2011 Individual Long Term Care Insurance Survey
The 2011 Individual Long Term Care Insurance Survey is the thirteenth consecutive annual review of individual long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions, and analyzes the changing marketplace.
Unless otherwise indicated, references are solely to the U.S. stand-alone LTC insurance market, which includes individual policies and some group certificates sold to multi-life cases. “Stand-alone” refers to LTC insurance policies which do not include annuity, disability or death benefits (other than provisions such as “return of premium” or survivorship features). The large group market (which offers guaranteed issue) is not included in this report.
Highlights from This Year’s Survey
• LTCI sales increased in 2010. The 18 carriers that contributed statistical data to this survey sold 218,978 policies for $485,680,255 of new annualized premium in 2010 (plus $3.5 million from 72 single premium policies). This compares to 196,370 policies (11.5 percent more policies in this year’s survey) for $428,506,015 of new annualized premium (13.3 percent more premium) for the 20 such carriers in 2009.
The 18 participants that contributed both years sold 17.8 percent more policies and 19.5 percent more annualized premium in 2010 than in 2009. Thus, it is estimated that the entire stand-alone LTCI industry sold 238,000 policies for $530 million of annualized premium, approximately 6 and 10 percent increases respectively over 2009.
These figures do not include future purchase options or upgrades to existing policies. (Seven carriers reported a total of $4,493,236 of annual premium added from 15,746 FPOs.)
• Sixteen participants reported individual claims (including multi-life) and four reported true group claims. Their total paid claims exceeded $2.5 billion in 2010, approximately 94 percent of which were individual claims. The survey’s number of 2010 claims was distributed as follows: home care and adult daycare—39.7 percent, assisted living facilities—22.8 percent, and nursing homes—37.5 percent.
There are many facility only policies represented in the claims statistics because most claims come from policies sold long ago. The termination of facility only policies and increasing use of home care should both cause the percentage of home care claims to increase in the future.
• The LTCI industry has made a much bigger difference than the above numbers indicate because a lot of claims are paid by insurers who no longer sell LTCI. According to the NAIC, the industry incurred more than $5 billion in claims in 2008, boosting the industry to more than $55 billion of claims incurred.
• One carrier is new to the LTCI industry—Humana, which is piloting a policy in six states—but not participating in this survey. Since our 2010 survey, four carriers have announced discontinuation of LTCI sales: MetLife, Berkshire (by December 29, 2011 at the latest), Assurity, and AFLAC (which continues to issue new coverage for existing cases).
In 2004, 36 carriers displayed products in our survey. Last year, 19 carriers did so; and this year, 16 carriers are displaying products. In total, we estimate that 25 carriers sell either individual or group stand-alone LTCI. Industry consolidation boosts the average sales per carrier.
• For the first time, sales characteristics differences between multi-life and non-multi-life sales will be reported. That data will appear in the August issue of Broker World.
About the Survey
This article is arranged in the following sections:
• Market Perspective provides insights into the individual LTCI market.
• Statistical Analysis presents industry level sales characteristics. In addition to the displayed participants, MetLife and Northwestern Mutual contributed data.
• Premium Rate Details explains the basis for the product-specific premium rate exhibit.
• Product Details provides a row-by-row definition of the product exhibit. There are 28 products displayed, including seven new products. Three of the new products are sold exclusively in the worksite (Genworth, Mutual of Omaha and United of Omaha); and four are available on-the-street (Genworth, John Hancock, Transamerica and United Security). Some other companies have made significant product modifications.
Claims. Sixteen participants reported individual claims and four companies reported group claims. Combined, paid claims exceeded $2.5 billion in 2010 and were distributed as follows: home care and adult daycare—39.7 percent, assisted living facilities—22.8 percent, and nursing homes—37.5 percent. These distributions will shift more toward home care as the industry in-force block shifts toward comprehensive policies and the use of home care increases.
The average annual amount paid per nursing home claim in 2010 was nearly the same on individual and group policies—$18,189 versus $18,457. The average claim is small compared to the annual cost of nursing homes because:
• Many claims started during 2010 or ended in 2010, thereby not contributing a full year of cost. Some started and also ended in 2010.
• The older policies probably have low maximum benefits because they were sold long ago, often without benefit increase features.
The average assisted living facility (ALF) claim was lower on individual policies than on group policies—$16,635 versus $18,138. As many group policies have lower maximums for ALFs, which cost less than nursing homes, it seems surprising that the average group ALF claim almost matched the average group nursing home claim. The data included only 375 group ALF claims.
The average home care claim was higher on individual policies than on group policies—$12,301 versus $9,693.
Total claims paid since inception for the 18 participants exceed $19 billion, which is about 30 percent of the total claims incurred in the industry since 1991. The $19 billion in claims were weighted (by number) much more heavily toward nursing homes: home care and adult daycare—30.9 percent, ALFs—11.5 percent, and nursing homes—57.6 percent.
The average claim paid since inception is much higher than the average claim paid last year because the average since inception reflects people having been on claim for more than one year. The average claims since inception are more statistically significant. For each type of claim, the individual average size is substantially larger than the group average size as shown in Table 1. The individual claim average exceeds the group average by a higher percentage for ALFs and for home care than for nursing home care because group policies have insured a lower maximum benefit for ALFs and home care than for nursing home care.
