Long-Term Care Insurance - Legislative Research Commission 0… · Long-Term Care Insurance Pays...
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AMERICAN COUNCIL OF LIFE INSURERS acli.com Long-Term Care Insurance Interim Joint Banking and Insurance Committee Kentucky General Assembly October 2, 2019 Chuck Piacentini, Vice President, Insurance Regulation and Associate General Counsel, ACLI Jan M. Graeber, ASA, MAAA, Senior Health Actuary, ACLI
Transcript of Long-Term Care Insurance - Legislative Research Commission 0… · Long-Term Care Insurance Pays...
AMERICAN COUNCIL OF LIFE INSURERS acli.com
Long-Term Care InsuranceInterim Joint Banking and Insurance Committee
Kentucky General AssemblyOctober 2, 2019
Chuck Piacentini, Vice President, Insurance Regulation and Associate General Counsel, ACLIJan M. Graeber, ASA, MAAA, Senior Health Actuary, ACLI
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Agenda
Long-Term Care Insurance Product Features
Pricing
Reserves
Premium rate increases
Looking Forward: Access and Affordability
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LTC Insurance
Long-Term Care Insurance Pays Out Upon Disability
Two or more Activities of Daily Living
Cognitive Impairment
Long-Term Care Benefits Are Received
At Home
Assisted Living Facility
Nursing Home
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LTC Insurance Benefits Long-term care benefits are not paid as a lump sum.
A benefit is paid each day up to the maximum daily benefit stated in the policy. For example, $100, $200 or $300 per day.
The amount of the daily benefit can increase if inflation protection is purchased. Inflation protection automatically increases daily benefits each year to keep up with increases in costs of care.
Long-term care benefits might not begin immediately upon disability.
Typically, benefits begin 60, 90, or 180 days after benefits are triggered. This “elimination period” is stated in the policy.
A shorter elimination period costs more. A longer elimination period costs less.
Benefits might not be paid during the entire disability.
The length of time a benefit is paid (benefit period) is stated in the policy.
A shorter benefit period will cost less than a longer benefit period.
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Premium and Claim Cash Flow Premium rates are expected to be at a level amount
Claims are expected to increase over time
This creates a cash flow mismatch for insurers
Insurers must set aside some of the premiums in early years in a reserve
Insurers use this reserve to fund claims in later years.
1 10 20 30 40 50
Premium Claims
Do
llars
Time
Mismatch of Premium and Claim Cash Flow
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Use of Premium Dollars
Premium dollars are used for:
Policy administration
Distribution to shareholders
Federal and state taxes
Agent commissions
Reserve fund to pay future benefits
PolicyAdministration
Distribution toShareholders
Federal and StateTaxes
Commission
Reserve Fund to PayFuture Benefits
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The Reserve Fund is Like a Savings Account Net premiums are deposits
Benefit payments are withdrawals
Like a savings account, it earns interest
The savings account is held for the benefit of all the policyholders
It can only be used to pay benefits for those who become disabled
It is not paid to people who die or stop paying premiums
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Savings Plan Example
Original Plan• Need $10,000
at the end of 10 years
• Deposit $1,000 each year
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Savings Plan ExampleRevised Plan• After 6 years it
is determined that $12,000 is needed at the end of 10 years
• Deposits beginning in year 7 must increase by 50% to $1,500 per year
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The net premiums
are like scheduled deposits
If either of these estimates is different, the account may not have enough to cover future withdrawals
The scheduled deposit amount (premium) is determined at the beginning based on estimates about:
The amount that will be withdrawn (benefit payments)
Interest rate that will be earned
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Withdrawals From the Savings Account Depends of Three Key Things
The number of people who keep their policies up to the point when benefits begin to be paid.
Of the people who keep their policies, the number of people who use benefits
Amount that is paid out to people who use benefits
The amount of funds withdrawn depends on 3 key things:
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When Long-Term Care is Priced
Future Net Premiums
the Reserve Fund
Sufficient to Fund Future Benefits
+
=
Future Benefits
Reserve Fund
Future Net Premiums
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Out of Balance
Expected future withdrawals outweigh the deposit schedule
The two sides are out of balance.
There will not be enough money to fund benefit payments.
Future Net Premiums
Reserve Fund Future
Benefits
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Balance is Restored Through Premium Rate Increase
Future Net Premiums
Premium Rate Increase
Reserve Fund
Future Benefits
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Looking ForwardAccess and Affordability
Long-Term Care
Financing Options
Preserving State Guaranty
Associations
Next Generation of
Long-Term Care
Solutions
