Senior Issues (B) Task Force s3

Attachment ?

Senior Issues (B) Task Force

8/??/16

Draft: 6/23/16

Long-Term Care Innovation (B) Subgroup

Conference Call

June 13, 2016

The Long-Term Care Innovation (B) Subgroup of the Senior Issues (B) Task Force met via conference call June 13, 2016. The following Subgroup members participated: Teresa D. Miller, Chair (PA); Mike Rothman, Vice Chair, and Fred Andersen (MN); Mary Ellen Breault (CT); Eric Johnson and Chris Struk (FL); Doug Ommen (IA); Dean Cameron (ID); Eric Anderson (IL); Marti Hooper (ME); Brendan Peppard (NJ); Matthew Gendron (RI); Suzi Anderson and Melissa Klemann (SD); and Mike Bryant and Molly Nollette (WA).

Also participating were: Mayumi Gabor and Jacob Lauten (AK); Sally Frechette (DE); Debra Peirce (GA); Craig Van Alst, Cindy Hermes and Mark McClaflin (KS); Matt Lockett (KY); Laura Bryan and Bev Lequin (LA); Meagan Ring (ME); Mary Mealer (MO); Jay Eads and Bob Williams (MS); Ted Hamby (NC); Chrystal Bartuska and Nishit Goradia (ND); Rhonda Ahrens and Martin Swanson (NE); David Sky (NH); Terry Seaton (NM); Mackay Moore and Syed Rahman (NV); Laura Miller (OH); Joel Sander (OK); Gayle Woods (OR); Andrew Dvorine (SC); Chlora Lindley-Myers (TN); Jan Graeber and Dewayne Mathews (TX); Nancy Askerlund, Tomasz Serbinowski and Jaakob Sundberg (UT); Elsie Andy (VA); Sue Ezalarab and Jennifer Stegall (WI); and Tonya Gillespie (WV).

1. Heard presentations from Commissioner Mike Rothman and Mary Mealer

Commissioner Rothman turned his presentation to Mr. Andersen, who suggested that to achieve the goal of more people having long-term care (LTC) insurance coverage many different aspects must come together. He divided his presentation into five areas: 1) Improvements in the national rate increase review process; 2) Risks impacting new product design; 3) Affordable LTC products for the middle market; 4) Education and outreach; and 5) Ideas for private / public coordination.

Mr. Andersen said that to create a healthy private LTC market going forward, certain aspects have to be taken into account: 1) the high magnitude and surprise nature of rate increases are harmful to consumers; 2) the perception that states’ rate increase review methods are all over the map is harmful to the LTC insurance market; and 3) the delays and confusion are partly justified by complexity and the lack of fully credible data. He said that state regulators are working to improve the situation with the goal to create a more predictable and transparent rate increase process. He said improving the process will encourage companies to sell and consumers to buy.

Mr. Andersen turned to the risks impacting new product design. He said the current system is doing a decent job of covering shorter-duration LTC (4 years and less) but beyond 4 years, the situation is typically so severe that family help and savings are exhausted. He said that older LTC policies underestimated this risk, but is one driver of rate increases, especially recently. In addition, the combination of more targeted underwriting and more accurate pricing is leading to much less coverage of long-duration claims (typically Alzheimer’s) in today’s policies.

Mr. Andersen pointed out some areas where there are affordable LTC products for the middle market, such as products covering short-term risk, high-deductible/catastrophic products, and products purchased by younger people (generally under 50 and group insurance through employers. Mr. Andersen highlighted Minnesota’s “Own Your Future” initiative which is exploring ways to make LTC insurance affordable to middle market. In addition, Minnesota is working on “LifeStage” term life / LTC hybrid, essentially start pre-funding LTC coverage at younger ages.

Mr. Andersen said it is important to educate all stakeholders -- consumers, regulators (federal and state), companies, analysts, nursing homes, and politicians. The current negative view of LTC insurance is mainly due to issues related to older products. More education can lead to better environment for people to address their future LTC needs.