• An estimated 67 percent of policies issued in 2010 would have been partnership-qualified if all states had partnership programs that followed the Deficit Reduction act guidelines. More than 80 percent of sales are partnership-qualified in five states, but the average for all DRA partnership states is lower because implementation is not yet complete in all states.
• Life/LTCI and annuity/LTCI hybrid, combination or linked products are growing. This growth is due to their pricing stability compared to past stand-alone LTCI policies, attractiveness compared to low-yielding certificates of deposit, and benefits paid upon death or lapse. These products can be part of a person’s plan for long term care, may supplement stand-alone LTCI, and are likely to be much less impacted by CLASS. If interest rates rise sharply in the future, a major 1035 tax-free exchange to the hybrid annuities market might develop.
• Multi-life sales (individual policies sold through employers or other groups) accounted for about 25 percent of new policies sold in 2010. Look for the August 2011 issue of Broker World magazine for more analysis.
• The government’s intention to launch a government-run LTCI program (CLASS) in 2013 is stimulating worksite sales. The government intends to spend $93 million to promote CLASS, which most everyone agrees will increase private LTCI sales in the short run. However, long-range prognostications about CLASS range from a permanent boost to total elimination of the industry. Some believe the private LTCI industry will gravitate to selling policies which supplement CLASS, but there are many significant hurdles that would have to be overcome.
• An estimated 67 percent of the policies issued in 2010 would have been partnership-qualified if all states had partnership programs that followed the Deficit Reduction Act guidelines. More than 80 percent of sales are partnership-qualified in five states, but the average for all DRA partnership states is lower because implementation is not yet complete in all states.
• Life/LTCI and annuity/LTCI products (often referred to as hybrid, combination or linked products) are growing. This growth is due to their pricing stability compared to past stand-alone LTCI policies, attractiveness compared to low-yielding certificates of deposit, and benefits payable upon death or lapse. These products can be part of a person’s plan for LTC, may supplement stand-alone LTCI, and are likely to be much less impacted by CLASS. If interest rates rise sharply in the future, a major 1035 tax-free exchange to the hybrid annuities market might develop.
• Multi-life sales accounted for about 25 percent of new policies sold in 2010. (Look for the August issue of Broker World magazine for more analysis.)
• In 2010, the industry shifted toward less expensive policy designs. As detailed in the Statistical Analysis section: The percentage of lifetime benefit period policies dropped from 15.2 percent to 13.2 percent. The percentage of policies issued with elimination periods of 90 or more days increased from 76.1 percent to 80.5 percent. The average maximum daily benefit purchased increased slightly, but the benefit increase provisions were less robust, resulting in a 2 percent decrease in the projected maximum daily benefit at age 80 for someone who buys at age 58, the average issue age in 2010.
Partnership Programs. As of January 1, 2011, the participants sold partnership products in an average of 24 states (up from 18 states a year ago and 11 as of January 1, 2009). One company did not sell partnership policies anywhere; at the other extreme, two reported offering partnership policies in 33 of the 39 states which now permit partnerships and three reported selling in 32 states.
Implementation continues. Minnesota led all states with 86 percent of its policies being partnership-qualified followed by North Dakota with 84.5 percent; Virginia, 82.9 percent; Wisconsin, 81.1 percent; and Nebraska, 80.5 percent.
Because of differing laws, the original partnership states lagged in this regard: California—40.9 percent, Connecticut—39.5 percent, Indiana—53.4 percent, and New York—31.0 percent. Of the companies that participated in this year’s survey, only three sell partnership policies in California, whereas eight sell partnership policies in Connecticut (the original partnership states). Furthermore, the percentage of total policies (partnership and non-partnership combined) sold in the four original partnership states has dipped from 19.4 percent in 2007 to 18.2 percent in 2010, perhaps because of the new partnerships. Of interest is that sales increased steadily when these four states were the only ones with partnership programs. Perhaps LTCI sales could be increased if these states adopted the new partnership rules.
If states had DRA-type partnership programs, it is estimated that 67 percent of the policies issued in those states during 2010 would have been qualified. This estimate was arrived at by (1) calculating how many policies issued at ages under 61 had permanent level premium, compound increases of 3 percent or more, or had a permanent level-premium CPI feature (64 percent); (2) adding in those policies with 5 percent simple for ages 61-75; and (3) recognizing that all policies above issue age 75 would qualify. In a few circumstances, these policies would not qualify in a DRA-partnership state, but we think there are more situations where we have not counted policies which would qualify.
As noted earlier, MetLife and Northwestern Mutual, as well as all the carriers whose products are displayed in this survey, have contributed to the following statistical analysis. Some insurers were unable to contribute data in some areas.
Sales characteristics vary significantly from one insurer to another. Hence, variations in results from one year to the next may reflect a change in which insurers participate in the survey as well as any underlying change in the industry’s sales patterns.
