more hours of home care coverage at issue, but that advantage disappears by age 80 because of the richer compounding that was typical of WS policies in 2015.  Based on the average “street” design, the bottom two rows of Table 7 compare age 80 purchasing power using the worksite average issue age (50.7) to the “street” average issue age (56.6).  With two percent inflation, the younger issue age generates more purchasing power because the average street product had more than two percent compounding.  However, at higher inflation rates, the younger age performed less well over time because its average compounding was insufficient. Overall, worksite market sales in 2015 provided close to the same future purchasing power as did “street” sales.  That’s partly because the WS sales were more robust than in the past (fewer core programs, we believe) and partly because the “street” sales were less robust.

Even with six percent inflation, the average policies would cover three or more hours of daily home care at age 80.  Table 7 suggests strongly that “something is better than nothing” because three hours of commercial home care can be a huge help to someone who is in need of care! However, it is important to remember that:

1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.  A lot of buyers would have lower purchasing power than the averages shown above.

2. Buyers might not understand that their purchasing power at age 80 might be less than it was at issue.  It is important to educate purchasers so they have reasonable expectations.  

3. The above does not reflect the cost of professional home care or a facility.  If work-site buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.

4. Table 7 could be distorted by some simplifications in our calculations.  For example, we assumed that each size policy is as likely to exercise benefit increase options and that everyone buys a home care benefit equal to their facility benefit.

Partnership Qualification Rates
The benefit increase requirement to qualify under the state Partnership programs varies by age.  Generally a level premium with a permanent annual three percent or higher compound increase or an otherwise similar CPI increase is required for ages 60 or less.  For ages 61-75, five percent simple increases also qualify and for ages 76 or older, policies qualify without regard to the benefit increase feature.  We also presumed that age-adjusted compound policies would qualify.  Table 8 identifies the percentage of policies which would have qualified for Partnership if Partnership programs had existed with those rules in all states.  However, if Partnerships were available in all states (with the rules cited in this paragraph), the percentage of Partnership policies would exceed the percentages shown in Table 8, because Partnership programs would cause the distribution of sales to change in those states that don’t currently have Partnership programs.

The WS market provides an opportunity to serve less-affluent people efficiently, people who would most benefit from Partnership qualification.  Unfortunately, the percentage of policies sold in the WS market that would meet Partnership qualifications fell from 56.6 percent in 2012 to 41.7 percent in 2014.  The NWS dropped off more in 2015 than the WS market.  In 2015, approximately 39 percent of the policies would have qualified in either market.  Our July survey article identified several ways to improve these percentages.  

Elimination Period
Nearly 90 percent of the “street” market buys 90-day elimination periods (EP).  For that reason, most worksite programs offer only a 90-day EP and 97.1 percent of 2015 worksite sales had a 90-day EP.

Zero-day home care elimination period (in conjunction with a longer facility EP) was almost twice as common in the WS market than in the NWS market in 2015 because a carrier that always provides zero-day home care had a large market share.  Calendar-day EP was less common in the WS market than in the NWS market, but that is misleading because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP.  If that carrier’s EP was classified as “calendar-day," over 75 percent of WS sales would show up as “calendar-day” EP.

Sales to Couples and Gender Distribution
As mentioned earlier, for the first time, the WS market had a higher percentage of sales to females (58.0 percent) than the NWS market (55.9 percent).  Table 10a shows that data and other related data and Table 10b shows historical female percentages in the WS and NWS market.

Although insurers fear that WS sales might tilt toward females to a degree that would jeopardize profitability, our detailed analysis causes us to believe that the change was primarily attributable to a change in distribution among carriers selling in the WS and to a reduced amount of core policies being sold in 2015.  

The WS market continues to be more likely to insure only one partner and more likely to insure single people, but these differences between the WS and NWS market are smaller in 2015 than in the past (we believe there were fewer core programs).  Surprisingly, couples who both purchased coverage were more likely to include Shared Care in the worksite market than in the NWS market. The increase in Shared Care was primarily due to one carrier reporting a big change. 

Type of Home Care Coverage 
Historically, the worksite market sold fewer policies with a home care maximum equal to the facility maximum.  But with increasing emphasis on home care and simplicity, such policies are now almost always sold and are more common in the WS market than the NWS market.  WS policies were less likely to include monthly determination in 2015 than in 2014 because of a shift in distribution among carriers.

Other Features
Return of Premium (ROP) was much more common in the WS market (54.7 percent) than in the past (29.3 percent) and more common than in the NWS market (20.6 percent).  In both the WS and NWS market, about 95 percent of the ROP sales were embedded provisions that are limited (such as expiring at age 67).  Such ROP is an inexpensive way to encourage more young people to buy coverage.  

Partial Cash Alternative was also more common in the WS market (49.8 percent) than in the NWS market (23.1 percent).  One major WS carrier has a provision similar to partial cash alternative but it is limited to purposes listed in the plan of care.  If that feature is included here, such alternatives were included in 75.1 percent of WS sales and 26.0 percent of NWS sales.

For the second straight year, Shortened Benefit Period was less common in 2015 in the WS market (0.3 percent) than in the NWS market (1.4 percent).

On the other hand, Restoration of Benefits was more common in the WS market (12.5 percent) as in the NWS market (10.8 percent) and was more likely to be purchased for an extra premium in the WS market (unlike the past).

Limited Pay
Limited pay policies account for less than one percent of the market in 2015.  We should see some single premium policies in the 2017 survey.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt of Milliman for managing the data expertly.

We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey, please contact one of the authors. 

The 2016 Milliman Long Term Care Insurance Survey is the eighteenth 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 except where “true group” is specifically mentioned. 

Analysis of worksite sales will appear in the August issue of Broker World.

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 which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. 

In the September issue of Broker World we intend to publish a brief survey regarding combo life and LTCI policies which offer extension of benefits features (LTCI benefits can continue after the death benefit is exhausted).

Highlights from This Year’s Survey

Participants

As in 2015, fifteen carriers participated broadly in this survey. 

We are pleased to welcome an anticipated new carrier in the industry –National Guardian Life Insurance Company (NGL), which is not affiliated with the Guardian Life Insurance Company of America, a.k.a The Guardian or Guardian Life.  Last year, we included LifeCare Assurance, which was planning to issue a product on its own paper.  LifeCare subsequently reached an agreement to support NGL’s intended entry into the market. The NGL LTCI product was pending approval when we finalized this article, but we expect it to be very similar to last year’s LifeCare product.

Although not displaying product, MedAmerica and Northwestern LTC provided background statistical information. MedAmerica stopped selling LTCI effective February 15, 2015. United Security contributed to the sales total, and Genworth and Unum provided sales of new true group certificates.

Sales Summary (more detail in other parts of the article).

• The 16 carriers reported sales of 102,970 policies ($257,097,874 of new annualized premium) in 2015. We estimate that these carriers sold well over 99 percent of the stand-alone LTCI industry’s 2015 sales.

• Although six insurers increased sales, 22.2 percent fewer stand-alone LTCI policies were sold for 18.3 percent less annualized premium than in 2014.

• The average issue age dipped to 55.9, the lowest ever reported in this survey, fueled by a record 3.2 percent of buyers under age 30 even though many insurers no longer accept people below age 30. Most insurers no longer accept people age 80 or over.

• The average premium per new sale increased slightly from $2,368 to $2,497, despite the lower issue age, shorter benefit periods and less-robust benefit increase features.

• The placement rate dropped to an all-time low 58.6 percent, despite a significant drop in sales above age 70. 

• Reported worksite business produced 12.5 percent of new insureds (up from 10.2 percent in 2014 and 8.0 percent in 2013), but only 8.7 percent of premium (up from about 6 percent in 2013-14). Worksite sales are understated because small cases that do not qualify for a multi-life discount are often not considered to be multi-life. More information about worksite sales will appear in the August issue of Broker World.

• Reported affinity business amounted to 6.8 percent of the 2015 new insureds (7.8 percent in 2013-2014) but only 5.8 percent of the premium (vs. ~6.3 percent in 2013-2014).  

• Thrivent cracked into the top 10 insurers, in terms of premium sold, ranking 8th. Bankers Life dropped out of the top 10. The top five carriers have been the same since 2013, but their market share has dropped from 76.5 percent to 70.2 percent, essentially the same as last year but very different insurer-by-insurer.

• Genworth and Unum collectively sold true group LTCI to 80,961 new insureds, demonstrating that group cases can generate a lot of renewal applications ($20.9 million of new annualized premium, not including additions to inforce certificates). That’s a drop of 7-8 percent compared to 2014. 

