The State of Long-Term Care Insurance

The State of Long-Term Care Insurance:

The Market, Challenges and Future Innovations

Eric C. Nordman Director CIPR

Contributions By

John Ameriks

Dimitris Karapiperis

Vincent Bodnar LaRhae Knatterud

Joseph Briggs

Kevin M. McCarty

Bonnie Burns

Tom McInerney

Laura N. Cali

Teresa D. Miller

Andrew Caplin Tanji Northrup

Marc A. Cohen Dan Schwartzer

John Cutler

Mathew D. Shapiro

James M. Glickman Jesse Slome

Robert L. Kane Christopher Tonetti

Eric King

May 2016

The State of Long-Term Care Insurance

The Market, Its Challenges and Future Innovations

Prologue

By Eric C. Nordman, CPCU, CIE Director, CIPR

This CIPR study presents independent research the purpose of which is to inform and disseminate ideas to regulators, consumers, academics and financial services professionals. CIPR studies are available at no cost on the CIPR website: .

This study would not have been possible without the contributions of several key regulators and other notable authors from the academic community, consumer interests and the insurance industry. They are listed on page ii. I would also like to thank CIPR Research Analyst Dimitris Karapiperis for his diligence in identifying authors, working with them on their submissions and working with me to deliver a cohesive report contributing to our collective knowledge on long-term care issues.

Disclaimer: This study represents the opinions of the author(s) and is the product of professional research. It is not intended to represent the position or opinions of the NAIC or its members, nor is it the official position of any staff members. Any errors are the responsibility of the author(s).

Acknowledgements: The authors are grateful to those who reviewed and contributed to the study and helped improve it with their insightful comments. Special thanks to Andy Beal, NAIC COO and CLO, Shanique Hall, CIPR manager for their valued comments and edits and Pamela Simpson of Regulatory Services for her invaluable editorial help.

CIPR Study Series 2016-1 i

Date: May 2016

Authors: John Ameriks, Principal, Vanguard Vincent Bodnar, Chief Actuary, LTCG: vince.bodnar@ Joseph Briggs, Ph.D. Candidate, New York University: jsb493@nyu.edu Bonnie Burns, Policy Specialist Consultant, California Health Advocates: bburns@ Laura N. Cali, Commissioner, Division of Financial Regulation: laura.n.cali@ Andrew Caplin, Professor of Economics, New York University; National Bureau of Economic Research (NBER): ac1@nyu.edu Marc A. Cohen, Chief Research and Development Officer, LifePlans, Inc.: mcohen@ John Cutler, Senior Fellow, National Academy of Social Insurance: johncutler@ James M. Glickman, President and CEO, LifeCare Assurance Company: Jim.Glickman@ Robert L. Kane, Professor, University of Minnesota School of Public Health: kanex001@umn.edu Dimitris Karapiperis, Analyst, NAIC Center for Insurance and Policy Research: dkarapiperis@ Eric King, Health Actuary, NAIC: eking@ LaRhae Grindal Knatterud, Director of Aging Transformation, Minnesota Department of Human Services: larhae.knatterud@state.mn.us Kevin M. McCarty, Commissioner, Florida Office of Insurance Regulation: kevin.mccarty@ Tom McInerney, President and CEO, Genworth Financial, Inc. Teresa D. Miller, Commissioner, Pennsylvania Insurance Department: teresamill@ Tanji Northrup, Asst. Commissioner, Utah Insurance Department: tnorthrup@ Dan Schwartzer, Dep. Commissioner, Wisconsin Office of the Commissioner: dan.schwartzer@ Mathew D. Shapiro, Professor of Economics, University of Michigan; NBER: shapiro@umich.edu Jesse Slome, Executive Director, American Association for Long-Term Care Insurance: jslome@ Christopher Tonetti, Assistant Professor of Economics, Stanford GSB; NBER

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Contents

Forward..........................................................................................................................................................................1 The State of the Long-Term Care Insurance Market.............................................................................................6

Introduction.........................................................................................................................................................7 Market Size..........................................................................................................................................................7 Insurance Companies in the Market...................................................................................................12 Claims Activity and Performance........................................................................................................13 Market Sizing Summary......................................................................................................................16 Product Evolution...............................................................................................................................17

Consumer Profiles..............................................................................................................................19 Consumer Experience......................................................................................................................................22 Insurer Challenges...........................................................................................................................................25 Section Conclusion...........................................................................................................................................27 Economics and Benefits of Private Long-Term Care Insurance..........................................................................30 Introduction......................................................................................................................................................31 Why Insurance?...............................................................................................................................................34 The Benefits of Insuring...................................................................................................................................36 The Benefits of Insurance for Policyholders.................................................................................................38 The Benefits of Insurance for Caregivers.......................................................................................................42 Insurance and Medicaid Expenditures..........................................................................................................43 Section Conclusion..........................................................................................................................................46 The Long-Term Care Insurance Puzzle ...................................................................................................................48 Current Financing of Long-Term Care.............................................................................................................49

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Consumer Attitudes ........................................................................................................................................50 Unique Distribution Challenges......................................................................................................................51 Early Distribution Success...............................................................................................................................51 Early Successes Soon Faced Challenges........................................................................................................52 Estimating Demand for Improved Long-Term Care Insurance...........................................................................56 Introduction......................................................................................................................................................57 Background........................................................................................................................................................60 Model-Implied Demand...................................................................................................................................66 Stated Demand.................................................................................................................................................67 Section Conclusion...........................................................................................................................................69 Insurer In-Force Long-Term Care Management....................................................................................................70 Basics of Long-Term Care Insurance Financial Mechanics..........................................................................71 Unforeseen Developments and Trends.........................................................................................................73 Corrective Actions...........................................................................................................................................74 Nontraditional Funding for LTC......................................................................................................................75 Underwriting and Private Long-Term Care Insurance Options..................................................................78 Underwriting Point-of-Care and Point-of-Need Funding Solutions..........................................................79 Financing Options for Long-Term Care...................................................................................................................82 Introduction.......................................................................................................................................................83 Who Would Benefit Most from Long-Term Care Insurance.......................................................................84 How Could the Basic Design of Long-Term Care Insurance Change to Meet Greater Needs................84 Next Steps..........................................................................................................................................................91 Long-Term Care Reform Proposals.........................................................................................................................94

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