• Market Share
The number four carrier in 2009 (measured by new annualized premium) discontinued sales late in 2010 and the number one carrier for 2009 increased prices substantially in the second half of 2010. As a result, there was a major shift in sales by carrier, but it is largely masked by 2010 full-year data. Thus, the top two carriers produced 54 percent of the survey’s estimate for the entire industry (temporarily up from 47 percent last year) and the top 10 produced 88 percent (up from 84 percent last year).
Table 2 lists the top 10 participants in terms of new paid annualized 2010 individual premium. John Hancock barely held on to first place, but will drop in 2011. Mutual of Omaha/United of Omaha and Prudential showed the most growth compared to 2009. MetLife will drop off the table in 2011 and Berkshire will drop in 2012; thus, significant shifts in market share will occur in the next two years.
• Characteristics of Policies Sold
Average Premium and Persistency. Ignoring single premium sales, the average new policy premium increased 1.6 percent, from $2,182 in 2009 to $2,218 in 2010. The lowest average size premium among participants was $1,111 and the highest was $4,207. The average premium per new purchasing unit (i.e., one person or a couple) increased from $3,078 to $3,259. The average in-force policy premium for participants decreased from $1,840 to $1,815.
Issue Age. The average issue age (57.9 in 2010) has fluctuated between 57.7 and 58.1 since 2006. Table 3 shows that the percentage of sales in the 55 to 69 range has grown each of the past two years, with a reducing percentage of sales below age 55 and above 69. Few carriers issue above age 79. Table 4 shows more detail.
Benefit Period. Table 5 documents the continuing drop in lifetime benefit period (BP) sales since 2004, when 33.2 percent of the policies sold had a lifetime benefit period. Five carriers do not offer a lifetime benefit period, yet six carriers reported those sales were more frequent than any other benefit period for 2010.
Shorter benefit periods (two years or less) were less common in 2010 than in the past four years. However, a major carrier is just releasing a one-year benefit period and the partnership programs should encourage more such plans.
Three- and four-year benefit periods accounted for 42.4 percent of the sales, up from 39.4 percent.
The average length of fixed benefit period policies dropped 1.4 percent, but remained 4.2 years, which under-values the coverage sold because of the shared care factors discussed below.
Most shared care policies allow a claimant to dip into the spouse’s policy if he has exhausted his own policy. If two four-year BP policies are shared, each is counted as a four-year BP policy in this study. While the combined benefit period is limited to eight years, either insured could use more than four years, and that added value is not reflected in the statistic.
Some shared care policies maintain independent coverage for each insured, but add a third pool that either insured could use. If the base coverage is four years, the survey classifies them as four-year policies, but either person has access to eight years of benefit, and the total maximum is 12 years.
Partly offsetting these understatements of protection is an overstatement when an eight-year joint shared policy is sold. Each insured is then counted as having an eight-year benefit period, but together they have only eight years.
Maximum Daily Benefit. The average maximum daily benefit is about $155 per day. This year, the $200-plus initial maximum daily benefit (MDB) category was subdivided. Also the less than $50 and $50-$99 categories were combined because $1,500 per month policies were being classified as less than $50 (see Table 6). If multi-life is excluded, the percentage of sales below $100 per day drops from 12 to 11 percent.
Benefit Increase Features. After holding steady in the past, sales plummeted in 2009 and 2010 for permanent 5 percent compound increases with premiums intended to stay level. They dropped 6.4 percent (arithmetically) in 2009 and 6.3 percent in 2010. Permanent simple 5 percent increases have fallen steadily, but more slowly, for four years.
Those options have been replaced by level premium options with permanent CPI increases and by other compound benefit increases, most notably 3 percent, as shown in Table 7.
More than one-fourth (25.5 percent) of the policies had no benefit increase feature or a future purchase option or a deferred benefit increase option.
The deferred compound option allows purchasers to add a level premium compound benefit increase within five years of issue if they have not been on claim. If clients exercise those options, policy benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies become no benefit increase policies.
Based on data from five participants, 27 percent of 24,910 people exercised future purchase options that were available in 2010. The percentages varied from 9 to 43 percent by insurer. Percentage elections are likely to decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.
Elimination Period. The percentage of policies with 30-day or shorter facility elimination periods (EP) dropped from 12.2 to 8.7 percent, sharply accelerating a trend. However, 26.6 percent of the policies included a zero-day home care EP coupled with a longer facility EP. Many policies in the 31 to 89 day category have 84-day EPs, so we intend to broaden the 90 to 100 day category to 84 to 100 days next year (see Table 8).
Sales to Couples and Gender Distribution. Sixty-one percent of buyers were part of couples who both bought in 2010, 16.5 percent were reported as one-of-a-couple purchasers, and 22.5 percent were reported as single.
One-of-a-couple discounts help retain the healthy spouse when the other spouse is declined, thereby salvaging the underwriting investment and pleasing distributors. Overall, 35.1 percent of the couples in 2010 were reported to insure only one person; however, that is understated because carriers that don’t offer one-of-a-couple discounts classify such buyers as single people. Companies with one-of-a-couple discounts that were on the order of half the both-buy discount reported that 40.5 percent of couples insured only one person. Yet companies with the less attractive one-of-a-couple discounts reported that 27.8 percent of couples insured only one person.