• Deaths and lapses totaled 3.1 percent of previous year-end inforce policies, for the second consecutive year. Weak sales were unable to overcome those terminations, so the number of inforce policies dropped (0.2 percent), for the first time in our survey. 

• Nonetheless year-end inforce premium increased 2.4 percent from 2014. Inforce premium is impacted by sales, terminations, partial terminations, shifts to paid-up status for various reasons, and price increases.  

• Claims: Twelve insurers reported $4 billion in claims in 2015 (an 8 percent increase over 2014) and $33.3 billion since inception. Overall, the LTCI industry incurred $8.7 billion in claims in 2014 (the most recent year reported in NAIC reports), much paid by insurers which no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

• Highlights (see page 36) provides a high-level view of results. 

• Market Perspective (this page) provides insights into the LTCI market.

• Claims (see page 42) presents industry-level claims data.

• Sales Statistical Analysis (see page 43)presents industry-level sales distributions reflecting data from 14 insurers (National Guardian had no sales last year), representing 98 percent of 2015 sales. 

• Partnership Programs (see page 48) discusses the impact of the State Partnerships for LTC.

• Premium Rate Details (see page 49) explains the basis for the product-specific premium rate exhibit.

• Product Details (see page 50) provides a row-by-row definition of the product exhibit. We have 18 products displayed, including 4 products that were not displayed in 2015. 

Market Perspective (More detail in subsequent parts of the article). 

• Shift to gender-distinct pricing. Claims data clearly indicates that women incur more long term care costs, but insurers historically were reluctant to charge females more than males. Insurers believed women stimulate LTCI purchases and feared women would be less likely to do so if they were charged higher prices. In 2013, four insurers started charging gender-distinct prices (other than in worksite sales). During 2015, five insurers still sold individual-market LTCI policies with “unisex” prices for single people. Only one insurer displays such a product this year. We expect unisex pricing to disappear, other than in the worksite. (Note: two carriers offer unisex pricing to couples.)  

• Impact of gender-distinct pricing. It is unclear to what degree gender-distinct pricing has contributed to the continuing sales decline. In the worksite market, insurers now fear gender anti-selection, as unisex worksite prices offer women large discounts compared to gender-distinct “street” pricing, while men generally pay more at work than “on the street.”  Overall, worksite price discounts are becoming less attractive. At the beginning of 2013, more than half of the insurers offered small group worksite LTCI, whereas now fewer than half do so. Depending on size of the group, expected participation, gender distribution and other factors, it can be hard for some employers to find an insurer. Several insurers won’t issue coverage to employees below age 40. Business associations are also difficult to serve well. Insurers market gender-distinct pricing to business associations, but business association members generally want to pay through their business to earn tax breaks. Paying through their business is more risky with gender-distinct pricing.

• Stable pricing. Only one displayed product was priced before 2013 (down from four a year ago). Recently-priced policies use more conservative assumptions, hence are more stable. In analysis published by the Society of Actuaries, 95 percent of scenarios resulted in policies priced in 2014 having only a 10 percent chance of a future rate increase and such an increase would likely be about 10 percent. (For more information, see https://www.soa.org/research/research-projects/ltc/research-2014-understanding-volatility.aspx.) Assumptions in 2014 (compared to assumptions in 2000) were based on 16 times as much data, with 70 times as much data for policy years 10 or later at attained ages 80 or higher. With today’s low investment assumptions, many people believe insurers will benefit from favorable investment deviations. With ultimate voluntary termination (“lapse”) assumptions below one percent, the lapse risk has shrunk tremendously. Better underwriting and tighter policy form wording also reduce risk of rate increases.

• With more conservative pricing, the chance of a favorable future deviation becomes more likely. So we show in the display (row 82), for products which have dividends or other mechanisms to feed favorable deviations back to policyholders, when such credits are first expected to appear.

• Potential impact of regulation. 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.

• Sales of alternative approaches to cover long term care risk continue to grow. Accelerated death benefits allow insureds to access their beneficiaries’ death benefit to pay for long term care expenses. Policies with “extension of benefits” continue paying for long term care after the death benefit has been exhausted by long term care expenses and increasingly offer features that, in the past, were more common in the stand-alone LTCI market. Some critical illness policies also cover some long term care expenses. Overall, an increasing number of people have protection against long term care risks.

• Various government and non-government think tanks (such as Scan Foundation, AARP, Leading Age, the LTC Financing Collaborative, the BiPartisan Policy Center, the Society of Actuaries’ Think Tank, American Society of Aging) are exploring how the U.S. can address its looming long term care tsunami. As opposed to the ill-fated “first dollar” Class Act coverage that was originally part of the Affordable Care Act, the Bipartisan Policy Center and others are now recommending a catastrophic government LTCI program, leaving the less catastrophic costs to private insurance. Only one insurer now offers an “endless” (“unlimited benefit period”) stand-alone LTCI policy (one offers an endless combo policy). The substantial disappearance of “endless” options is one of many factors causing increased support for Federal catastrophic coverage. However, many questions remain with respect to such a program.

• The value of future benefits from current sales continues to drop. The average 56-year-old buyer in 2015 would have a maximum daily benefit of $291 at age 80 in 2039, 23 percent less than if he had purchased an average policy in 2012.

• The drop in sales with compound increases continues to negatively impact Partnership sales, particularly in the original Partnership states.  (See the Partnership section.)

• Underwriting continues to evolve. 

Several insurers decline marijuana use. For medicinal use (whether legal or not), many other insurers classify the insured based on the underlying condition, ignoring marijuana use. Several insurers are tougher on recreational use than medicinal use. Some insurers may decline or restrict the underwriting class, sometimes depending on degree of usage. 

Most insurers do not determine rate classification based on family history (they may seek more health information however). For other insurers, family history can block a preferred rating or cause a decline. It can also limit design (to five-year benefit period, for example). Relevant family history includes biological parents’ and siblings’ ages at onset of conditions such as dementia, coronary conditions, stroke, Huntington’s or Parkinson’s.

• To reduce wastage, most insurers require cash with the application (CWA), except when multiple insureds will be listed on a single bill. Submitting cash is good for applicants because some insurers grant conditional receipt coverage. Based on seven insurers, those which require CWA lost 21.1 percent of their non-declined applications to suspension, withdrawal, NTO (refusal upon delivery) or free-look-period cancellation, while those which do not require CWA lost 25.2 percent. Ironically, the insurer with the highest rate of such losses requires CWA (but only on about two thirds of its business). Based on 12 insurers, those which are mostly brokerage lost 24.4 percent, whereas those which are mostly not brokerage lost 18.1 percent.  Requiring CWA and having a more-controlled distribution system both reduce wastage, with the distribution system being more significant.

• Discounts for unmarried partners. When both partners buy, all but three carriers offer the same discount to married and unmarried couples. However, in most jurisdictions, five insurers require that unmarried couples live together for three years in order to qualify for such a discount. One insurer requires two years, one requires one year, and three insurers treat unmarried partners the same as married couples (no cohabitation period required).  One insurer requires 5 years of cohabitation and two insurers do not offer any discount to unmarried couples.

• Only five participants offer coverage in all U.S. jurisdictions; no worksite insurer sells in all those jurisdictions. When a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers increasingly opt to stop sales in that jurisdiction.

• If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). Sixty percent  of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 46 times claimants have resorted to IR, and the insurers’ denials were upheld 87 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

Claims

• Twelve participants reported individual claims for 2015 and three reported true group claims (the same number as last year). Their total claim payments rose to $4.0 billion in 2015, eight percent over 2014, whereas the total number of inforce policies decreased, demonstrating the delayed nature of LTCI claims. Claims increase from year to year as insureds get older, maximums increase according to benefit increase features including future purchase options, long term care costs rise, and claims shift to more recently issued policies which have larger maximum benefits, etc. These 12 insurers have paid $33.3 billion in LTCI claims from inception through 2015.

• The LTCI industry has had a much bigger impact than indicated above because a lot of claims are paid by insurers which no longer sell LTCI. According to the NAIC’s report for 2014 (the most recent report available when this was written), the industry incurred $8.7 billion in claims in 2014, boosting the industry to $98.1 billion of claims incurred since 1991. 

LTCI claims paid by insurers which no longer sell LTCI might differ significantly from data reported herein because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc. 

Table 1 shows claims distribution based on dollars of payments whereas Table 2 shows distribution based on number of claims. In the distribution based on number of claims, if someone received care in more than one venue, they are counted more than once. Table 1 shows a shift in cost from nursing home claims to assisted living facility (ALF) claims; Table 2 shows the number of claims shifted from nursing homes to home care. Claims will continue to 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 which could not be categorized as to venue were ignored in determining the distribution by provider-type. 

