Pricing LTC

Question 1

Pricing LTC

What makes LTC a Unique Group Product?

Answer 1

More like individual product than group product

• Issue age-rated
• Typically optional EE-pay-all coverage
• Broad set of eligible insureds

Question 2

Pricing LTC

Special Issues in GLTC that Don’t Occur in Individual LTC

Answer 2

• Decreased ability to predict risk characteristics of block of business
• Experience rating
• PH reporting
• Handling reserves when group changes carriers

Question 3

Pricing LTC

Recent Modifications to Regulations

Answer 3

• Adding more consumer protections
• Producer training requirements increased
• Consumers given more flexibility to reduce coverage when new providers/offers appear
• Claim handling regulations were strengthened

Question 4

Pricing LTC

NAIC LTC Model Act covers:

Answer 4

• Definition of LTC insurance
• Renewability
• Policy exclusions
• Unintentional lapses
• Minimum benefit standards
• Disclosures and Reporting
• Advertising
• Requires offering of compound interest
• Requires offering of non-forfeiture benefits
• Other consumer protections

Question 5

Pricing LTC

Major Changes in 2000 & 2014 LTC Model Regulation

Answer 5

• 2000
  
  • Disclosure of rating practices
  • Actuarial cert. that rates are adequate in moderately adverse experience
  • Eliminates MLR req.
  • Reimbursement of unnecessary rate increases
• 2014
  
  • Rate stability provisions

Question 6

Pricing LTC

NAIC: Actuarial Certification at Initial Rate Filing

Answer 6

• Initial prem. is sufficient under moderately adverse experience
• Considered policy design, UW, claim adjudication
• Premium rate schedule isn’t less than existing products
• Reserve requirements are sufficient

Question 7

Pricing LTC

Premium Rate Schedule Increases (Formula)

Answer 7

AV(Past Claims) + PV(Future Claims must be ≥ to sum of:

• AV(Initial Prem) * 58%
• PV(Future Initial Prem) * 58%
• AV(Prior Rate Increases) * 85%
• PV(Future Premiums in Excess of Initial Prem) * 85%

Question 8

Pricing LTC

Premium Rate Schedule Increases (Formula) - What changed with the 2014 regulation?

Answer 8

Use greater of 58% and original pricing ratio

Question 9

Pricing LTC

HIPAA Impact

Answer 9

• Defined qualified LTC plans
• Standardized benefit triggers
• Clarified taxation of premium and benefits
  
  • ER-paid premium is NOT taxable income to EE
  • EE-paid premium is deductible from EE income
  • Benefits are not taxable income

Question 10

Pricing LTC

Pricing Considerations: ER Group

Answer 10

• Participation rates
• Benefits should be tied to cost of services in area
• Must offer 5% compound inflation to PH
• Modified guaranteed issue

Question 11

Pricing LTC

Concerns of GLTC Carriers

Answer 11

• Must sell to both ERs and EEs
• Up-front distribution costs
• Risk of low enrollment
• Morbidity varies significantly by participation and size of group

Question 12

Pricing LTC

Problems with Group Transfer

Answer 12

• Difficulties determining experience of group
• Inadequacy of stat reserves or experience fund held
• Difficulties in data transmission
• Reserves reflect requirements of state of current carrier, not assuming carrier
• Reserve methods vary by company

Question 13

Pricing LTC

Model Assumptions

Answer 13

• Lapsation
• Mortality
• Morbidity/Claim Costs
• Selection
• Expenses
• Interest
• Reserve Basis
• Profit Criteria

Question 14

Pricing LTC

Assumption Changes That Drive Need for Rate Increase (List and Example)

Answer 14

• Morbidity
  
  • Claim costs at older ages increases
• Persistency
  
  • Higher persistency = higher claims over life of product
• Interest
  
  • Declining IR = contract reserves earn less than originally expected

Question 15

Pricing LTC

Common Misconceptions about LTC

Answer 15

• Products are Annually Renewable
  
  • Guaranteed renewable with level premiums (unless increase is pursued)
• Using Historical LR to Determine Performance is Appropriate
  
  • Must consider change in contract reserves in numerator of LR
• Companies can “Wait and See” How Experience Unfolds
  
  • As time passes without rate increase, the future premiums to which rate increase would be applied shrinks