Open Letter from Tom Orr, President, Senior Insurance Training Services to California Partnership for LTC
May 18, 2015
California Partnership for Long-Term Care
Mail Stop 4100, Suite 71.3052
1501 Capitol Avenue
Sacramento, CA 95814
Ladies and Gentlemen:
Since last fall, I have had many conversations with State officials and staff regarding the current and future viability of the California Partnership Program.
My hope with this correspondence is to address many of the questions and concerns that have been expressed and to help set a course of action that will once again bring the State’s Program back to a position of strength in serving California’s still growing senior population.
My observations and recommendations are supported by ongoing discussions with all insurance carriers offering LTC Insurance Partnership policies in the state, as well as marketing organizations including Edward Jones, Wells Fargo Advisors, Merrill Lynch and Ameriprise, in addition to the hundreds of licensed LTC Insurance agents I speak with each and every month.
Here are the key issues as I see them:
- Modification of the mandatory 5% compound inflation requirement
- New and/or improved product innovations
- Timely product review and approval
- Reciprocity between the 43 Partnership States
- Expansion of new and existing partners into the program
- Implementation of the Deficit Reduction Act (2006) and California SB 483 (2008)
- Inflation conversion guidelines regarding existing Partnership policyholders
Modification of the mandatory 5% compound inflation requirement
On March 17, 2015, the Partnership conducted an Agent Advisory Meeting to address the current issues surrounding the Program.
Reviewing the quarterly production report through the 2nd quarter 2014, the Partnership revealed that since the 2nd quarter of 2013, Partnership policies issued had dropped by 95%!
From an all-time high of 16,146 new Partnership policies in calendar year 2002, only 836 new Partnership policies were issued from July 1, 2013 through June 30, 2014.
Based on my comprehensive research with insurance carriers, marketing organizations and insurance agents, the number one reason for this decline is the new premium load adjustment for the 5% compound inflation feature.
This feature has led to increases in annual premiums ranging from 75% to 150%, depending on insurance carrier, making Partnership products unaffordable when compared to non-Partnership policies offering 3% compound and/or CPI inflation riders.
New and/or improved product innovations
Partnership staff has proposed the following alternatives:
- Option 1: Age-based Inflation
Current Partnership Base Product with new inflation options based on age:
Age 49 or less 5% Compound Inflation
Age 50 to 59 4% Compound Inflation
Age 60 to 69 5% Simple Inflation
Age 70 or more 3% Compound Inflation
The overwhelming opinion of all parties I have interviewed on this topic is this approach is simply not viable, as it will not result in competitive premiums with non-Partnership policies.
- Option 2: Consumer Selected Inflation Options
Current Partnership Base Product with new inflation options regardless of age:
3% Compound Inflation
4% Compound Inflation
5% Compound Inflation
This approach is viable as a start to rebuilding sales of Partnership policies. Agents will clearly gravitate toward the 3% Compound Inflation to compete against products offering CPI or 2% Compound Inflation.
The following illustrations from various insurance companies show the premium difference between the 3% compound inflation rider vs. the 5% compound inflation rider. Simply offering the 5% option would comply with the code and require no regulatory changes.
- Option 3: Hybrid/Linked Benefit
A life policy with a LTC Insurance rider would be appealing to the upper end/affluent California client who likes the concept of dual protection and the “if you don’t use it, you won’t lose it” approach.
This policy approach would have a 3% as well as 5% compound inflation option at any age built in to the policy design and a daily/monthly benefit equal to the $180 minimum daily benefit or a monthly benefit of at least $180 (70% of the Nursing Home ADPPR) times 30 days, or $5,400 per month.
In addition, this product would also incorporate the Partnership’s unique Care Management feature and would become an “asset protected” Partnership policy.
This would require compliance with SB 281 and would be well accepted by Broker/Dealers and seasoned life insurance agents.
- Option 4: A New Home and Community plus Alternative Facility benefit with no Nursing Home coverage (allowable under current CA Department of Insurance/LTC Insurance 2.6 Regulations)
This policy presents an interesting approach to considering both actual LTC claims data and the fear of going to a nursing home held by so many consumers.
A minimum daily benefit of 50% of the Nursing Home ADPPR for 2015 ($260 x 50% = $130 per day) would have to offer 3% as well as 5% compound inflation at any age to comply with the code. The unanswered question relates to the Residential Care Facility benefit: would we require 100% of the ADPPR, 70% or 50%, with Home Care being a minimum 50% minimum payout as a base offering.
This would appeal to many agents and consumers who would be willing to insure 90% of their risk from a continuum of care perspective.
When one looks back at the 12 years of the Cost of Care Surveys as well as the 2010 and 2011 Genworth Claims Reports, we see 50%-60% of all claims are Home Care and 25%-30% of all claims are Residential Care Facility-based.
The inflation rate of growth in the two areas reflect 1%-3% annual growth, confirming the 3% compound inflation requirement would be more than adequate to meet the future cost of care projections for those two types of long-term care.
Timely product review and approval
Over the past 15 years since the last modifications to Partnership regulations and the passing off the Deficit Reduction Act in 2006, Affordable Care Act in 2010 and the re-pricing of 5% compound inflation in 2012, insurance companies have typically had to wait 18 to 24 months for approval of new products in California.
In addition to educating consumers regarding long-term care and LTC insurance, the Partnership is also responsible for the timely review and approval of policy filings. We highly recommend new standards be set to review and approve new policy submissions from insurance carriers in 60 days or less.
Reciprocity between the 43 Partnership States
Empirical data from California clearly shows more people with assets leaving the state than those coming in with no assets. Why should we penalize Californians who buy Partnership plans but want to leave the State? In fact, California should want them to use their LTC benefits in other states even if they choose to leave the State.
Expansion of new and existing partners into the program
The original Partnership consisted of five staff members and one consultant who developed the regulations, brought in seven insurance carriers, created the care management component, developed the marketing material and launched the program.
Now with only two active partners, the Partnership cannot seem to bring in any new carriers or partners to resurrect the Partnership program. New and additional resources are essential to accomplish the Partnership’s goals and fulfill their mission.
Implementation of the Deficit Reduction Act (2006) and California SB 483 (2008)
Why have these Regulations not been implemented?
The Partnership paid the University of California at Berkeley to research and develop a report that was showcased two years ago at the Partnership’s annual agent meeting. That report clearly stated that by 2023, long-term care costs will bust the State’s budget.
We must come together to implement these vital regulations with great urgency!
Inflation conversion guidelines regarding existing Partnership policyholders
Prior to releasing these new policy offerings, there must be a clarification on how insurance companies will treat policy conversions or replacements. This must be incorporated into agent training prior to launch as well.
I hope that the above issues will be discussed in greater detail as we work together to revive the California Partnership for Long-Term Care.
Over the past decade, most independent and government studies have concluded that the future viability of providing and paying for long-term care services and supports for 135 million Americans over the next 30+ years will involve consumers, insurers and government working together to implement solutions.
The Partnership role in bringing solutions to California is vitally important!
Thomas W. Orr
President, Senior Insurance Training Services