Table 3 shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 38.3 percent of individual policy claimants and 32.4 percent of group claimants receive benefits in more than one venue (assuming none are in more than two venues). The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

2. People who have multiple claims are counted as though they are multiple insureds.  We are not able to add their various claims together.

3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s sales. 

4. Twenty-six percent (25.7) of inception-to-date individual claims included 2015 payments as did 22.5 percent of the corresponding group claims. Some of those closed in 2015, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 73 percent of the average individual claim, probably because of shorter benefit periods, lower maximum daily benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to exist when long term care is needed. 

Individual ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

Market Share

Table 4 lists the top 10 carriers in 2015 new premium.  For the first time, Northwestern is number one.  Mutual of Omaha moved from number four to number two, as Genworth slid. Transamerica had a 60 percent gain over 2014.

Fourteen insurers contributed to the following statistical analysis, but some were unable to contribute data in some areas.

Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.

Characteristics of Policies Sold

Average Premium

The average premium per new sale increased 5.5 percent from $2,368 to $2,497. The average premium among participants ranged from $1,373 to $3,117. Five insurers had a lower average premium than in 2014 but only one dropped more than four percent. The average premium per new purchasing unit (i.e., one person or a couple) increased similarly, from $3,325 to $3,525. The average inforce premium rose three percent to $2,100.

Issue Age

The average issue age dropped from 56.3 to 55.9, a record low. Table 5 shows an astounding 3.2 percent of buyers were under age 30. Even removing worksite sales, 3.0 percent of buyers were below 30. The increasing percentage of sales below age 40 may reverse, as four participants have a minimum issue age of 40, two won’t issue below 30 and two won’t issue below 25. Only five issue to age 18. However, for the second straight year, a large insurer sold more than 10 percent of its policies to people under age 30.

Benefit Period 

Three-year benefit period continues to grab market-share, up to 41.5 percent of sales. Six-year benefit solidified its hold on second place (18.0 percent) as frequently the longest benefit period available. The average length of fixed-benefit periods dipped slightly from 4.07 years to 4.01 years (see Table 6). Coverage was better than the 4.01 average suggests because of shared care. It will be interesting to see what happens with a new “endless” (“lifetime”) benefit period available from one company in most states beginning in July 2016.

Maximum Monthly Benefit

Seventy-nine percent (78.6) of 2015 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum. That percentage had been increasing but was one percent lower in 2015 than in 2014. 

The average maximum benefit decreased very slightly, to about $4,800 per month.

The percentage of policies sold with a $6000 or higher initial maximum monthly benefit was the lowest it has been since 2012 (see Table 7).  Each additional $3000 of initial monthly maximum costs as much as the first $3000 but the portion that is paid as claims drops significantly as initial size increases because most people will not use a large policy’s maximum.

Benefit Increase Features

Sales of five percent compound increases, 47.6 percent of sales in 2009, now account for only four percent of sales. The growing three percent compound sales tapered off in 2015 as one insurer stopped selling this design because it is hard to invest its reserves adequately (see Table 8).

Future purchase options (insureds buy more coverage in the future at attained age prices) and step-rated designs (insureds buy more coverage in the future at issue age prices) gained the most.

We added the 3.5 percent compound line because 3.5 percent compounding qualifies for both the Connecticut and New York Partnership programs.

We project the age-80 maximum daily benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2039) for our 2015 average 56-year-old purchaser projects to $292/day. Had our average buyer bought an average 2014 policy at age 55, his age 80 benefit would be $312.  The corresponding figures for 2013 or 2012 purchase are $356 and $378. This projected maximum daily value at age 80 has dropped 23 percent in 3 years, from $378/day to $291/day. The drop in coverage is really greater because the average claim payment (as opposed to start) age is greater than 80.

The “Deferred Compound” option allows purchasers to add level premium compound benefit increases within five years of issue if they have not been on claim.

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).

Five insurers provided both the number of available future purchase options (at attained age rates) in 2015 and the number exercised. Based on their data, 33.9 percent of insureds exercised future purchase options that were available in 2015. As shown in Table 9, this percentage is unusually high. By insurer, election rates varied from 14 percent to 75 percent (the latter with a negative election approach; i.e., the increase applies unless rejected). 

Elimination Period

As Table 10 indicates, facility elimination period selections were even more overwhelmingly 90 days than in the past.  Only 4.6 percent of policies had an EP shorter than 84 days.

The percentage of policies with zero-day home care elimination period (but a longer facility EP) has dropped from 38.9 percent in 2013 to 27.5 percent in 2015, largely due to change in sales distribution among carriers. In 2015, 31.6 percent of the policies had a calendar-day EP definition, slightly fewer than in the recent past (32.2 percent). When a calendar-day EP was available, 51.2 percent of policies had the feature; in some cases, it was automatic.

Sales to Couples and Gender Distribution

Table 11 shows the percentages of buyers who are female has been steady and the percentage of single buyers who are female has been dropping slightly. Offsetting factors affect this distribution. For example, sales at older ages are predominantly to single women, so the reduction in sales at those ages skews sales less to women. On the other hand, insurers which had gender-distinct pricing all year had 59.7 percent females among their single non-worksite insureds. Insurers which had gender-distinct pricing part of the year had 65.2 percent females among their single non-worksite insureds and insurers which had unisex pricing essentially all year had 73.1 percent females among those insureds.

In 2011 and 2012, years with all unisex pricing, 70 percent to 71.5 percent of single insureds were female (including worksite sales). Now, insurers with established gender-distinct pricing are finding only 59.9 percent females among their single insureds (including worksite sales). That’s partly because single females are being diverted to insurers with unisex pricing and partly because the higher gender-distinct pricing discourages single females from buying.

For the last two years, one-of-a-couple sales have exceeded sales to single people. Compressed issue age ranges may contribute to this shift.

Shared Care and Other Couples’ Features

Table 12 shows that fewer couples who purchase limited benefit period opted for shared care (39.3 percent in total; 52.8 percent for insurers which offer shared care), despite the fact that three-year benefit period has a larger market share and has a high percentage of shared care sales.

Some products offer or imbed “joint waiver” (both insureds’ premiums are waived if either qualifies) and/or “survivorship”, which waives a survivor’s premium after the first death if specified conditions are met. When both partners bought coverage in 2015, only 20.9 percent of policies included joint waiver of premium (33.6 percent if the insurer offers joint waiver). 

Only 5.3 percent of policies included survivorship if both partners bought (8.0 percent if the insurer offers survivorship). 

The seeming reduced popularity of joint waiver and survivorship with carriers that make it available is misleading. A major insurer offers these features only on one of its policy offerings. We included all of its sales in the denominator.

For the past two years, the 3-year benefit period has been the benefit period most likely to add shared care (combining the traditional and third-pool designs).  Now 52.4 perccent of 3-year benefit period policies have shared care (see Table 13). Above, we stated shared care is selected by 39.3 percent of couples who both buy limited benefit period. Table 13 shows shared care comprised no more than 35.5 percent of any benefit period; that’s because Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage

One participant reported home-care-only policies, which accounted for 1.2 percent of industry sales. Five participants reported sales of facility-only policies, which accounted for one percent of total sales, compared to two percent in 2014. 

Ninety-seven percent (96.8) of the comprehensive policies included home care benefits at least equal to the facility benefit, down slightly from 97.2 percent in 2014.

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 26.4 percent of sales, nearly double the 14.2 percent in 2014, because the two insurers which dominate such sales include these features automatically and increased their sales collectively by 36 percent in an industry in which total sales declined. 

One carrier reported eight indemnity policies.  Indemnity policies pay the full daily maximum if at least one dollar is spent on a qualified long term care service. 

Other Characteristics

 “Return of Premium” features (“ROP”) were included in 24.8 percent of all policies (up from 10.5 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 95 percent were embedded automatically. Embedded features are designed to cost little, decreasing the benefit to zero by age 75 except for an ROP which pays only for death after age 100 (or 25 years if later). 

Eleven percent of policies with limited benefit periods included a restoration of benefits (ROB) provision, up from 9.8 percent in 2104. ROB provisions typically restore used benefits when the insured does not need services for at least six months. Approximately 70 percent of the ROB features were embedded, compared to 63 percent last year, so optional ROB reduced.

Shortened benefit period (SBP) nonforfeiture option was included in 1.2 percent of policies. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

Only 0.2 percent of policies were non-tax-qualified (NTQ), all coming from Bankers Life & Casualty. NTQ was 5 percent of their business.

“Captive” (dedicated to one insurer) agents produced 46.6 percent of the policies, up from 44.4 percent.

Sales distribution by jurisdiction is available at www.brokerworldmag.com.

