Tag Archives: Long Term Care

Developing mortality assumptions for LTC first principles modeling

The development of separate mortality assumptions for healthy and disabled lives creates challenges for insurers using a long-term care (LTC) first principles model. In this article, Milliman actuaries discuss those challenges as well as their experience working with companies to overcome them. They also explore the advantages and opportunities of an enhanced approach to modeling mortality in a first principles context.

Will the Fed’s interest rate increase make LTC inexpensive?

The Federal Reserve’s interest rate hike may result in lower long-term care (LTC) premiums, making such coverage more appealing to seniors. Milliman consultant Al Schmitz offers some perspective in this Reuters article.

Even if seniors are able to sock money away in CDs or money market funds with slightly better yield, inflation will take its toll. “If you are earning 1 percent and inflation is 1.5 percent, that’s no different than earning 1.5 percent if inflation is 2 percent,” notes Greg McBride, chief financial analyst for Bankrate.com.

On the other hand, significantly higher interest rates over the next year also could make long-term care insurance and some types of annuities more attractive, since insurance companies look to bond market returns as a key element of pricing.

Long-term care policy premiums have spiked dramatically in recent years, due in part to the near-zero interest rate environment. A 1 percentage point rise in long-term interest rates generally translates into a decline in policy premiums of about 10 percent, according to Al Schmitz, a principal and consulting actuary at Milliman, a consulting firm that works with insurers.

For more Milliman perspective on LTC insurance, click here.

Shorter LTC coverage period can reduce policy cost

This Kiplinger article offers several issues that long-term care (LTC) buyers should consider to purchase a cost-effective policy. The article quotes Milliman’s Dawn Helwig discussing the benefit of purchasing a policy with reduced coverage periods.

Here’s an excerpt:

Once you’ve considered the type of risk you’d like to cover, ask yourself, “how much of that risk can you transfer to the insurance company, and how much can you tolerate on your own?” [Bonnie] Burns says. The first step is to choose a deductible, also known as the “elimination period,” which is the number of days between the time you become eligible for benefits and the time the insurer starts paying.

Many policies offer a 90-day elimination period, but prepare to spend $22,500 out of pocket for nursing-home care until benefits kick in. The longer your elimination period, the lower your premium will be. A 90-day elimination period costs about 40% less than a zero-day deductible, says James Glickman, president of LifeCare Assurance, a long-term-care reinsurer in Woodland Hills, Cal.

Choosing a shorter benefit period will also cut your cost. A benefit period of three to five years “will cover the vast majority” of long-term-care needs, says Dawn Helwig, a principal at actuarial and consulting firm Milliman. Consumers “shouldn’t feel like they have to buy the Cadillac policy,” she says.

Regulatory action needed to ease LTC rate increases

Many long-term care (LTC) insurers are seeking premium rate increases that are due to financial challenges. In the latest issue of Contingencies, Milliman’s Dawn Helwig examines three key assumptions—morbidity, lapse/mortality rates, and interest rates—affecting LTC rates. She also discusses the need for regulatory action “to make the rate increase landscape more predictable” and efficient.

Here is an excerpt:

It’s necessary to find a balanced solution for approving rates that will provide stability in coverage for insureds. Such a solution will preserve the private LTC market and prevent future reliance solely on public programs like Medicaid. In order to achieve this balance, more coordination is needed between regulators and companies in early filing and approval of actuarially justified rate increases. Closed blocks of business must be able to be restored to adequacy to promote long-term stability.

Some possible solutions that have been mentioned include:

• Allowing more policyholder options at rate increase times (benefit reductions).
• Improving communication with policyholders about their options and (if approved) future planned rate increases.
• Requiring companies to annually review their business and to certify whether or not rates need to be increased.
• Allowing rate increases based on updated assumptions that are actuarially supported, regardless of whether the existing block of business has developed enough experience to be considered credible (i.e., regardless of whether the updated assumptions can be demonstrated in the company’s actual experience).
• Requiring companies to file their future plans as part of a rate increase, including what will happen favorably or unfavorably from what was assumed in this filing.
• Allowing increases to be spread out over multiple years. This may require modifying the rate stability requirement that makes an actuary file the full increase needed in order to certify that rates are adequate using moderately adverse requirements.

To read the entire article, click here.

Buying long-term care earlier rather than later is cheaper

Purchasing long-term care (LTC) insurance is an important decision that many individuals have to contemplate. This Wall Street Journal article (subscription required) highlights several issues consumers need to bear in mind when considering LTC. Milliman’s Dawn Helwig offers her perspective regarding the best time to buy coverage:

Many people don’t even start thinking about long-term-care insurance until they reach 60. And by that time, it may be too late—either because the insurance is too costly or they simply can’t qualify for health reasons.

As a result, for most people, the 50s are the best time to buy a policy…

For each year applicants in their 50s delay buying coverage, carriers typically raise premiums by 3% to 4%, simply because they are a year older, says Dawn Helwig, a principal and consulting actuary at Seattle-based Milliman Inc. In contrast, for every year someone in their 60s waits, they can expect to pay an additional 6% or more, she adds.

Those who wait may pay higher premiums for other reasons, too. Over the past decade, carriers struggling with losses on existing policies have raised the premiums on new policies an average of 4% to 8% a year, depending on the features, according to Milliman.

Consider a 65-year-old man who purchases $110,000 of coverage with benefits that grow 5% a year. To secure the same coverage 10 years earlier, at age 55, he would have paid approximately $1,032 in annual premiums, says Ms. Helwig. But because he waited, his annual premium is now about $2,770. Assuming he lives to age 85, he will pay a total of about $55,400 in premiums—or some $24,400 more than he would have spent had he bought at age 55 and lived 30 years.

Those who wait also run the risk that their health may deteriorate. Carriers, which have become stricter about how they underwrite policies, reject about 25% of applicants between ages 60 and 69, according to the American Association for Long-Term Care Insurance. They also charge those in relatively poor health as much as 40% more, says Ms. Helwig.

For more of Milliman’s perspective on LTC, click here.

LTC rates for women are increasing

As expected, long-term care (LTC) rates for women have increased. The decision by Genworth and John Hancock to charge women more for LTC insurance may be the beginning of a pricing trend across the industry. Milliman’s Dawn Helwig offered perspective in a recent Chicago Tribune article.

Here’s an excerpt:

Long-term care insurance costs are rising sharply, especially for women.

Two major providers, Genworth and John Hancock, have begun gender-based pricing for policies based on women’s higher claiming levels. Other insurers will likely follow suit.

…Among a dozen companies surveyed this year, all but two said they were considering price increases, said Dawn Helwig, a consulting actuary and principal with consulting firm Milliman.

“We’re looking at all aspects” of long-term care rates,” said John O’Gara, a senior vice president in New York Life’s Agency Department. He expects average increases of about 20 percent, beginning next year.

For more of Milliman’s perspective on LTC, click here.