Monday, April 22, 2019

No. 310: Long-Term Care Insurance and the National Association of Insurance Commissioners

In No. 308 (posted April 11, 2019), I discussed the insolvency of Senior Health Insurance Company of Pennsylvania (SHIP), a long-term care (LTC) insurance company in run-off. On April 10, the National Association of Insurance Commissioners (NAIC) issued a press release entitled "NAIC Prioritizes Long-Term Care Insurance" and subtitled "State regulators form executive-level task force." The NAIC's press release is in the complimentary package offered at the end of this post.

The New Task Force
The chair of the new NAIC task force is Virginia Commissioner Scott A. White, and the vice chair is Colorado Commissioner Michael Conway. The first meeting of the task force is tentatively scheduled for Kansas City in connection with what the NAIC calls an "Insurance Summit" relating to "Where Innovation Meets Regulation." It is not surprising that insurance regulators in Florida (home of many retirees), Pennsylvania (home of Penn Treaty and SHIP), South Carolina (home of Kanawha), and Virginia (home of Genworth) are among those instrumental in forming the new task force.

On April 12, I sent No. 308 to the Virginia Bureau of Insurance and asked for confirmation of my belief that Commissioner White is chairing the new task force because Genworth is based in Virginia. In response, a spokesperson referred me to the NAIC. On April 15, I made the same request to the NAIC. An NAIC spokesperson responded, but did not answer the question I asked.

The Upcoming Virginia Hearing
On March 15, 2019, the Virginia Bureau of Insurance issued a press release announcing a public hearing to be held in Richmond on May 21. The Bureau said it is inviting public comment on recent LTC insurance premium rate increase requests the Bureau has received from numerous insurance companies. The Bureau said public comments for the hearing record may be submitted in advance by April 22. I am submitting this blog post for the hearing record. The Bureau's press release is in the complimentary package offered at the end of this post.

A Few Articles About LTC Insurance
I have been writing about LTC insurance for three decades. Several of the early articles appeared in my monthly newsletter, The Insurance Forum, which I began in 1974 and ended in 2013. Four of the Forum articles about LTC insurance are discussed briefly here, and are in the complimentary package offered at the end of this post.

My first article about LTC insurance was in the February 1988 issue of the Forum. It was in the form of an open letter to Danny Thomas, the legendary entertainer and philanthropist who founded St. Jude's Children's Research Hospital in Memphis. Thomas had endorsed an LTC insurance policy offered by Union Fidelity Life Insurance Company, but I felt the policy presented serious problems for anyone who purchased it. Thomas did not respond to my open letter, but a company officer told me the company was no longer selling the policy.

Within a few years, many companies had begun selling LTC insurance. The August 1991 issue of Consumer Reports, the magazine of Consumers Union (CU), contained a study entitled "Gotcha! The Traps in Long Term Care Insurance." CU identified some "fair" LTC insurance policies and some "poor" policies, but no "excellent" or "good" policies. I wrote about the CU study in the August 1991 issue of the Forum. I explained that an "excellent" or "good" policy could never be found, because the LTC exposure violates important insurance principles. For example, the potential loss should be of a type that is fortuitous; that is, the potential loss should be of a type that occurs by chance and should not be within the control of the insured person or family members. Another example is that the potential loss should be definite; that is, the potential loss should be of a type in which there is little room for dispute over whether a loss of the type covered by the insurance has occurred.

In the May 1997 issue of the Forum, I wrote about a promotional letter used by General Electric Capital Assurance Company in selling LTC insurance. The letter included this sentence, with the indicated underlining: "Your premiums will never increase because of your age or any changes in your health." I told a company officer that, although the sentence was technically correct, it was deceptive because the policy allowed the company to increase the premiums. The company officer explained why he thought the sentence was not deceptive. However, the company removed the sentence from its promotional letters.

In the July 2008 issue of the Forum, I expressed the opinion that the problem of financing the LTC exposure could not be solved through the mechanism of private insurance. There I expanded on what I had said earlier about the important insurance principles that LTC insurance violates. I also identified several other considerations that render private LTC insurance unworkable.

A Few Blog Posts about LTC Insurance
When I shut down the Forum, I started a blog on which I have continued to write about LTC insurance. Here I describe briefly three such blog posts, and provide links to them.

In No. 191 (posted December 9, 2016), I wrote about a looming catastrophe for the LTC insurance business. I discussed, among other matters, the financial problems at Penn Treaty, an LTC insurance company that had become insolvent in 2009. I also discussed a Congressional hearing that was prompted by sharp premium increases on LTC group insurance coverage purchased by federal government employees.

In No. 223 (posted June 23, 2017), I explained why it is wrong for state governments to help private LTC insurance companies sell the coverage to citizens of those states. I mentioned, among other matters, a mailing to residents of California over the signature of the California governor, and a similar mailing to residents of Indiana over the signature of the Indiana governor. The letters implied that LTC insurance coverage was endorsed by the respective states.

In No. 257 (posted March 12, 2018), I wrote about a major problem that had surfaced at General Electric. The company announced that, after a review of some old LTC insurance policies, the company had to increase its liabilities relating to those policies by about $15 billion. The announcement shocked the market and prompted intense discussion of the problems associated with LTC insurance.

General Observations
I believe that the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. In my view, there are only two solutions to the problem. One is through personal savings, an approach I described in the July 2008 Forum article.

The other solution is through mandatory coverage that would be part of a federal program of universal health insurance. I say mandatory, because we already have evidence that a national voluntary plan would not be workable. A national voluntary plan called "Community Living Assistance Services and Supports" ("CLASS") was part of the 2010 Patient Protection and Affordable Care Act. Experts in the Department of Health and Human Services tried, without success, to devise a workable voluntary CLASS program, but it never got off the ground and was quietly repealed.

The new NAIC task force is the most recent effort to address the problems associated with LTC insurance. I think it will meet with the same fate as earlier efforts unless it recognizes that "personal savings" and a "mandatory federal program" are the only workable solutions to the problem of financing the LTC exposure.

Available Material
I am offering a complimentary 14-page PDF consisting of the NAIC's press release (1 page), the Virginia Bureau's press release (1 page), and the four Forum articles mentioned in this post (12 pages). Email and ask for the April 2019 LTC insurance package.