Limited Pay

Only three insurers sold 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies and one of those insurers no longer sells LTCI. Limited-pay policies were 0.8 percent of sales (down from 1.25 percent). As LTCI is more conservatively priced, limited-pay is less attractive t

The 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 sales made with discounts and/or underwriting concessions to groups of people based on common employment, using individual policies. 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 2015 issue of Broker World reported on the overall LTCI market. Its policy exhibit displayed three WS products (John Hancock, LifeSecure and Transamerica). Three other participating companies (Life­Care, MassMutual and New York Life) showed worksite discounts in their display of their “street” products. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.

This article compares the survey’s WS sales to its individual LTCI policies that are not worksite policies (NWS) and to its total individual sales (Total). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.

Our data may under-report WS sales because, as explained under “Market Share,” some WS sales may not be identified as such in the insurers’ administrative systems.

About the Survey

As this article is written, six (identified above) of the 13 insurers whose products are displayed in the 2015 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All, except LifeCare which had no sales, contributed data to this article. In addition, Northwestern and MedAmerica contributed data (MedAmerica discontinued worksite sales in 2014). Only two companies provided information about simplified underwriting. To the best of our knowledge, our reported sales figures represent the entire worksite LTCI industry except for Genworth true group sales. 

Comparisons to 2013 are not consistent with last year’s article because we added New York Life data to both years, and one carrier restated its 2013 worksite sales significantly.

Highlights from This Year’s Survey

 • In 2014, participants reported sales of 13,460 worksite policies for $20.1 million of new annualized premium, a 3.9 percent drop in policies sold, and a 14.6 percent drop in new annualized premium compared to 2013. The worksite sales decrease (especially in policy count) does not look bad compared to the total sales decrease of 23.8 percent in terms of policies and 21.8 percent in terms of annualized premium. While the average premium for sales “on the street” increased, the average worksite premium per policy dropped 11 percent, from $1,684 in 2013 to $1,496 in 2014.

 • Worksite market shares (See Table 1) changed markedly, as three carriers reported an increase in WS premium and six reported a decrease. Three carriers (one with an increase) reported sales but discontinued worksite sales in 2014.

 • Reported WS LTCI sales accounted for 10.2 percent of the policies sold in the industry (up from 8.0 percent in 2013) and 6.1 percent of the annualized premium (up from 5.8 percent). One carrier got more than half of its new annualized premium from WS sales and another got more than one-third. No other carrier got as much as one-seventh of its sales from WS sales.

 • The number of policies per case was particularly interesting. Two carriers reported an average of 34 to 35 policies per case. Two others reported an average of two policies per case. Selling executive carve-out LTCI to just one or two owner-employees and their spouses may become more difficult because of the shift to gender-distinct pricing.

 • As occurred last year, the WS market had a higher average benefit period (4.28) than the NWS market (4.04).

 • Only 41.7 percent of WS policies met partnership qualifications (down from 51.6 percent in 2013 and 57 percent in 2012), compared to 50.2 percent in the NWS market. The executive carve-out WS market insures people who are unlikely to benefit from the partnership, but those policies probably all were partnership-qualified. The WS market provides an avenue to reach people more likely to benefit from partnership programs, but most of them do not get partnership coverage (many may be provided a non-partnership core, i.e., no benefit increases, and choose not to buy such increases at their own expense). The July issue of Broker World demonstrated the value of the partnership concept and outlined a number of ways to increase partnership success.

Market Perspective

Higher prices continue to erode voluntary WS sales, and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected. Voluntary WS LTCI sales may gravitate toward combo products more quickly than the NWS market.

An insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, our survey distributions may vary significantly from year-to-year, partly due to a change in participating insurers  that provide sales distributions.

Statistical Analysis

Market Share. WS market share is less reliable than total individual market share because, as noted above, some carriers might not identify some sales as being WS sales. Nonetheless, it is clear that WS market share is distributed very differently than the NWS market. (Note: One carrier restated 2013 WS sales.)

Issue Age. Table 2 shows that the WS market has nearly four times as much concentration below age 40 as the NWS market.

The average age of purchase in 2014 was 7.5 years younger in the WS market (49.5) than in the NWS market (57.0).

Rating Classification. Not surprisingly, despite its younger age distribution, the WS market has a much lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification.

Benefit Period. Table 4 demonstrates that the WS market had a lot more four-year and eight-year benefit periods than the NWS market. That’s because the largest WS sales company sells 33.3-month, 50-month and 100-month benefit periods that get mapped into three, four and eight years. The WS market also had a lot less lifetime benefit period. Because benefit periods have shrunk so much in the NWS market, the past huge difference between NWS and WS benefit period distribution has evaporated.

Maximum Monthly Benefit. Table 5 shows that nearly two-thirds of the WS market consists of sales below $150/day compared to 39.0 percent for the NWS market. Thus, the average initial maximum benefit for WS sales is approximately $124/day compared to $171/day for the NWS market.

Benefit Increase Features. Table 6 shows a lot of differences between the WS and NWS markets. In 2014, the WS market dropped back to the level of the NWS market, as regards level premium 3 percent compound increases, and in other types of compound increase features it stayed much below the NWS market. The WS market had 57.5 percent of its policies sold with either no increases, a deferred option or future purchase options (FPOs), compared to 38.3 percent of NWS policies, an even larger disparity than in 2013, which in turn was much larger than in 2012.

Future Protection. The lower initial benefit and younger age distribution in the WS market increase the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.

Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2015 study), the typical worksite sale’s average maximum daily benefit of $124 would cover 6.21 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $171 would cover 8.54 hours of care per day at issue.
According to the American Association for Long-Term Care Insurance’s annual Sourcebook, approximately two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age to age 80, using methodology reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates. The results are shown in Table 7 (on page 26).

Table 7 shows that the average WS policy would reimburse 73 percent as much care as would the average “street” product on day one. Although the disparity grows over time if the inflation rate is 3 percent or more, even with 6 percent inflation, the average WS policy would cover more than two hours of home care at age 80.

Table 7 suggests strongly that “something is better than nothing” because even two hours of commercial home care can be a huge blessing! However, it is important to remember that:

 1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs. Many buyers would have lower purchasing power than the averages shown above.

 2. Buyers might not expect that, on average, the group’s purchasing power at age 80 would be less than half of what it was at issue, if the inflation rate is 5 percent. It is important to educate purchasers so they have reasonable expectations.

 3. The above does not reflect the cost of professional home care or a facility. If worksite buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.

 4. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each benefit increase option was issued with the same average maximum daily benefit and that everyone has a home care benefit equal to their facility benefit.

Partnership Qualification Rates. The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for ages 60 or less. For ages 61-75, 5 percent simple increases also qualify, and for ages 76 or older, policies qualify without regard to the benefit increase feature. Table 8 identifies the percentage of policies that would have qualified for partnership if partnership programs had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 8, because partnership programs would cause the distribution of sales to change in those states that don’t currently have partnership programs.

The WS market provides an opportunity for the industry to serve less-affluent people efficiently. These are the people who would most benefit from partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet partnership qualifications fell from 56.6 percent in 2012 to 51.6 percent in 2013 and to 41.7 percent in 2014. Both the WS and NWS percentages dropped by 10 percent arithmetically between 2013 and 2014, but the overall total market percentage dropped 12 percent because the WS market was a larger percentage of the total market in 2014 than in 2013. Our July survey article identified several ways to improve these percentages. In the WS market, core programs might lower the initial monthly maximum benefit in return for adding 3 percent compound increases.

Elimination Period. The total market clusters to 90-day elimination periods (EPs). For that reason, most advisors think it is not a good use of time to offer multiple EPs in the WS market. Hence the WS market is 95 percent weighted toward 90-day EP.

The zero-day home care elimination period (in conjunction with a longer facility EP) was more common in the WS market than in the NWS market in 2013 because the carriers that sell such features were more active in the WS market. That switched in 2014. In 2014 the calendar-day EP was more common in the WS market than in the NWS market. The WS market was even more weighted toward calendar-day than the statistics suggest, because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. The EP definition is practically identical to a calendar-day EP.

Sales to Couples and Gender Distribu­tion. Relative to gender sales, the most striking difference between the WS market and the NWS market continues to be that the WS market is much more likely to insure only one partner (WS couples insure only one spouse 60.4 percent of the time, whereas only 40.7 percent of NWS couples insure only one spouse), a slightly bigger discrepancy than in 2013, continuing a trend. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse.

The percentage of single people among WS insureds is 23.9 percent compared to 20.2 percent in the NWS market, probably because the WS market is younger and because of core programs.

The above factors cause the percentage of both-buy couples to be much lower in the WS market.

The percentage of female sales in the WS market was 4.4 percent lower than in the NWS market. In 2013, the differential was 3.5 percent, and in 2012 it was only 1.4 percent. What is causing a lower percentage of females in the WS market?

