Wednesday, September 12, 2018

Will New Long-Term Care Products Fare Better than "Traditional" Policies?

Last week, students in my Elder Law class at Dickinson Law had the benefit of a fascinating, detailed presentation by Pennsylvania's Deputy Commissioner of Insurance Joseph DiMemo about the history of insolvency for Penn Treaty American Network and American Independent Insurance Company as sellers of long-term care insurance policies.  In 2009, the State took the reins as the receiver for the two companies' administration of more than 126,000 policies sold nationwide. 

From the history, I would summarize reasons for failure of long term care insurance in its "traditional" form as including the following:

  1. Selling products with a promise or at least a strong expectation of level premiums, especially in the early years of the industry.  While contract language permitted companies to seek rate increases, the companies often delayed asking for increases or were frustrated by states that refused to grant requested increases;
  2. Assumptions made about "lapse" rates for policyholders that proved to be inaccurate;
  3. Assumptions made about "interest" rates for invested premiums that proved to be inaccurate, even before the 2008-10 financial crisis;
  4. Assumptions made about lower morbidity and higher mortality that proved not to be accurate for policyholders overall;
  5. The continued use of invalid assumptions about future premium rate increases. 

In light of this tour through history, I was interested to read about New York LIfe Insurance Company's description of its "new and innovative long-term care insurance product" in its press release dated September 5, 2018:  

A new long-term care solution announced today by New York Life, NYL My Care, promises to make the purchase of long-term care insurance simpler and more affordable. The innovative product features design concepts familiar to purchasers of other types of insurance, including a deductible and co-insurance, and offers the benefit of a dividend, which can help offset future premiums. NYL My Care clients will also benefit from the peace of mind that comes from working with a mutual life insurance company with the highest available financial strength ratings.


“New York Life is committed to helping people plan for the future, which includes protecting themselves and their loved ones from the financial burden of an extended health care event,” said Aaron Ball, vice president, New York Life Long-Term Care. “NYL My Care’s simpler, first-of-its-kind product design will help more people understand, access and afford the protection they need against the potential cost of long-term care.”


NYL My Care covers a wide range of long-term care needs, including home care, community-based care and facility care, and offers four pre-designed plan levels ... bronze, silver, gold and platinum. 

For more on so-called "hybrid" or "asset" based products that couple long-term care benefits to annuities or life insurance polices, read New Life Insurance Brings New Innovations to Long-Term Care Insurance Market from Forbes.

Consumer Information, Current Affairs, Estates and Trusts, Ethical Issues, Health Care/Long Term Care, Legal Practice/Practice Management, Retirement, State Cases, State Statutes/Regulations | Permalink


A number of thoughts come to mind when reading your post on long term care insurance (LTCi). First, the data used for the initial pricing were not sufficiently vetted. Pricing actuaries used what data they could find but, for the most part, they failed to take into account that the existence of the insurance would make it more likely that people would use the benefits. Moreover, the opportunity for LTC providers to receive payments for their services from insurance sources, promoted the growth of the industry to provide long term care benefits funded by insurance claims. Thus, historical data from the time before there was insurance was misleading.

Most of the actuaries who were involved in the early development of LTCi products were used to life insurance concepts. There’s little discretion or volunteerism about dying so mortality data tend to be relatively stable and predictable. The consequence is that underwriting and claims in large life insurance companies tend to be largely administrative, while more subjective risks like disability income (DI) insurance and LTCi require active management by highly skilled executives experienced and specialized in those particular undertakings. Pricing LTCi merely by taking a table and developing rates, as is sufficient for life insurance, is not adequate for subjective risks.

The life insurance companies wanted to have an LTCi product to offer so that their sales agents could earn commissions without having to wander outside the companies portfolio of products – most of those products being centered around life-insurance relationships. Corporate managements tended to believe that they knew insurance and had actuaries on staff, so executives responded to pleas from the agents and ordered LTCi products to be developed for marketing.

The result is that both DI and LTCi have proven highly challenging and largely unprofitable for most companies offering the products. Whether the New York Life product will be an exception will depend on whether it has the needed specialized management and whether those who are able to manage the business are allowed to stay with it if it grows and presents a career opportunity within that company. Rising life insurance company executives tend to be administrators more than they are skilled in risk management so the qualities of the governing executives can make the difference between success or loss. Since life insurance is a sales-driven business, support for sales tends to take precedence in a life insurance company over other predictors of financial success.

There is one company that does specialize very effectively in LTCi and that is Lifecare Assurance. Others like Genworth and a few others are prominent and there is an active reinsurance market. Lifecare is notable because it is able to provide a product to be market under the brands of other primary insurance companies, providing a full turnkey operation and exceptional expertise. Like New York Life, John Hancock has been prominent in LTCi, though it’s unclear how successful those ventures have been.

More recently, the Continuing Care Retirement industry has been exploring Continuing Care at Home (CCaH), which allows people to receive in home LTC benefits without having to move onto a campus. While CCaH is essentially the same as LTCi, often with case management built in, state insurance departments have not required that CCaH providers be licensed or capitalized as insurance companies. That may suggest that there may be financial problems later on as claims experience develops and as the insureds age though that has not occurred so far. Any insurance enterprise can show favorable early results unless sufficient account is taken of the potential for deferred claims later as the book of business matures.

There is much to be said for the case managed model for a product like LTCi. It can give the financial guarantor, the insurance company in the case of LTCi, an edge in seeking to manage to expectations. The challenge is that others may push back against reasonable limits on claims abuse since the providers of services stand to benefit from accelerating claims rates and durations and since the plaintiffs’ bar is quite successful in curbing insurance company efforts to manage to reasonable standards.

Thus, it seems unlikely that a healthy LTCi market can develop in itself, as is the model for the CCaH variant of LTCi. Tying the products to related asset products like annuities, as your article suggests, can temper the insurer’s exposure and can ensure that the policyholder also has incentives to try to contain claims within what is reasonably needed.

A major step forward could be made toward viability of both DI and LTCi if the American legal system could be changed to require that unsuccessful plaintiffs pay all the legal fees and other expenses of the defendants they sue. There is also a question whether contingent fee legal representation is as ethical as we would hope that our justice system might be. Finally, there is a question where the responsibility of regulators leaves off the liability exposure of purveyors should begin. I’d love to know how law students think about questions like these, which are fundamental to today’s practice of law.

Posted by: Jack Cumming | Sep 12, 2018 5:24:37 PM

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