New NAIC Long-Term Care Insurance Squad May Keep Some Work Private

State insurance regulators might keep part of a major new long-term care insurance (LTCI) rate review regulation effort behind closed doors. The National Association of Insurance Commissioners formed a top-level Long-Term Care Insurance Task Force in April, to get the heads of state insurance regulatory agencies directly involved with addressing LTCI issuers' plea for states to handle LTCI premium increase requests in a similar way. (Related: NAIC Forms Top-Level Long-Term Care Insurance Task Force) Thirty-six states agreed to join the task force, and 25 commissioners cared enough to show up for an in-person meeting in June, Scott White, the task force chairman, said today in New York, at a task force session at the NAIC's summer national meeting.

Task Force Work Streams

White, the Virginia insurance commissioner, said task force members have formed work streams focusing on six topics: how states can coordinate LTCI regulation; state guaranty fund coverage cap issues; LTCI benefits reduction options aimed at policyholders facing big rate hikes; concerns about the interaction between rate increase issues and reserving issues; non-actuarial concerns that may affect how states respond to LTCI rate increase requests; and gathering the data needed to support the task force. "We are currently in the planning stages," White said. More news should be coming later this month, he said. The task force members have already talked about possible approaches to handling some questions, White said. He said that members of the regulation coordination work team, which is led by Michael Conway, have suggested that states could work together by expanding the existing Interstate Insurance Product Regulation Compact, or by developing a multi-state LTCI examination team model. The task force may be looking closely at first at the LTCI rate increase actuarial review processes used in Minnesota and Texas, White said.

Whole NAIC Perspective

White said the NAIC has made tackling LTCI problems its top 2019 priority. The new task force will report directly to the NAIC's top committee, the Executive Committee. But "there's a lot of strong views but a lack of consensus on how to move forward," White said. The task force member list includes the top regulators from California, Florida, Illinois, Pennsylvania and Texas. The member list is missing regulators from some other key states, such as Arizona, Connecticut and New York state.

Who Should Take the Hit

Birny Birnbaum, the executive director of the Center for Economic Justice, who gets financial support from the NAIC to represent consumers in NAIC proceedings, asked the task force to make its sessions public. Birnbaum also said the task force should make sure that insurers and insurers' investors bear most or all of the burden of insurers' LTCI losses. "The problem was created by the insurers," Birnbaum said. Insurers mispriced the policies to start with, and they added to the problems by ending new LTCI sales, "closing the blocks" of LTCI business, and letting the blocks of LTCI policies shrink, Birnbaum said. A very old, very small block of LTCI policies is bound to have a very ratio of claims to premiums, and regulators should add extra rate protections for the policyholders with policies in those small, old blocks, Birnbaum said. Bonnie Burns of California Health Advocates — someone who trains workers in California to help older California residents with problems with their insurance policies — said a related problem is that insurer decisions to calculate LTCI rate increases on a block-by-block basis may result in people with similar LTCI coverage and similar situations facing much different rate increases.

Policyholder Trends

Burns, who, like Birnbaum, gets funding from the NAIC to represent consumers' interests in NAIC proceedings, said that, originally, insurers created the ancestors of modern LTCI policies to pay for nursing home care. Today, she said, carriers tell her that many claimants use all of their benefits on home care, and never enter a nursing home. Only about 10% of the LTCI claimants are using their benefits to pay for nursing home care, she said. But "these are the expensive claims," Burns said. "These are the claims for dementia." She said another trend is that the more recent LTCI coverage buyers tended to be much more affluent than the original LTCI buyers. That means that the holders of the oldest policies, which tend to be the ones affected by the biggest premium increases, are often elderly people of modest means, who have been coming up with money to make their LTCI premium payments for many years, she said.

Benefits Reduction Notices

Burns and Birnbaum said they see insurers offering options to hold LTCI premium payments steady, or hold down increases, by reducing policy benefits. (Related: LTCI Policyholders' Grip Is Loosening: Genworth) Burns and Birnbaum said their understanding is that insurers offer the benefits reduction options on a voluntary basis, in a non-standard form, with notices that at least sometimes seem to encourage the consumer to choose one particular benefits-reduction option, such as a paid-up policy. "There's no consistency," Burns said. Regulators should be in charge of analyzing and approving benefits-reduction options, because the policyholders are in no position to understand how the actuarial value of one reduction option compares with the actuarial value of their current coverage option, Birnbaum said. Some regulators at the session seemed keenly interested in what Burns has been hearing about benefits-reduction notices. Some said their states already review the benefits-reduction option proposals together with the rate increase requests.

Involuntary Business Transfers

Some state insurance regulators are studying "involuntary business transfer" rules that Oklahoma has developed. The rules apply to situations in which a troubled insurer passes a block of business on to another insurer, either to rid itself of problem policies or to put the policies in the hands of a stronger carrier. Some observers have wondered whether regulators could end up trying to apply similar involuntary business transfer rules to failing LTCI issuers. Tyler Laughlin, a staff member from the Oklahoma Department of Insurance, told the task force that Oklahoma wants to push back against that idea. "I want to quash any sort of rumors or rumblings" about that, Laughlin said. Oklahoma does not believe the involuntary business transfer rules should be used with LTCI policies, he said.

Guaranty Associations and Consumers

Traditionally, state guaranty associations, or insurer-funded entities that offer consumers limited protection against the effects of insurance company failures, have tried to avoid telling consumers much about themselves. When a state guaranty association prepares to help policyholders hurt by an insurer failure, the surviving insurers in the state are supposed to send cash to the association to fund the payments. State guaranty associations fear that excessive consumer awareness could lead to a form of "moral risk," or the risk that consumers might make foolish insurance decisions based on the idea that the guaranty associations will protect them against any harm. The associations hope that consumers' reluctance to do business with weak insurers will help limit weak insurers' sales minimize the size of any insurer failures, and minimize the size of the assessments imposed on the surviving insurers. Burns made a comment at the task force session that suggested that the guaranty associations' defenses against consumer awareness might be weakening. Burns said health advocates in California are trying to help consumers cope with LTCI rate increases, and concerns about issuer solvency, by reducing coverage levels to the level backed by California's state guaranty association. CORRECTION: An earlier version of this article identified the Oklahoma Department of Insurance staff member who talked about involuntary business transfers incorrectly. The staff member who spoke was Tyler Laughlin. — Read Regulators Aim to Make Troubled Insurers Work Better, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.