December 3, 2010
LONG-TERM CARE INSURANCE POLICY RATE INCREASE
By: Janet L. Kaminski Leduc, Senior Legislative Attorney
You asked (1) for an explanation of a 39% rate increase that the Connecticut Insurance Department approved for long-term care insurance policies and (2) whether a policyholder has any recourse.
The Connecticut Insurance Department confirmed that MetLife submitted a 39% rate increase request for 13 long-term care (LTC) insurance policies. The department recently completed its review of the request. It disapproved five of the 13 filings, approved a reduced rate increase of 30% for four of them, and approved the requested 39% request for the remaining four. In reviewing the filings, the department noted that the insurer was operating many of them at a loss. All of the policies represent closed blocks of business, meaning MetLife does not sell these policies to new customers.
By law, an insurer cannot use or change premium rates for an individual LTC policy unless the rates have been filed with and approved by the insurance commissioner (CGS § 38a-501(b)). According to the department, LTC contracts clearly state that rates could increase. However, this is the first time the policies included in the rate filings in question have been approved for a rate increase.
A policyholder who would like to avoid paying increased premiums has some available options, including reducing policy benefits.
RATE INCREASE APPROVALS
By law, a LTC insurer must maintain a 60% minimum loss ratio for an individual LTC policy (CGS § 38a-501(b)). This means that for every dollar of premium collected, the insurer has to spend at least 60 cents on claim payments. The law requires the insurer to demonstrate in a rate filing that anticipated claims in relation to premiums when combined with actual experience will meet this 60% ratio.
In reviewing the rate filings granted a 30% or 39% rate increase, the department noted that the Connecticut claim experience in the last two years had accelerated well above the 60% ratio. In fact, many of the policies experienced loss ratios between 175% and 300%, meaning the insurer was operating at a loss by paying out $1.75 to $3.00 for every dollar collected.
A policyholder facing a premium increase has several options to minimize the increase, according to the department. The policyholder can check how often he or she pays premiums. The least expensive method is to pay once a year, which avoids a surcharge that is added if paying multiple times a year.
A policyholder can also reduce policy benefits to reduce premium. According to the department, the policyholder could consider the following options, which should result in lower premiums:
1. drop some benefit riders, but consider keeping an inflation protection rider, which is a valuable part of a policy;
2. increase the elimination period (the waiting period before benefits begin paying) to the maximum allowed, which is 100 days;
3. reduce the lifetime benefit amount, which is usually expressed as the number of years the policy will pay benefits; and
4. reduce the daily benefit amount, which increases the policyholder's potential out-of-pocket expenses. (The lower the daily benefit amount, the more the policyholder will have to pay out of pocket.)
Finally, a policyholder has the option of shopping for a new policy for a lower premium. (However, because age is a factor in determining premium, the policyholder should note that he or she may have difficulty finding a new policy for a lower premium.)