 • Perhaps employers are paying for coverage more frequently for males than for females.

 • Perhaps education at the WS encourages more males to buy than is the case outside the WS.

 • Perhaps the male employees are more able to afford LTCI than female employees. For example, single males may be less likely to have dependent children than single females.

 • Perhaps female employees are more likely to bring the offer home and get their spouses insured.

 • Perhaps the NWS market has had an artificial boost in the percentages of female buyers to get unisex pricing while they can.

Shared care is sold less in the WS market because, as noted above, fewer couples buy together in the WS market. Furthermore, shared care is not typically included in executive carve-out programs that include single executives. Of the WS couples who both bought limited benefit periods, only 33.6 percent purchased shared care compared to 40.4 percent in the NWS market.

Type of Home Care Coverage. An insurer that uses a monthly determination for all venues increased its WS market share substantially in 2014. Table 11 reflects the impact, as the percentage of WS cases with weekly or monthly determination has grown much closer to the NWS market (76.2 percent vs. 80.0 percent) than was the case in 2013.

Other Features. Return of premium (ROP) was much more common in the WS market (29.3 percent) than in the NWS market (4.2 percent), probably because an embedded limited (e.g., for death occurring before age 67) ROP benefit is an inexpensive way to encourage more young people to buy coverage. Voluntary purchase of ROP is rare in the WS.

Partial cash alternative was also more common in the WS market (26.6 percent) than in the NWS market (13.4 percent) because one of the two carriers offering this feature has a strong WS market share.

Shortened benefit period was less common in 2014 in the WS market (0.5 percent) than in the NWS market (1.2 percent), reversing last year’s result.

On the other hand, restoration of benefits was less common in the WS market (6.0 percent) than in the NWS market (10.1 percent) and was more likely to be embedded in the WS market than in the NWS market.

Limited Pay. In 2014, the percentage of limited pay policies in the WS dropped to less than twice the percentage in the NWS market, whereas it was nearly three times as much in 2013. (See Table 12.) Only 2.0 percent of WS sales were limited pay, compared to 9.4 percent in 2012.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt of Milliman for managing the data expertly.

We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.

July 2015

Claude Thau

Dawn Helwig

Allen Schmitz

2015 Long Term Care Insurance Survey

The 2015 Long Term Care Insurance Survey is the seventeenth 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.

Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of future purchase options or other changes to existing coverage. Stand-alone refers to LTCI policies which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. The data includes multi-life groups, which are certificates or individual policies sold with discounts and/or underwriting concessions, but not guaranteed issue, to groups of people based on common employment or affinity relationships. Except where true group is specifically mentioned, comments and data do not include sales of certificates to groups.

Note: Comparisons of worksite sales characteristics to overall sales characteristics will appear in the August issue of Broker World magazine.

Highlights from This Year’s Survey

• Participants

Fifteen carriers participated broadly in this survey, including all of last year’s participants except United Security Assurance, which intends to resume participation in 2016.

We are pleased that New York Life has resumed contributing product and sales distribution data and that a new entrant in the market, LifeCare Assurance, is participating.

Although not displaying product, Country and Northwestern LTC provided background statistical information. United Security contributed to the sales total, and Genworth and Unum provided sales of new certificates.

• Sales Summary (more details in other parts of this article)

 • The 15 carriers that reported individual sales to this survey sold 133,660 policies ($316,522,515 of new annualized premium) in 2014. We estimate that these carriers sold more than 99 percent of the stand-alone LTCI industry’s 2014 sales.

 • Five insurers increased sales, three of them by 50 percent or more. However, continuing past trends, stand-alone LTCI sales dropped 23.8 percent from 2013 in terms of lives insured and 21.8 percent in terms of annualized premium.

 • The average premium per new sale increased slightly from $2,311 to $2,368. Unit prices generally increased, but the trend continued of policies having shorter benefit periods and less-robust future increases.

 • Worksite sales dropped less than total sales, even though two carriers discontinued worksite sales. Our 2013 base for comparison has been adjusted to include New York Life and to correct overstated sales by one of the carriers last year. The number of new worksite policies dropped 3.9 percent, and new annualized worksite premium dropped 14.6 percent. Worksite business produced 10.2 percent of new policies, but only 6.1 percent of new annualized premium. The average worksite premium dropped from $1,664 in 2013 to $1,496 in 2014.

 • Affinity annualized premium sales dropped 25 percent, and the number of policies dropped 24.7 percent.

 • Because of the strong persistency of LTCI business and in-force policy price increases, in-force premium increased 2.6 percent from year-end 2013 to year-end 2014 , and the number of insureds increased 0.8 percent, despite low sales. Average in-force premium was $2,038, $34 more than last year. Strikingly, six carriers had decreases in their number of in-force policies at year-end 2014 compared to year-end 2013, and two others saw their number of in-force policies grow less than 1 percent.

 • Deaths, normal lapses and lapses in response to rate increases totaled about 3.1 percent of year-end 2013 in-force policies compared to 2.7 percent a year ago.

 • Genworth and Unum collectively sold true group LTCI to 87,108 new insureds ($22.7 million of new annualized premium, not including additions to in-force certificates). That’s a drop of 13 percent, compared to 2013, in new certificates sold but 42 percent in new premium sold. The big drop in premium compared to sales seems to reflect a lot of core program additions. CNA also accepted new policies on existing cases, but did not report sales to us.

• Claims

Participating insurers reported $3.7 billion in claims in 2014 and nearly $30 billion since inception. Carriers that participated this year and last year reported a 13 percent increase in claims since inception. Overall, the LTCI industry incurred $8.2 billion in claims in 2013 (the most recent year reported in NAIC reports), much paid by insurers that no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

 • Highlights (on page 34) provides a high-level view of results.

 • Market Perspective (on page 36) provides insights into the LTCI market.

 • Claims (on page 40) presents industry-level claims data.

 • Sales Statistical Analysis (on page 42) presents industry-level sales distributions reflecting data from 14 insurers, representing 99 percent of the policies sold in 2014.

 • Multi-Life Programs (see page 50) provides information about sales sponsored by employers and affinity groups. More information about worksite sales will appear in the August issue of Broker World magazine.

 • Partnership Programs (see page 50) discusses the impact of the state partnerships for long term care.

 • Product Details (see page 53) provides a row-by-row definition of the product exhibit. We have 20 products displayed, including 8 products that were not displayed in 2014. Several others have changed premiums, design options and/or multi-life parameters since 2014.

 • Premium Rate Details (on page 90) explains the basis for the product-specific premium rate exhibit.

Market Perspective (more details in other parts of this article)

 • LTCI sales have surged temporarily on the eve of price increases (including shifts to gender-distinct pricing) and benefit discontinuations. Absent those surges, sales would have been lower.

 • Furthermore, as only one insurer offers a true group LTCI program, group business should have gravitated to multi-life policies, thereby increasing sales included in this survey. Part of the problem in worksite sales seems to have been that implementation of the Affordable Care Act has distracted the market from considering LTCI.

 • Sales of 5 percent compound increases dropped from 32.7 percent of 2012 sales to 22.0 percent in 2013 and plunged to 9.3 percent in 2014. Consequently, 2014 sales to a 57-year-old project an average maximum benefit of $295/day in 2037. For the same person (age 56) in 2013, the 2037 benefit was $333 and the corresponding 2012 figure was $352. The value of coverage has dropped 16 percent over the past two years.

 • The drop in sales with compound increases negatively impacted partnership sales, particularly in the original partnership states where only 18.2 percent qualified. In jurisdictions participating in the Deficit Reduction Act LTC Partnership program, 55.4 percent of policies qualified. Partnerships seem to encourage stronger benefit increase features to be purchased. But no state had more than 78.5 percent of its sales qualify under the partnership, compared to 2013 when six states topped 80 percent.

 • Nonetheless, there are hopeful signs for stand-alone LTCI. A major insurer that has been relatively inactive in LTCI the past couple of years is aggressively marketing an innovative new product. Another insurer will enter the market later this year with lifetime benefit period, a single premium alternative and term life insurance riders.

 • Beyond the stand-alone LTCI market, an increasing number of insurers offer alternative approaches to help address long term care. For example, many life insurance policies include the right to accelerate the death benefit if long term care is needed. These accelerated death benefit (ADB) designs have typically been limited to using 2 percent of the face amount per month for long term care, which may cover relatively little cost by the time long term care becomes necessary. However, more policies now seem to allow up to 4 percent of the face amount per month and more allow the greater flexibility of indemnity or “cash” benefits.

