“Inflation is not the cause of rate increases,” cites Jesse Slome, director of the organization. “There are a variety of factors that make it necessary for insurers to raise rates on older long-term care policies. We wanted a current resource that provides consumers with updated and relevant information.”

According to Slome, insurers have been filing rate increase requests on certain classes of older policies. “The largest requests are associated with policies that included unlimited or lifetime benefits as well as those with a 5 percent compounded inflation growth factor.”

The Association’s website reports that 29% of rate increases were between 10 and 19% with 31% between 20 and 29%. “We do hear of significantly larger requests,” Slome notes. “We understand that people are upset when they are notified about rate increases but there are always options to mitigate the circumstances.”

The long-term care Association reports the between 50 and 60% of policyholders chose to pay the increase and keep their original policy provisions. “Clearly they are older and realize the value of what they purchased as well as the fact that they likely could no longer obtain long-term care insurance at any price,” Slome explains.

To learn more about long-term care insurance rate increases visit the Association’s updated information center.

The American Association for Long-Term Care Insurance (AALTCI) advocates for the importance of long-term care planning and supports insurance professionals who market both traditional and hybrid long-term care solutions.  To connect to a specialist for long-term care insurance costs call 818-597-3227.

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Jesse Slome, director Long Term Care Insurance Association

Los Angeles, CA [Marketwire - April 16, 2014] – An individual purchasing long term care insurance protection today faces a significantly lower risk of future premium rate increases says a leading expert.

“Individuals considering long term care insurance mistakenly believe that rate increases on policies purchased years ago will also affect new buyers,” explains Jesse Slome, director of the American Association for Long Term Care Insurance (AALTCI).   “There are important differences today that minimize the risk that a long term care policy purchased in 2014 will experience large future rate increases.”

“When it comes to long term care insurance the past does not always predict the future,” Slome states.  “State regulations and oversight, use of more conservative interest rates based on future years of historic low interest rates and pricing assumptions based more fully on realized experience make me confident circumstances today are dramatically different.”

“There’s nothing but upside here in terms of diminished risk of future rate increases,” Slome notes.  Industrywide pricing for long term care insurance policies sold between 2000 and 2008 was based on expected investment returns of between four to seven percent.   The plummeting of interest rates hurt insurance carriers and higher premiums are needed to ultimately pay the future claims, Slome explains.  He notes that carriers cannot utilize these losses as justification for rate increases.

“Anyone with a bank CD knows how low interest rates have fallen since the start of the Great Recession,” Slome states.  “Long term care insurers today assume a conservative 3% to 5% long term investment return for new policies.  Ten-year U.S. Treasuries yield 2.80 percent compared to 4.40 percent in 2004.  Unless you forecast interest rates will drop lower, that eliminates one risk for insurers that ultimately benefits consumers,” he points out.

More Reasons New Long Term Care Insurance Unlikely To Repeat Rate Increase Scenarios

A second reason for optimism is conservative pricing assumptions used by insurers.  “Insurers must predict the percentage of policyholders who will voluntarily lapse or drop their coverage each year,” Slome explains.   Policies priced in 2000 generally anticipated between three and five percent of policyholders would lapse yearly.

“It turns out that people who buy long-term care insurance understand the importance and value of this protection,” Slome shares.   “Actual lapse rates are only about one percent annually over time,” he reports.   ”If an insurer anticipated paying $100 million in future claims based on a 5% annualized lapse rate, they could like face roughly $150 million in potential future claims based on a 1% lapse rate.”

Considering that insurers paid $7.5 billion in claims last year, a 50% increase in future claims costs would be significant.  “Today’s policies, however, use very conservative lapse rate assumptions, typically as low as one percent,” Slome explains.  “Another past problem addressed and another reason we are optimistic about the future.”

