Liability Insurance Rates and Reduced Capacity Add Pressure to the Cost of Long-Term Care Services

The cost of long-term care services continued to rise during the pandemic, and many care providers expect their clients’ costs to increase significantly in 2021.1  A new Willis Towers Watson Insurance Marketplace Realities 2021 Spring Update (“Spring Update”) concludes that 2021 will continue to squeeze long-term and senior care providers from both sides—with general and professional liability insurance rates predicted to increase by 30% or more, and a persistence of 2020’s overall reduced liability capacities in the market for the long-term care provider sector.

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Organisation for Economic Cooperation and Development Seeks Information Regarding Long-Term Care Needs and Payment Sources

Over the past few years, insurers, consumers and regulators have asked the question: who, and how, will consumers receive and pay for long-term care? The older, retired population will soon substantially outnumber the working population and the number of private insurers providing long-term care continues to dwindle. A report from the American Council of Life Insurers projects 70% of Americans turning age 65 or older will require long-term care. By 2060, the number of Americans turning age 65 or older will double and those turning age 85 or older will triple. As the population continues to age, the average cost of care continues to rise. Thus, the government faces a looming risk of unbearable expenses as more individuals rely on Medicaid for elder care. In light of this statistical reality, governments, insurers and long-term care (LTC) providers are trying to find cost-efficient ways to offer long-term care to consumers in need and, in turn, increase access to care.

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New Hampshire Supreme Court Strikes Down Long-Term Care Insurance Premium Rate Increase Caps

The New Hampshire Supreme Court recently ruled that New Hampshire’s regulation that places certain caps on long-term care insurance premium rate increases exceeds the Insurance Commissioner’s rulemaking authority and, therefore, is invalid. See Genworth Life Ins. Co. v. New Hampshire Dep’t of Ins., No. 2019-0727, 2021 WL 621005 (N.H. Feb. 17, 2021).

Some states, either by regulation or administrative practice, place caps on long-term care insurance premium rate increases. In 2015, New Hampshire promulgated amended long-term care insurance regulations that capped premium rate increases based on an insured’s attained age and applied the new caps retroactively to all long-term care insurance policies issued in the state (Amended Regulations). See generally N.H. Code Admin. R. § 19. As drafted, the regulation did not afford the Commissioner discretion to approve increases that exceed the caps. The rate caps were implemented on a sliding scale from 50 percent for all policyholders with attained ages 70 and below down to 10% for policyholders with attained ages over 90. As with caps implemented by other states, the caps adopted by New Hampshire had no actuarial basis.

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Finding the Right LTCi Agent First is Important

Navigating long-term care insurance (LTCi) can be complicated for people planning the type of care they might need, how long they might need it and how they are going to pay for it, according to retirement expert Glenn Ruffenach. In a recent Wall Street Journal Ask Encore column, he examines the importance of finding a knowledgeable, independent agent who “sells policies from multiple carriers and who specializes in long-term-care planning and insurance.”

Mr. Ruffenach recommends several tips to help find the right agent, including using educational and training programs dedicated to LTCi insurance to find agents and other financial professionals nationwide. (For example Certification for Long-Term Care has a locator on its website that identifies its graduates.) He also suggests searching online for local experts or asking others in professional services, such as accounting or tax law, for recommendations. Once you have identified several agents, it is important to talk to all of them to assess who is the best fit for you based on their experience and education as well as your own comfort level with them.

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Recent Developments in LTC Rate Increase Litigation

A relatively consistent flow of premium rate increase litiga­tion has been filed against long-term care (LTC) carriers over the past several years. Following the plaintiffs’ bar having early success in a limited number of LTC rate increase class actions in the early 2000s, the tide turned definitively in favor of carriers in what we think of as the first generation of such litigation, where the plaintiffs’ bar focused primarily on an alleged duty to disclose possible rate increases and challenging the language of the contract itself. Despite the industry’s over­all success, premium rate increase litigation has attracted an increased level of sophistication from the plaintiffs’ bar, which shifted to more creative theories based on extra-contractual rep­resentations (e.g., marketing materials) in what we view as the second generation of premium rate increase litigation. While the industry remains mostly successful in warding off rate in­crease litigation, a new trend may be developing as recent cases focus on more nuanced contractual limitations and rate increase implementation issues.

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LTC Rate Increases: Exploring Alternatives

As issues surrounding the cost of long-term care for Americans becomes the focus of the industry, premium rate increases have historically been necessary to maintain the financial integrity of most blocks of stand-alone long-term care insurance (LTCI) business. In conjunction with those rate increases, insurers have offered (and regulators have approved) an evolving menu of rate increase mitigation options for policyholders who do not wish to or otherwise cannot afford to pay the increased rate. Recently, we have seen new and innovative alternatives proposed by industry participants. There is a growing recognition that insureds should be educated about the nature of their existing coverage and presented with a variety of options in the alternative to paying the approved rate increase amount. In the past few months alone, insurers are offering, and regulators are approving (and sometimes even requesting), an even wider variety of options, such as modifying existing coverage, reducing available benefit, or  taking a reduced paid-up policy, policy buyouts and even “hybrid” policy buyouts.

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