 • An increasing percentage of such ADB provisions are chronic illness (CI) provisions under Section 1.01(g), rather than LTCI under Section 7702. Benefits under Section 1.01(g) are supposed to be de ­minimus, so CI provisions have typically covered only permanent need for long term care. However, the Interstate Compact now approves CI riders covering temporary as well as permanent long term care needs, which should stimulate more attractive CI features. Forty-four states require brokers to have LTCI certification to sell a Section 7702 policy, but none require certification for CI. Unfortunately, regulators have put financial advisors in a tough position if the advisor thinks a CI provision will help his client address long term care needs. While making CI a more meaningful tool for long term care planning, regulators forbid financial advisors from referring to it as LTCI.

 • Combo policies with extension of benefit (EOB) provisions provide significantly superior long term care coverage compared to ADB provisions. These policies are a “better way to self-insure,” as the first two or three years of long term care are funded by the heir’s death benefit (hence the recipient’s care comes at the expense of the beneficiaries), but then the insurer provides a type of stop-loss coverage. Today’s combo products are not limited to single premiums and are sold more often with compound benefit increases than in the past.

 • ADB provisions are expanding in the worksite as well, including 4 percent benefits per month and EOB.

 • Some critical illness policies also provide long term care benefits. There are also some short term long term care policies and policies that cover some types of care but not custodial care.

 • The shift to gender-distinct pricing has continued, as expected. Last year, seven insurers still had unisex stand-alone LTCI pricing for single people “on the street” in most states. By the beginning of 2016, we may have only one insurer with such unisex LTCI pricing. Gender-distinct pricing exists in every jurisdiction except Montana.

While the dust is settling, gender-distinct pricing has begun to adversely affect the worksite, business association and small (non-multi-life) executive carve-out markets. In the past, in many multi-life programs, no one paid more than they would “on the street.” We’re now seeing more programs in which all males and many couples pay more in the worksite than on the street. In the business association market, business people are offered gender-distinct pricing which may preclude their ability to get an attractive tax break by paying for the coverage through their business. Small executive carve-outs may be unable to use gender-distinct pricing, yet not include enough buyers to qualify for insurers’ unisex pricing.

Civil rights complaints, lawsuits and/or legislation could impact gender-distinct pricing. In January 2014, The National Women’s Law Center filed a civil rights complaint against four insurers, three state Medicaid departments and the Center for Medicare and Medicaid Services, alleging that gender-distinct LTCI policies violate the Affordable Care Act and that state and federal governments are complicit because their partnership programs promote policies with gender-distinct pricing. We have heard no news about the status of that civil rights complaint since.

 • Underwriting continues to evolve, using more stringent requirements. Insurers have started making underwriting decisions based on family history. Standards are also tougher, with more than 25 percent of issued policies placed in the third-most-favorable risk classification, or worse. Most insurers no longer accept people age 80 or above, and a growing number don’t accept people below age 30 or 40.

 • The placement rate dropped to an all-time low (60.9 percent, including work-site cases which sometimes permit easier qualification), despite a significant drop in cases above age 70. Thirty-three percent (32.9 percent) of such applications were declined, withdrawn or suspended. Many observers feel that higher prices result in a less healthy pool of applicants and that insurers have tightened underwriting.

 • As we have discussed in the past, when interest rates increase, actuaries will be appropriately reluctant to project such higher interest rates into the future, after experiencing our recent unprecedented period of extremely low investment returns. Mutual companies will be able to share favorable experience through dividends. Combo products can do so through current (as opposed to guaranteed) factors. People who consider self-insuring will assume higher yields. Stock companies issuing non-participating products are at risk of being unable to compete. A new product tries an innovative way to solve this dilemma, by determining annual credits based upon experience. It will be interesting to see whether the market responds favorably to the product.

 • Nine of the top 10 insurers, in terms of sales, were the same in 2014 as in 2013, with LifeSecure cracking the top 10, ranking eighth. State Farm dropped out of the top 10. The top five carriers were the same as in 2013, but their market share dropped from 76.5 percent to 71.3 percent.

 • Existing policyholders continue to see large rate increases. However, insurers should experience favorable deviations on new sales if interest rates rise in the future. Adverse persistency seems unlikely with today’s low lapse assumptions, and improved underwriting should favorably impact claims.

 • If a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers are increasingly opting to discontinue sales in that jurisdiction.

 • If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). More than 70 percent of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 43 cases which insureds have appealed to IR, and the insurers’ denials have been upheld 86 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

 • Wellness programs are increasing in the insurance industry in general. They may have an incidental side effect on LTCI claims, which could be increased if the LTCI industry promotes wellness.

Claims

 • Twelve participants reported individual claims for 2014, and three reported true group claims (one more insurer in each category than last year). Their total claim payments rose to $3.7 billion in 2014, 9 percent over 2013, whereas in-force premium rose only 2.6 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Claims rise from year-to-year mostly because existing insureds get older. In addition, monthly maximums increase due to benefit increase features, long term care costs are going up, claims are shifting to more-recently-issued policies which have larger maximum benefits, etc.

 • These 12 insurers have paid nearly $30 billion in LTCI claims from inception through 2014.

 • 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. According to the NAIC’s report for 2013 (the most recent report available when this was written), the industry incurred $8.2 billion in claims in 2013, boosting the industry to $89.4 billion of claims incurred since 1991.

LTCI claims paid by insurers that no longer sell LTCI might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc.

Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. In the distribution of the number of claims, if someone received care in more than one venue, they are listed more than once. Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs) and because new sales are nearly entirely comprehensive policies (covering home care and adult daycare, as well as facilities), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider type.

Table 3 (on page 42) shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 34.2 percent of individual policy claimants and 24.7 percent of group claimants receive benefits in more than one venue. The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

 1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

 2. It appears that more than 30 percent of claimants recover. Their claims were presumably quite short on average. Furthermore, their second claims are treated as though they were a different insured, instead of being added to the original claim.

 3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s new policies.

 4. Twenty-seven percent (26.9 percent) of the inception-to-date individual claims included 2014 payments, as did 21.1 percent of the corresponding group claims. Some of those closed in 2014, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 71 percent as high as the average individual claim, probably because of shorter benefit periods, lower maximum daily (monthly) benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to be in place when long term care is needed.

Individual ALF claims have high averages partly because ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

• Market Share

Table 4 lists the top 10 carriers in terms of 2014 new premium.

Fourteen insurers contributed to the following statistical analysis, but some were unable to contribute data in some areas.

Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.

• Characteristics of Policies Sold

Average Premium. Participants’ average premium per new sale increased 2.5 percent from $2,311 to $2,368. The lowest average size premium among participants was $1,263, while the highest was $2,995. Only three insurers had a lower average premium than in 2013, and one was only 1 percent lower while another was only 2 percent lower. The average premium per new purchasing unit (i.e., one person or a couple) dropped 1.5 percent, from $3,378 to $3,328, even though the average premium per sale went up. The average in-force premium increased 1.7 percent, from $2,003 to $2,038.

Issue Age. The average issue age dropped to 56.3, matching 2012’s record low. Part of the change is due to changes in survey participants. Table 5 shows that 4.7 percent of buyers were under age 35. Two carriers with a lot of worksite sales both reported 14 percent of buyers below 35. The trend toward an increasing percentage of sales below age 40 may reverse, as three of our products limit sales to ages 40 or older and three limit sales to ages 30 and older.

Benefit Period. The average length of fixed-benefit periods increased slightly from 4.05 years to 4.07 years because the lack of lifetime benefit periods shifted sales to 6-year benefit periods (see Table 6 on page 44). All lifetime benefit period sales were by two small insurers that discontinued lifetime benefit periods, causing a fire sale. One carrier sold more policies of less than 2-year benefit period than any other benefit period, and another sold nearly 20 percent of its business with less than a 2-year benefit period. Coverage was better than the 4.07 average suggests because of shared care and lifetime sales.

Maximum Monthly Benefit. Seventy-nine percent (79.6 percent) of 2014 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum.

The percentage of policies with a maximum benefit equivalent to $7,500 or more has increased from 7.0 percent in 2011, to 9.6 percent in 2012, to 10.4 percent in 2013 and to 11.6 percent in 2014. (See Table 7.)

 The average maximum benefit increased slightly from $4,830 per month to about $4,853 per month.

Benefit Increase Features. Sales of 5 percent compound held strong through 2012, then dropped from 32.7 percent of sales to 22.0 percent in 2013 and plunged to 9.25 percent in 2014. Many 2014 sales shifted to no increases or increases of less than 5 percent, sometimes for a limited period. Surprisingly few shifted to 3 percent or 4 percent compound.

The no benefit increase and future purchase option features were both the highest for the seven years shown in Table 8 on page 46.

