I have just returned from the National Society of Actuaries Conference in Orlando. I did not see Mickey. But I certainly feel like I learned a lot. The surprising theme was that this is the absolute best time to be in LTCI. To many who read this column, we probably couldn’t be any more in it than we are now—and furthermore we are not going anywhere. We already know the bottom line: Inevitable demographics and a sure and certain knowledge that private insurance shall remain a key ingredient of our solving the LTCI conundrum keeps us staggering forward.
Let’s begin with a reality check. The stand-alone LTCI business is flat. But one-half a billion dollars of new sales does continue to take place every year. There are five to six million individual policyholders and two to three million group policyholders. I would also be remiss if I did not comment that these folks may be among the smartest purchasers of one of the greatest insurance bargains of all time. The cost of care continues to rise, now at an average of $81,030 annually for a semiprivate room in a nursing home.
The planning process is critical. This is exactly where insurance professionals should appear and take center stage. It was also pointed out that our industry’s reputation may be a planning issue of its own. The public is not unaware of higher premiums and frequent rate increases taking place in an atmosphere of fewer benefits, products and companies. Product complexity and restrictive underwriting continue to represent serious obstacles to growth. What is most important to policyholders is the value of the purchase itself, the stability of the product being purchased, and how the purchase contributes to future financial stability.
Rate increases will continue to be a problem for all concerned. The National Association of Insurance Commissioners (NAIC) has recommended new guidelines requiring annual corporate reporting each May on the health of LTCI blocks. Loss ratios were built at 60 percent but are trending toward 80 percent. For the most part, companies may have given up on profitability and are now aiming only at sustainability. Rate increases on old in-force and new premiums have become a serious impediment to progress. It was pointed out that the real reason for rate increases is approximately two-thirds lapse assumption and one-third mortality. It is not investments, morbidity or expenses. Current and highly visible claim reserve adjustments are not based on incidence, but duration. Longevity is a problem. Insurance commissioners are keenly aware of the problems caused for consumers when faced with substantial rate increases. A new NAIC Model Bulletin now mandates “landing zones,” where consumers may take reduced benefits and maintain current premium levels. This can be primarily accomplished by accepting a reduced compound inflation option.
Reform is in the air! It is expected that at least a bipartisan attempt at reform of Medicaid is very likely. It is also, therefore, possible that allowing some access to existing individual qualified dollars is a distinct possibility. The primary argument being that freeing monies and therefore reducing government income from IRAs and 401(k)s
could be offset by savings to Medicaid. There will not be any new CLASS Act look-alikes. However, we need to keep an eye on the Bipartisan Policy Center report on long term care and retirement savings, due out by year end, and the scheduled 2015 White House Conference on Aging.
In the meantime, product development will continue with more short term options (both individual and group), reduced streamlined benefits, catastrophic coverages, 1035 programs, and many more life/annuity hybrids.
The problem that will not go away still stands before us, somehow remaining smug in its self-certainty that we have only dented its defenses. What it does not understand is that we are now more experienced, better equipped, better prepared and better trained. We have a growing arsenal of product alternatives and risk leveraging strategies. We will not stop until we have accomplished what we know how to do best, and that is exactly why now is the absolute best time to be in the LTCI business.
Other than that I have no opinion on the subject.