Finally, Slome shares that State regulators who oversee insurance products now require that insurers factor moderately adverse conditions in their pricing.  “There’s quite a bit more scrutiny and an insurer seeking a future rate increase would have to provide significant detail as to why their projections were wrong.  The hurdles today are much higher and some states are outright declining requests,” he adds.  “No one can predict what the next 10, 20 or 30 years will look like but the conditions that created a need for rate increases on older policies just do not exist today.”

The expert notes that costs for insurance can vary significantly as can policy options and features.  To compare long term care insurance costs connect with a designated specialist by calling the American Association for Long-Term Care Insurance at (818) 597-3227 or visit the organization’s website at www.aaltci.org.

The Association’s 2014 Sales Summit offers free online streaming for insurance agents and financial advisors.   For information and no-cost registration visit Virtual Insurance Conferences and Expos at www.insuranceexpos.com.

The post Long Term Care Insurance Rate Increase Risks Greatly Diminished appeared first on American Association for Long Term Care Insurance.

“As a voluntary plan consisting of typical employees, this is a most representative group,” states Jesse Slome, executive director of the American Association for Long-Term Care Insurance (www.aaltci.org), one of those interviewed by GAO staff  preparing the study.  “Instead of hyperbole, we now have facts to prove that the majority of consumers understand the value of their long-term care insurance protection and do not drop or reduce their coverage even when faced with a rate increase.”

In 2009, some 146,415 participants in the Federal program, about two thirds of the enrollees at the time, were notified that their premiums were subject to an increase of up to 25 percent.  All of these enrollees had selected a particular inflation protection option – the 5 percent automatic compound inflation option (ACIO).

The majority of FLTCIP enrollees facing the premium increase made no change to their benefits.  Specifically, 46 percent or 67,511 individuals maintained their coverage with the 5 percent compound inflation option and elected to pay premium increases. 

An equal percentage of individuals chose to reduce their future inflation growth protection benefits to 4 percent (ACIO) by either switching to the new FLTCIP II plan (26 percent) or retaining the original plan (20 percent).  The new benefit plan provides enhanced coverage.  For example, it covers 100 percent of the cost of home care and adult day care.  The prior plan covered these costs up to 75 percent. 

All plan enrollees who decreased their ACIO protection to 4 percent retained their (current) accrued daily benefit amount that would then increase at the reduced ACIO rate.

Only 1.6 percent of enrollees facing the premium increase, or 2,344 individuals lapsed their coverage and are no longer enrolled in the program.  “We have long attempted to counter the perception that rate increases caused large numbers of people to drop coverage,” Slome acknowledged.  “People understand the risk they face when they purchase long-term care insurance and the protection becomes even more valuable as they age themselves.” 

“What may surprise many is that 23 percent of policyholders actually experienced up to a five percent  decrease in their premium,” Slome adds.  Some 18 percent had a decrease between 0.1 percent and five percent.  

The Federal Long-Term Care Insurance Program currently has 268,200 enrollees (as of June 30, 2011).   In 2009, a 7-year contract for the program was awarded to John Hancock Life Insurance Company. 

Established in 1998, the American Association for Long-Term Care Insurance (http://www.aaltci.org/) is the national trade organization committed to increasing consumer awareness and support of insurance and financial professionals offering long-term care solutions.

Chart 1

Benefit Selection Of Federal Lontg-Term Care Insurance Program
Enrollees Facing Premium Increases

46.1%       No Change (FLTCIP 1.0 plan with 5% ACIO)
25.7%       FLTCIP 2.0 plan with 4% ACIO
20.0%       FLTCIP 1.0 plan with 4% ACIO
5.6%          FLTCIP 2.0 plan with 5% ACIO
1.6%          Lapse
0.5%       Other benefit changes (changing a benefit amount)
0.4%       No selection (many died or became claimants before rate increase took effect)

Chart 2
 
Premium Change

Decrease more than 5%       5%
Decrease 0.1% to 5%          18%
No change                          2%
Increase up to 5%               17%
Increase 5.1% to 10%          6%
Increase 10.1% to 15%       2%
Increase 15.1% to 20%       1%
Increase 20.1% to 25%       43%
Increase more than 25%       6%

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