We project the age-80 maximum benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2037) for our average 57-year-old purchaser in 2014 will be $295/day. Also looking at buyers who would be age 80 in 2037, we found the corresponding figures for buyers in 2013 (issue age 56, $333) and 2012 (issue age 55, $352). Thus, the average maximum daily value at age 80 dropped more than 5 percent in 2013 and more than 11 percent in 2014, for a cumulative 16 percent drop in two years. The drop in coverage is significantly greater because data suggests that the average claim payment (as opposed to start) year is greater than age 80.

The deferred compound option allows purchasers to add a level premium compound benefit increase feature within five years of issue if they have not been on claim.

The age-adjusted benefit increase features typically increase benefits by 5 percent through age 60, by 3 percent compound or 5 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).

Seven insurers provided both the number of available future purchase options in 2014 and the number exercised. Based on their data, 27.8 percent of insureds exercised future purchase options that were available in 2014. As shown in Table 9 on page 46, this percentage has held fairly steady since we started reporting it. However, election rates may decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.

Elimination Period. As Table 10 on page 46 indicates, facility elimination period (EP) selections were similar to recent years. The percentage of policies with zero-day home care EP (but a longer facility EP) dropped from 38.9 percent in 2013 to 30.5 percent in 2014, partly due to change in sales distribution among carriers. As in 2013, 32.2 percent of the policies had a calendar-day EP definition. Each of these features is offered by six insurers.

Sales to Couples and Gender Distribution. As shown in Table 11 on page 48, the percentages of buyers and single buyers who were female dropped in 2014, further indicating that, to a small degree, women opted to buy in 2013 to secure unisex pricing while able to do so.

Five participants shifted to gender-distinct pricing in 2013; they showed fairly typical percentages of single female buyers in 2014. Four carriers shifted to gender-distinct pricing during 2014; they have had a surprisingly low percentage of female buyers. Four participants had unisex pricing throughout the year; they had four of the five highest female concentrations, with three of these companies having more than 60 percent sales to females in 2014. One carrier using gender-distinct pricing showed more than 60 percent female sales because the insurer sells to the senior market which has a higher percentage of females. The other carriers ranged from 48 percent to 58 percent female buyers.

With one-third of applications declined, suspended or withdrawn, it is not surprising that one-of-a-couple sales hit a new high, 21.7 percent. However, the extremely high statistic that 77.5 percent of applicants buy their policy if their spouse was declined jumped this year because only three carriers contributed such data.

Shared Care and Other Couples’ Features. The percentage of couples who purchase limited benefit period and opt for shared care hit new highs (43.0 percent in total; 54.6 percent for insurers that offer shared care). It would not be surprising for these percentages to continue to grow.

Some products offer or embed joint waiver (both insureds’ premiums are waived if either qualifies) and/or survivorship, which waives a survivor’s premium after the first death if specified conditions are met. In 2014, 32.5 percent of policies included joint waiver of premium if both partners bought coverage (50.4 percent for those buying from companies which offer the feature). But only 5.3 percent of policies included survivorship if both partners bought (10.3 percent for those buying from companies which offer the feature). The major seller of survivorship discontinued such sales during 2013. (See Table 12)

Table 13 (on page 50) shows that the most common shared care benefit period (combining the traditional and third-pool designs) is three years. It also shows that three years is the benefit period that is most likely to add shared care. Above, we stated that shared care is selected by 43.0 percent of couples who both buy limited benefit period. Table 13 shows that shared care does not comprise 40 percent of any benefit period; that’s because the Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage. One participant reported home-care-only policies, which accounted for 1.4 percent of industry sales. Six participants reported sales of facility only policies, which accounted for 2.0 percent of total sales.

Ninety-seven percent (97.2 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.

Most policies (79.6 percent) use a weekly or monthly reimbursement design, while 20.4 percent use a daily reimbursement home care benefit. Only one company sold indemnity, which comprised 0.02 percent of all policies. The only company that sold a full cash benefit did not report the breakdown of its sales this year and is discontinuing that feature.

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 14.2 percent of sales, down from 17.7 percent in 2013.

Other Characteristics. Return of premium features were included in 10.5 percent of all policies (up from 6.4 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 87 percent were embedded automatically. Embedded features are designed to cost little, so the benefit is more likely to decrease to $0, generally by age 75 or after a defined number of years.

Almost 10 percent (9.8 percent) of the policies with limited benefit periods included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 63 percent of the ROB features were embedded.

A bit more than 1 percent (1.1 percent) included a shortened benefit period (SBP) nonforfeiture option. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

The percentage of non-tax-qualified (NTQ) policies was 1.3 percent.

Captive (dedicated to one insurer) agents accounted for 44.4 percent of the policies sold.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay. Only 4 insurers reported sales of 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies. Those limited pay policies combined to account for 1.25 percent of the policies sold.

Multi-Life Programs

Reported worksite business produced 10.2 percent of new insureds (up from 8.0 percent in 2013), but only 6.1 percent of premium (up from 5.8 percent). Worksite sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. The shift to gender-distinct pricing “on the street” may reduce worksite sales in the future. Reported affinity business amounted to 7.8 percent of the 2014 new insureds (same as 2013) but only 6.2 percent of the premium (versus 6.4 percent in 2013).

Partnership Programs

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 qualified LTCI policy. Partnership sales were reported in 42 jurisdictions in 2014, all but Alaska, District of Columbia, Hawaii, Illinois, Massachusetts, Michigan, Mississippi, New Mexico, Utah and Vermont.

One participant sold partnership policies in 41 states, and two sold partnership in 38 states. Few currently sell partnership in the original partnership states—California (2), Connecticut (6), Indiana (7) and New York (4)—because those programs require separate products and fees. One participant has never filed for partnership approval, and another files only in states that do not require a retroactive offer of exchange.

Less robust benefit increase selections reduce the percentage of policies that qualify for partnerships. This is particularly problematic in the original partnership states, wher

The Analysis of Long Term Care Insur­ance 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 sales made with discounts and/or underwriting concessions to groups of people based on common employment. Unlike “true group” sales, the WS market does not offer guaranteed issue. 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.) However, WS sales can use either group policies with certificates or individual policies, collectively referred to as policies herein.

The July 2014 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Three other participating companies (MassMutual, MedAmerica and United Security) showed worksite discounts in the display of their “street” products. John Hancock applies its affinity discount to worksite sales. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.

This article compares WS sales reported in the survey to total sales  (other than single premium sales) reported in the survey and compares detailed distributions of WS policies to both individual LTCI policies that are not worksite policies (NWS) and to the total individual market (Total). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.

Our data may under-report WS sales because, as explained under “Market Share,” some WS sales may not be identified as such in the insurers’ administrative systems.

About the Survey

As this article is written, six (identified above) of the 13 insurers whose products are displayed in the 2014 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All but United Security contributed data to this article. In addition, Genworth (which suspended accepting new WS cases in March 2013 but still accepts new entrants), Mutual of Omaha (which discontinued accepting new cases in 2012 but continued to accept new entrants into its worksite programs until September 2013) and Northwestern contributed data. MedAmerica and New York Life provided aggregate WS sales data, but no sales distributions.

To the best of our knowledge, our reported sales figures represent almost the entire worksite LTCI industry, and the sales distributions below represent more than 80 percent of the 2013 worksite market.

Highlights from This Year’s Survey

 • In 2013, participants reported sales of 17,810 worksite policies for $27.6 million of new annualized premium, a 6.4 percent drop in policies sold, and a 28.6 percent drop in new annualized premium compared to 2012, resulting in a 24 percent drop in the average worksite premium from $2,033 in 2012 to $1,551 in 2013. The sales decrease was partly attributable to insurers abandoning the worksite market or making their worksite offering less attractive. Half of the reduction in average premium was due to a shift of sales among insurers and the balance was primarily attributable to reduced limited pay and less robust benefit increase features.

 • Of the nine carriers that contributed WS sales for both 2012 and 2013, two had large increases (43 percent and 141 percent), two were almost unchanged (+4 percent and -0.1 percent) and five dropped 39 percent or more. (Note: Genworth restated its 2012 sales upward by $3.1 million because it had not captured all blocks of WS sales when it reported a year ago. Although comparing last year’s article to this year’s article would suggest that Genworth had an increase in sales, it actually had a reduction between 2012 and 2013, as would be expected for an insurer that discontinued new WS sales.)

 • Reported WS LTCI sales accounted for 6.8 percent of the LTCI industry’s new annualized premium sold in 2013 and 10.2 percent of the number of policies sold. For three insurers, WS was a major part of their new policy sales (from 47 percent to 65 percent). For another three insurers, WS contributed 7 percent to 18 percent of new policies. For the remaining three insurers, WS contributed 1 percent to 3 percent of new policies.