A few insurers were able to share data which showed that when one partner was declined, approximately two-thirds of the well spouses accepted their policies.
Overall, our analysis suggests that 58 percent of buyers are women, but 71 percent of single people who buy are female. Generally, a higher percentage of single buyers are women than of one-of-a-couple buyers.
Shared Care and Other Couples’ Features. In 2010, 41 percent of couples who both bought limited benefit period policies (eligible couples) purchased shared care; 44.8 percent bought shared care if it was offered by the insurer.
Some products offer (or include automatically) joint waiver of premium (premium waived for both insureds if either qualifies) and/or survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met. In 2010, 23.1 percent of policies sold to couples-both-buying included joint waiver of premium and 24.6 percent included survivorship.
Existence and Type of Home Care Coverage. Four participants reported home care only policies, which accounted for 3.3 percent of sales. Although nine participants reported 2010 sales of facility only policies, those policies accounted for only 1 percent of total sales.
More than 97 percent (97.5 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.
Most policies (57.6 percent) use a weekly or monthly reimbursement design, while 38.2 percent use a daily reimbursement home care benefit. Thus, 95.8 percent use a reimbursement method. Indemnity (2.2 percent) and cash/disability (2.0 percent) are becoming less common and well over 80 percent of the 2010 indemnity benefits were sold by carriers that will have stopped offering the feature by the end of 2011.
Partial cash alternative features are becoming popular. In lieu of any other benefit that month, these features allow policyholders to use a percentage of their benefits (between 33.3 and 50 percent) for whatever purpose they wish. Nearly ten percent (9.6 percent) of 2010 policies included a partial cash alternative feature.
Other Characteristics. Fewer than 2 percent (1.7 percent) of the policies included return of premium features, which return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies, sometimes only after a defined number of years or before a particular age. About 93 percent of those provisions were elected options requiring additional premium.
Fifteen percent of the policies included restoration of benefits (ROB) provisions, which restore used benefits when the insured does not need services for at least six months. Slightly more than half of the ROB features were automatically included.
Fewer than 2 percent (1.4 percent) included a shortened benefit period (SBP) non-forfeiture option. SBP makes limited future LTCI benefits available to people who terminate coverage after three or more years.
As anticipated, the percentage of policies issued on a non-tax-qualified (NTQ) basis dropped below 1 percent. Only 4.2 percent of our participants’ in-force policies are NTQ.
Limited Pay. Single premium sales more than tripled from 21 policies to 72 policies, while the premium jumped eightfold to $3.5 million. However, two of the three insurers that sold single premium policies in 2010 have temporarily stopped doing so in 2011 due to the low interest rate environment.
In 2010, 1.9 percent of policies were issued on a ten year pay basis and .4 percent on a pay to age 65 basis. Only .1 percent used all other non-level premium patterns combined. The other 97.6 percent of the policies use lifetime premium payment. Limited pay policies are much more expensive than in the past and the likelihood of future premium increases on lifetime pay policies has substantially reduced. Nonetheless, four participants have raised rates on policies filed under rate stabilization laws.
• Underwriting Data
Case Disposition. In reviewing this section, please note:
• Placed percentages reflect the insurer’s perspective; a significantly higher percentage of applicants is offered coverage because applicants who are denied by one carrier are often issued coverage by another carrier.
• If a carrier accepts 70 percent of its applicants without modification but issues joint policies, it might issue only 49 percent of its couples’ applications without modification, since either applicant might not be acceptable in the applied-for class.
In 2010, 66.9 percent of applications were placed, an improvement back to 2008 results, despite a slight dip in those issued as applied for. The declination rate continued to rise—up to 20.1 percent (see Table 10). Fewer applications were suspended, withdrawn, not accepted or returned during the free look period.
Of the issued cases, 4.8 percent were modified, rather than issued as applied for.
All carriers declined between 15 and 30 percent of their applicants except two carriers—one at 13.1 percent and another at 34.6 percent.
For the first time, we can split out some business issued on a simplified underwriting basis. Removing such business exposes that the decline rate for fully underwritten business was 20.5 percent.
Underwriting Tools. Table 11 shows the percentage of companies that used each underwriting tool and the reported percentage of applications that were underwritten using that tool. The increased use of medical records should reduce the risk of future rate increases. Medical Inspection Bureau (MIB) and prescription profile usage is likely to increase.
Underwriting Time. Table 12 shows that average reported time from receipt of application to mailing of the policy has increased significantly in the past two years. The average processing time was 31 days in 2010, but three-quarters of the insurers reported average processing time of fewer than 30 days. Two carriers reported averages more than 40 days, skewing the average.
The increase in processing time from 2008 to 2009 was largely attributable to a change in participating insurers. However, in 2010 almost all companies reported longer processing times—mostly longer than in 2008. Increased use of medical records is important for sound underwriting, but contributes to longer processing times.
Rating Classification. A higher percentage of cases were issued in the most favorable rating classification (47.3 percent) than in many years, even though most carriers issued a lower percentage in that classification in 2010 than 2009.