 • 2013 WS market share by carrier varied significantly from market shares in the total market and to WS market shares in 2012. (See Table 1.)

 • Four insurers reported the average number of policies per employer case, with a wide range from 6 to 139. Obviously, some insurers focus on small cases while others focus on large cases. Furthermore, if two business partners and their spouses buy LTCI paid through their business, many insurers would not grant a discount, hence would not classify them as WS sales.

 • In a reversal of past experience, the WS market had a higher average benefit period (4.26 years) than the individual sales (NWS) market (4.04 years). Lifetime benefit periods were excluded from the calculation.

 • Only 51.6 percent of the WS policies met partnership qualifications (down from 57 percent in 2012), compared to 60.9 percent in the NWS market. The executive carve-out WS market insures people who are unlikely to benefit from the partnership, but those policies probably all were partnership-qualified. The WS market provides an avenue to reach people more likely to benefit from partnership programs, but most of them do not get partnership coverage (many may be provided a non-partnership core and choose not to buy up).

Market Perspective

Last year we explained why we cautioned against projecting WS LTCI market growth. Our warning was well-justified and continues. Worksite sales might drop less in 2014 than in 2013, but could also drop significantly in 2015. Higher prices continue to erode voluntary WS sales in particular and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected.

We also caution that an insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, industry distributions may vary significantly from year-to-year partly due to a change in participating insurers that provide sales distributions.

Statistical Analysis

Market Share. WS market share is less reliable than total individual market share because, as noted above, some carriers might not identify some sales as being WS sales. Nonetheless, it is clear that WS market share is distributed very differently than the individual market.

Issue Age. Table 2 shows that the WS market has three times as many sales below age 40 and the NWS market has more than twice as many sales at ages 60 and above.

The average age of purchase in 2013 was seven years younger in the WS market (50.4, compared to 49.9 last year) than in the NWS market (57.4).

Rating Classification. In 2013 the WS market had about two-thirds as many sales issued in the most favorable rating classification (23.5 percent) as did the NWS market (34.7 percent), compared to only one-third as many in 2012. The change is attributable to having more carriers reflected in this data set for 2013 than for 2012. Despite its younger age distribution, the WS market has a lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification. (See Table 3.)

Benefit Period. Table 4 demonstrates that the distribution of benefit period (BP) was much more similar between the WS market and the NWS market than in the past. In fact, the WS market actually had a longer average BP for limited BP policies than did the NWS market. This change occurred because:

 1. In the past, long BPs were less common in the WS market, but that distinction largely disappeared because the industry backed away from selling long BPs “on the street.”

 2. Two of the carriers reflected in the NWS market focus on senior sales, thereby selling a higher percentage of short BPs.

 3. An insurer that sells a lot of eight-year BP policies has a much higher market share on WS business than “on the street.”

Maximum Monthly Benefit. Table 5 shows that the WS market had 53.9 percent of its sales below $150 a day compared to 38.7 percent for the NWS market. Each market had fewer sales below $150 a day than in 2012, but the difference in the percentages remained similar. The average initial maximum benefit for WS sales is approximately $143 a day compared to $168 a day for the NWS market. The smaller WS daily maximums are probably attributable to core/buy-up programs and perhaps some small policies being purchased to reach minimum penetration requirements to justify simplified underwriting.

Benefit Increase Features. Table 6 shows a lot of differences between the WS and NWS markets, as regards benefit increase features. The combined total of 3 percent and 5 percent compound increases is similar, but the WS is weighted much more to 3 percent compound. The WS market had 46.2 percent of its policies sold with either no increases, a deferred option or future purchase options (FPO), whereas 31.1 percent of the NWS policies had such features, more than double the spread of 2012.

The previous paragraph indicates that WS sales had less robust benefit increase features.

Future Protection. The lower initial benefit and younger age distribution in the WS market increase the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.

Based on a $20 an hour cost for non-professional home care (which is the median cost according to Genworth’s 2014 study), the typical WS sale’s average maximum daily benefit of $143 would cover 7.2 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $168 would cover 8.4 hours of care per day at issue.

According to the American Association for Long-Term Care Insurance’s annual Sourcebook, approximately two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age to age 80. We used the 24 percent FPO election rate reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates. The results are shown in Table 7.

Table 7 shows that the average WS policy would reimburse 83 percent as much care as would the average “street” product on day one. However, the disparity grows over time. With 4 percent home-care-cost inflation, the relative value of the WS coverage drops to 76 percent at age 80.

Table 7 suggests strongly that “something is better than nothing” because even limited commercial home care can be a huge blessing! However, it is important to remember that:

 1. Results vary significantly based on the particular insured’s issue age, selection of maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.

 2. With 5 percent inflation, the average coverage at age 80 for any type of care is only 53 percent as much for a typical WS sale (3.8/7.2) and 64 percent as much for a typical “street” sale as at issue. It is important that purchasers be educated so that they have reasonable expectations. If they think of their purchase as covering a large percentage of the cost of a nursing home, they might be disappointed at claim time.

 3. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each benefit increase option was issued with the same average maximum daily benefit and that everyone has a home care benefit equal to their facility benefit.

Note: We thank George Braddock for his critique of last year’s published survey. The above calculations and explanation are an improvement of our 2013 effort because he stimulated us to find a better way to address this issue.

Partnership Qualification Rates. The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for issue ages 60 or less. For issue ages 61-75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature. Table 8 identifies the percentage of policies which would have qualified for partnership if partnership programs had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 8, because partnership programs would cause the distribution of sales to change in those states that don’t currently have partnership programs.

The WS market provides an opportunity for the industry to serve less-affluent people efficiently. These are the people who would most benefit from partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet partnership qualifications fell from 56.6 percent in 2012 to 51.6 percent in 2013. In the total market, the percentage that would qualify for partnership dropped from 64.2 percent to 60.3 percent. Our July survey article discussed some ways to improve these percentages. In the WS market, core programs might lower the initial monthly maximum benefit in return for adding 3 percent compound increases.

Elimination Period. In Table 9, WS sales are more clustered to 90-day elimination periods (EPs). There is less customization of this feature in the WS market than in the NWS market.

The zero-day home care elimination period (in conjunction with a longer facility EP) is more common in the WS market because the carriers that sell such features are more active in the WS market.

Sales to Couples and Gender Distribu­tion. Relative to gender sales, the most striking difference between the WS market and the NWS market continues to be that the WS market is much more likely to insure only one partner (54.8 percent vs. 35.2 percent), a bigger difference than in 2012. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse. (See Table 10.)

The percentage of single people among WS insureds is 23.9 percent compared to 18.1 percent in the NWS market, probably because the WS market is younger and because of core programs.

The above two factors cause the percentage of both-buy couples to be much lower in the WS market.

Perhaps reflecting 2013’s last-chance opportunity (with many insurers) for females to get unisex pricing in the NWS market, females comprised 3.5 percent less of the WS market than the NWS market. In 2012, the difference was only 1.4 percent.

Shared care is sold less in the WS market because, as noted above, fewer couples buy together in the WS market. Furthermore, shared care is not typically included in executive carve-out programs that include single executives. Of the WS couples who both bought limited benefit periods, only 33.6 percent purchased shared care, compared to 40.4 percent in the NWS market.

Type of Home Care Coverage. Table 11 shows that the main difference between WS and NWS as regards home care is that WS is much less likely to have weekly or monthly determination. We suspect that is because of a desire to minimize the cost for core programs.

Other Features. Return of premium (ROP) was much more common in the WS market (24.8 percent) than in the NWS market (4.4 percent), probably because an embedded limited (e.g., for death occurring before age 67) ROP benefit is an inexpensive way to encourage more young people to buy coverage. Voluntary purchase of ROP is rare in the worksite.

Partial cash alternative was also more common in the WS market (30.0 percent) than in the NWS market (16.7 percent) because the carriers offering this feature have a bigger market share in the WS market.

Shortened BP was also more common in the WS market (2.4 percent) than in the NWS market (1.0 percent). One company seemed to be particularly responsible for the difference.

On the other hand, restoration of benefits was less common in the WS market (5.0 percent) than in the NWS market (8.8 percent) and was more likely to be embedded in the WS market than in the NWS market.

Limited Pay. 2013 saw a large decrease in limited pay sales because fewer carriers offer limited pay (the industry is down to three such carriers in summer 2014) and because there was an unusually high percentage of limited pay sales in 2012 due to “fire sale” opportunities. Limited pay accounted for 4.0 percent of WS sales (down from 9.4 percent) and 1.5 percent of NWS sales (down from 2.7 percent). See Table 12.

Closing

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