The percentage rated in the best rating classification varies from 8 to 100 percent among carriers, and the percentage rated in the third-best (or worse) rating classification varies from zero to 69.7 percent. Six participants placed 21 to 30 percent of their applicants in their most favorable classification, and seven placed 40 to 55 percent in their most favorable classification. Only two carriers placed fewer than 85 percent of their cases in their two most favorable rating classifications (see Table 13).
This section describes and summarizes, row-by-row, the information displayed in the exhibit. Because many features cannot be fully described in limited space, please seek more information from insurers, as appropriate. The abbreviations in the exhibit include the following (see Table 14).
• Company Name (rows 1 and 56) lists the participating carriers in alphabetical order at the top of each page. Each company could display as many as three products.
• Policy Type (row 2) distinguishes between comprehensive, home care only and facility only products. However, some products are listed as comprehensive, yet are available as facility only and/or home care only as well. Between row 2 and the “Comment” rows (55 and 105), seven carriers are identified that offer facility only coverage and three carriers that offer home care only. For the first time, we are including three products sold exclusively in the worksite, and they all are comprehensive policies.
A product is identified as “Disability” (full benefit if someone becomes chronically ill) if it is always sold that way for all levels of care. There is one such disability product this year. There are no products with a 100 percent disability option, but three products offer indemnity coverage (full benefit if someone is chronically ill and incurs a qualified cost) for a higher premium (see row 38).
Where appropriate, we have inserted indicators such as “Disability,” “Facility Only” to indicate why a particular row might not apply to that product.
• Product Marketing Name (rows 3 and 57) is the product’s common brand name.
• Policy Form Number (row 4) is generic and may vary by state.
• Year First LTCI Policy Offered (row 5) is the year the insurer first offered individual LTCI coverage. If group LTCI was sold earlier, that group date is also shown.
• Year Current LTCI Policy Was Priced (row 6) is the year the current product was most recently priced.
• Jurisdictions LTCI Available (row 7) generally shows the jurisdictions in which the insurer sells, or intends to sell, LTCI. A displayed product may not be available in all of these states.
• State Partnerships (row 8) identifies the number of state partnerships in which the insurer participated as of January 1, 2011, and specifically identifies any of the original four state partnerships (CA, CT, IN and NY) in which the insurer participates.
• Financial Ratings and Ranking (rows 9-14) lists each company’s ratings from the four major rating agencies (A.M. Best, Standard & Poor’s, Moody’s, and Fitch) and its COMDEX ranking as of May 1, 2011.
The COMDEX ranking is from VitalSigns, a publication of EbixLife, Inc. EbixLife converts each company’s A.M. Best, Standard & Poor’s, Moody’s, and Fitch ratings into a percentile ranking. For insurers rated by at least two of these rating agencies, EbixLife produces a COMDEX ranking by averaging that insurer’s percentile rankings.
The COMDEX ranking has two key advantages: it combines the evaluations of several rating agencies and its percentile ranking makes it easier to understand how a company compares to its peers.
• Financials (rows 15-18) reflect the insurer’s statutory assets and surplus (in millions) for year-end 2010, and the percentage changes from year-end 2009. These figures do not include assets and surplus of related companies nor do they reflect assets under management.
• LTCI Premium (rows 19-22) lists (1) the annualized premiums (in millions) for policies sold in 2010, (2) policies in-force on December 31, 2010, and (3) the percentage changes from the previous year. If single premium sales are included in the annualized premium, the amount of single premium is disclosed parenthetically.
• LTCI Lives Insured (rows 23-26) counts joint LTCI policies twice, because two lives are covered in such policies. The number of lives covered by new policies and by year-end in-force policies, as well as the year-to-year percentage changes, is shown.
• Policy Ranges and Elimination Period Terms (rows 27-34) shows the product’s issue age, daily benefit, benefit period (BP) and elimination period (EP) ranges. It also explains how the EP works.
Issue Age Range. Only two participants issue LTCI to people older than age 85.
Daily, Weekly or Monthly Benefit Range shows the minimum and maximum policy size that will be issued. The range is shown on a weekly or monthly basis only if home care, assisted living facility care and facility care are always sold on a weekly or monthly basis. Most policies showing a daily benefit range offer an option to determine the benefit on a monthly basis and some issue a daily benefit for one level of care and a monthly benefit for another level of care. The cost of monthly determination of benefits can be reflected in an additional premium and also a reduction in the annual maximum benefit from 365 times the daily benefit to 360 times the daily benefit.
Benefit Periods and/or Pools. Eleven of our 16 participants offer a lifetime benefit period. Four participants offer LTCI policies with BPs as short as one year. The partnerships are starting to make one-year benefit periods more common.
Elimination Periods (EP). A cumulative EP means that the requirement could be satisfied in stages. For example, if the policy has a 180-day EP and the policyholder needed qualified care for only 100 days, the remaining EP would be 80 days. A vanishing EP means that once the EP is satisfied, it never has to be satisfied again. One carrier offers products with non-vanishing EPs and another offers a non-cumulative EP.
Eight insurers have products that include a calendar-day EP automatically. Calendar-day EP costs more than service-day EP, but it has the following advantages:
• Clarity. Unfortunately, even if clients understand service-day EP today, they may forget by the time they go on claim. A calendar-day EP may reduce the potential for disputes.
• Flexibility. It is hard to predict finances, family status and preferences at the time of a future claim. Calendar-day EP allows a family to satisfy the EP with family care or perhaps informal care that would not satisfy a service-day EP.
• Policy Benefits (rows 35-47). Row 36 shows whether home care and adult daycare have a different benefit pool (and EP) from facility care. The first number represents the number of benefit pools and the second represents the number of EPs. A product can have two different benefit periods but a single pool. That is, a shorter home care BP could deplete part of a longer facility BP.
Row 37 shows how home and community based care (HCBC) benefits are determined. For policies that limit benefits to incurred expenses (reimbursement policies), monthly determination of benefit payments allows more benefit flexibility than does daily determination. With monthly determination, if less than any daily maximum is used one day, the unused amount for that day can fund additional reimbursement for a day in that month on which more than the daily maximum is spent. One policy has neither a daily nor a monthly maximum, but rather a lifetime maximum with a 20 percent copay.
An indemnity provision pays the full daily benefit on days when a qualified service is incurred, even if that full benefit exceeds the qualified expense. On days when there is no qualified expense, no benefit is paid. However, the term “indemnity” has been used in a variety of ways in the LTCI industry.
A disability provision (often called a cash benefit) pays the full benefit if the person satisfies the policy triggers, even if no qualified expense is incurred.
Row 38 indicates whether the facility benefit is an indemnity benefit and, separately, whether the home care benefit is indemnity based—each is either automatic or optional at additional cost.
Row 39 shows whether a product is sold with a disability benefit automatically or as an optional feature.
Row 40 shows whether a product automatically includes or offers an alternative that allows a client to accept a lower benefit that is disability-based rather than having the full reimbursement benefit available. For example, if a caregiver is a teacher and can provide all the care needed during the summer, the client might use the alternative cash benefit at that time, then shift back to reimbursement during the school year.
Row 41 shows whether a product includes or offers to pay (at additional cost) a disability benefit in addition to the normal reimbursement benefit.
Rows 42 and 43 indicate the ratio of the maximum daily benefit for assisted living claims and home care claims as a percentage of the maximum daily benefit for a nursing home claim. Entries of 100 percent in these rows indicate that the maximum daily benefit is the same for all levels of care. Some products offer home care benefits that can exceed facility benefits.
Row 44 indicates coverage for independent professionals (such as nurses not affiliated with a home care agency) and also coverage for independent non-professionals (someone without professional credentials who earns money by providing personal care, but is not employed by a home care agency). “Same” indicates that the same maximum benefit applies for an independent professional as for someone employed by a home care agency. Some products don’t cover such services directly, but an excess indemnity benefit (the difference between the full daily indemnity which is paid and the amount of qualified expenses that would be covered on a reimbursement basis) or alternative cash benefits could be used to pay for such services.
Row 45 describes homemaker coverage. Some products cover only incidental homemaker services, which generally means that homemaker services must be provided by the same person who provides personal care and during the same visit.
Rows 46 and 47 describe whether (how) benefits might be used to pay an informal caregiver such as a neighbor or a family caregiver with no expertise requirement beyond perhaps rudimentary training. These rows do not reflect caregiver training services (see ancillary benefits).
• Benefit Increase Features (rows 48-54) describe level premium automatic benefit increase features and future purchase options (FPO) which result in either attained age, or less steep, premium increases.
Rows 49 (compound increases) and 50 (simple, i.e. equal, increases) show level premium features which increase maximum benefits as long as the policy exists. Row 51 shows level premium benefit increases which level off at some point. A “Yes” listing in row 52 means that compounding ignores claims, then the sum of past claims is deducted to determine the remaining lifetime maximum benefit. With such a policy, if an insured draws full benefits each day, a five-year benefit period would extend to five years, eight months and an eight-year benefit period would extend to nearly 10 years. If the pool is increased after claims are deducted, the nominal benefit period remains constant during the claim period if the policyholder uses full benefits each day. A “Blended Approach” means that the most recent year’s claims are not deducted prior to determining the amount of the increase.
Rows 53 and 54 describe FPOs and step-rated features, in which future increases in coverage generate premium increases as well.
The abbreviations in Tables 14 and 15 are used to convey the frequency and amount of the increases, when such offers stop and how premiums increase when benefits increase. It is not possible to fully explain such features in limited space.
• Other Comments (rows 55 and 105). See row 105 below.
• Ancillary Benefits (rows 59-66) provides information regarding bed reservation, respite care, alternative plan of care, home modification, caregiver training, emergency alert, equipment, drug and ambulance benefits.
The bed reservation and respite benefits (row 60) show the number of bed reservation days per policy year, and “+Other” means bed reservation is not limited to situations in which the insured person is hospitalized.
The exhibit also indicates how many days of respite benefits are available without satisfying the EP. Respite relieves a family caregiver who keeps the care recipient off claim. If such a caregiver needs a “break” or to take a trip, it would be aggravating to face an EP that would have already been satisfied if the family had hired a commercial caregiver in the past.
A calendar-day EP can be satisfied while the family caregiver provides care. By the time respite is needed, the EP should be over. Thus, a calendar-day EP makes a respite care benefit nearly meaningless.
“APC” entries indicate that the feature is part of an alternate plan of care benefit and typically requires satisfying the EP before obtaining benefits. Satisfaction of an EP is less likely to be required for ancillary benefits with non-APC provisions. To find out if an EP must be satisfied, ask the carrier.
Frequently, two or three types of ancillary benefits share a combined maximum benefit. “Included above” identifies such packaged benefits. Items that have an asterisk are linked in such fashion. Also, items provided as part of enhanced care coordination have an asterisk. In such cases, we put a corresponding asterisk in the Care Coordination row (row 71).
Ancillary benefits are often limited to a percentage of the daily/monthly facility/home care benefit. The ancillary benefits are lifetime maximums unless there is a per year (“/yr”), per month (“/mo”), or per plan (“/plan”) indication.
• Claims Issues (rows 67-72). Conditional Receipt Protection describes if and how the insurer protects an applicant when a change of health occurs subsequent to signing the application. “Full, After App” indicates that conditional coverage starts on the date of application. “Full, After UW Reqt” means that coverage starts after underwriting requirements are completed. “Limited” implies that there are some restrictions—perhaps there is no conditional coverage for some health conditions. Readers are advised to review carriers’ specific wording and ask questions. For example, for joint policies, neither applicant may have conditional coverage unless both applicants qualify.
Coverage Beyond USA (row 69) reflects the maximum number of days of international coverage. For example, “International (90)” means that outside of the United States, 90 days of coverage are available. “NH 75%/4 Yrs” means that benefits are paid for nursing home confinement up to 75 percent of the MDB with a four-year benefit period. When international coverage pays up to 75 percent of the daily benefit for up to 365 days, the notation is “75% (365).” Some reimbursement policies may provide a disability (cash) benefit when the claim is foreign.
Some carriers’ claimants may currently benefit from negotiated discounts from LTC providers (row 70). Such discounts cannot be guaranteed today to exist in the future.
• Care Coordination (rows 71-72) describes whether care coordination is available and, if so, whether it is provided by insurer staff, independent professionals contracted by the insurer or someone chosen by the insured. The display also shows limitations regarding care coordination, and asterisks indicate that the use of care coordination improves benefits asterisked elsewhere in the display.
• Premiums and Discounts (rows 73-86) lists the percentage discount for the insurer’s lowest-priced rating classification compared to its second-lowest-priced rating classification (often called “preferred” vs. “standard”—row 74) and the percentage extra cost (also compared to the second-lowest-priced rating classification) for any other rating classifications (row 75).
Row 76 shows the amount of discount if both spouses or a pair of significant others purchase coverage. If couples’ discounts require that both people have the same coverage, there is a “Yes” in row 77. A decline for a reason other than a knockout health condition that should have kept the application from being submitted is called a “surprise” decline. When one spouse is a surprise decline, most carriers remove or reduce the discount for the other spouse (row 78). Row 79 indicates whether the discount is lost for the survivor after the first death.
Discounts that apply for a married person whose spouse does not apply are shown in row 80. Row 81 is a comparison of the maximum discount received by a couple who are the same age, in the most favorable risk classification, and both buying, versus what two people who are single and in the second-most-favorable risk classification receive.
Later Marriage Earns Discount For (row 82) indicates what happens if a person buys LTCI while single, then marries someone who buys LTCI. The “Current” insured’s original premium may be reduced prospectively and the “New” spouse may enjoy a full “Married Couple, Both Buy” discount.
There are many other subtleties relative to couples’ discounts, such as what happens if there is a “knockout” decline, if one policy lapses, if a single person enters a non-spouse relationship, if there is a divorce or legal separation, and whether discounts apply to other family members living together.
Row 83 indicates the most common employer and affinity discounts. Row 84 shows the minimum number of employees a business must have to be eligible for a discount and the minimum number of applications required for the employee group to earn the discount. Row 85 shows the minimum number of members an affinity group must have to be eligible for a discount and the minimum number of applications required for the group to earn the discount.
Row 86 shows for what payment frequencies (if any) credit cards are acceptable. If credit card payment is limited to the first payment, such limitation is indicated in the display.
• Non-Level Premiums (rows 87-90) show alternative premium patterns that result in the policy being paid up or premiums grading up or eventually lowering, in ways that are not related to benefit increases.
• Waiver of Premium (rows 91-94) might begin (row 92) after: (1) a specified number of service or calendar days or (2) satisfaction of the EP or a specified number of service days after satisfaction of the EP.
Home Care Waiver of Premium (row 93) may or may not be provided or may be offered at additional cost.
Joint Waiver (row 94) may be automatically included, available at additional cost by itself, available at additional cost combined with another feature such as survivorship or included only with shared care.
• Return of Premium Riders (rows 95-97). Each company was permitted to detail two ROP riders. “Net” means premiums are only returned to the degree that they exceed claims. “Full” means that all premiums are returned regardless of claim activity. If the full calculated amount is paid no matter when the insured person dies, it is indicated by “100%.” “Grades To” indicates that the death benefit grades up to—or down to—the indicated percentage of the full calculated amount by a specified duration or attained age. With joint policies, claims from both insureds may be offset against the joint premiums and the death benefit may be paid only upon the second death. ROP riders may not be available on policies with shared benefits.
• Other Rider and Features (rows 98-104). Survivorship features (survivor pays no premium after the partner’s death, rows 99-101) are described, indicating whether they are automatically included or optional, how long both partners must survive for survivorship to apply upon the first death, and whether a requirement exists that the insureds had no claim for that specified period.
Shared Care (row 102) shows what happens to the survivor’s shared care premium when one spouse dies. “Permanent Extra $” means that survivors continue to pay their shared care extra premium. “Extra Cost If Alive and Not On Claim” indicates that survivors stop paying the premium for the shared care rider, but continue to pay the premium for the base policy unless the survivorship benefit waives the premium.
Most commonly, each insured has access to the other insured’s unused benefits if they use up their own benefits. However, in some cases, both partners have their own pool and a third common pool is provided by rider, in which case “Third Pool” is shown in row 102.
Row 103 describes other shared care features. For example, joint waiver of premium might automatically apply. Third-pool shared care features do not permit claimants to invade the normal benefit pool of their spouse. When shared care does not involve a third pool, row 103 notes whether the insurer requires claimants to leave a portion of their spouse’s benefit period untouched, so that the spouses are assured of having one or two years of coverage if needed. (Note: some states mandate such “protection” for spouses; state mandates are not reflected in the display.) Generally, such a requirement expires when a spouse dies. In some shared care provisions, if claimants deplete their spouse’s pool, a non-claimant spouse below a specified age is permitted to buy a two-year benefit period policy without providing health evidence.
Whether restoration of benefits is automatically included or available at additional cost is reflected in row 104. Restoration of benefits restores the original benefit period if, generally, claimants have not been chronically ill for a period of 180 days.
• Other Comments (rows 55 and 105) provides some unique information about some products, which may include:
Special discounts or the availability of dividends.
Special underwriting programs (e.g., for worksite cases).
Premium guarantees, electronic apps or other service features.
Special features or riders, the availability of home care only or facility only coverage, absence of war exclusion, etc.
• Non-Qualified Policies (NTQ) (rows 106-109) provides information about NTQ policies, which do not qualify under HIPAA because their claims triggers are broader than permitted for tax-qualified (TQ) policies. Row 107 indicates either “100% TQ” or shows the percentage of sales which are NTQ and the additional premium required (ranges from 4 to 12 percent). Rows 108-109 show the type of facility and home care triggers. “Triple Trigger” means that a medical necessity trigger is available as an alternative to ADL and cognitive impairment triggers.
Row 110 shows the types of combination policies that an insurer has available. Combo products offer LTCI benefits in the same policy as life insurance, annuity or disability benefits.
Premium Rate Details
The premium exhibit reflects each carrier’s lowest-priced underwriting class. As the percentage of policies in this class ranges from 8 to 100 percent, the prices should not be presumed to be comparable. The exhibit shows level annual lifetime premiums for issue ages 40, 50, 60 and 70 for married couples (assuming both buy and are the same age) and for single people, based on policies with the following features:
• $100 per day (or equivalent weekly or monthly) benefit for all levels of care. The exhibit includes home care only, and facility only, as well as comprehensive policies.
• 90-day elimination period.
• Three-year benefit period and also lifetime benefit period. Policies based on a defined lifetime maximum, rather than a three-year benefit period, are listed separately and the maximum lifetime benefit is $100,000.
• With no automatic benefit increases and, separately, with automatic 5 percent annual compound benefit increases for life.
If one spouse is younger, most insurers’ premiums for the couple would be lower, but some insurers’ premiums would remain unchanged because the price is based solely on the older spouse’s age.
We thank the staff at each of the insurance companies for submitting the data and responding to questions promptly. We also thank Nicole Gaspar, actuarial assistant for Milliman, for managing the data expertly.
We reviewed data for reasonableness and companies reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.
If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.
Claude Thau, FSA, MAAA
FSA, MAAA, is president of Thau, Inc. He can be reached by telephone at 913-403-5824. Fax: 913-384-3781. Email: firstname.lastname@example.org.
Dawn Helwig, FSA, MAAA
FSA, MAAA, is a principal and consulting actuary in the Chicago office of Milliman, Inc. She can be reached at Milliman, Inc., 71 South Wacker Drive, 31st Floor, Chicago, IL 60606. Telephone: 312-499-5578. Email: email@example.com.
Allen Schmitz, FSA, MAAA
Schmitz, FSA, MAAA, is a principal and consulting actuary with the Milwaukee office of Milliman. Schmitz can be reached at 15800 Bluemound Rd., Brookfield, WI 53005. Telephone: 262-796-3477. Email: firstname.lastname@example.org.