Mr. Andersen summarized his presentation by stating that a combination of private insurance, savings, and Medicaid providing up to 4 years of care is manageable but there still needs to be collaboration among stakeholders to make the private system as effective as it can be. Addressing catastrophic cases could involve discussions with the federal government and with the aging population; these cases place increasingly enormous burdens on families and Medicaid. He said state regulators are credible voices and must work together to achieve big-picture goals and consumer education is important in forging all of the above.

Next, Ms. Mealer then discussed Missouri’s educational campaign. Under the direction of Director John M. Huff, the Missouri Department of Insurance (DOI) produces educational videos that are then posted on their website. Last year 25 videos were posted to their website for a total number of videos in the 35 to 40 range over the last 2 years. The topics range across all lines of insurance and include two (2) LTC videos. The first video depicts Governor Jay Nixon stressing the importance of planning for long term care and the second video provides the basics of LTC insurance.

Ms. Mealer turned to her thoughts about the LTC market, which she noted would be her personal comments and not those of the Department. She remarked that there are issues that have been addressed throughout the years in company meetings, consumer complaints and legislative inquiries on what needs to be done to spur disavowed consumers back into the LTC arena.

Ms. Mealer raised three issues: 1) Consumers felt they were lied to by their agents when told their premiums would never increase; 2) Consumers lost trust in companies when continuing to receive multiple-digit rate increases; and 3) Consumers felt they “lost” their money when they no longer could afford the policies; they were left holding an empty bag.

Ms. Mealer highlighted an article that indicated 1 in 5 baby boomers are concerned they will not have enough saving to cover basic living expenses. Only 55% of baby boomers report savings for retirement and of those 42% have less than $100,000. Of all baby boomers, only 16 % are confident they can cover the cost of long term care. For most baby boomers, buying an LTC product they may or may not use does not appear to be affordable nor a priority.

Ms. Mealer wondered if a “combination product” could hold the key to address consumers’ sense of “lost” investment” and provide the baby boomers a product that would offer a value other than LTC benefits that they could use. She said this combination product would be a combination of a life and LTC policy or annuity and LTC policy, not LTC riders, but a policy that provides one face amount and as either benefit is used, the face amount is reduced. This appears to address the “lost investment” sentiment as consumers who do not use LTC benefits can still receive the life or annuity benefit.

Ms. Mealer pointed out that there are deferred annuities funds to pay for LTC free of federal taxes. The annuities allow money to grow tax-free, but consumers must pay taxes when money is removed. Purchasers put money, $50,000 is about the minimum, into an annuity. These also can be funded with another annuity or a whole or universal life insurance policy that the owner no longer needs through a 1035 exchange. Purchasers then choose the amount of long-term care coverage they want, usually 200% or 300% of the face value of the annuity, and decide if they want inflation coverage. They also decide the maximum duration of payable benefits, typically 2 to 6 years. Inflation coverage will affect the maximum duration of the plan.

If a person never needs long-term care, then the annuity can be redeemed for its accumulated value when it matures at 20 years -- or it can be left to accumulate further interest and the long-term care policy will remain in force. When this person dies, the heirs will inherit the greater of the accumulated annuity value, if there have been no withdrawals, or the single premium initially paid less the amount of long-term care paid.

Ms. Mealer pointed out that the pros are less stringent underwriting than a conventional LTC policy; few restrictions on use of money; and that both annuity and LTC insurance are fully funded, once a plan is in place. The cons are that consumers must have at least $50,000 to invest; there is a possibility of declining interest rate after maturity in 20 years; and they do not qualify for partnership plans.

Commissioner Miller asked Mr. Andersen about Minnesota’s work with employers and whether Minnesota’s “LifeStage” hybrid has produced any available products.

Commissioner Miller asked if there were any other comments or questions.

Director Cameron asked Mr. Andersen to expand on his views on uniformity and then asked about reserves and whether stronger reserve ratios n new products would be helpful.

Mr. Goradia asked whether there should be an emphasis on personal responsibility of the consumer to delay the need for LTC, such as diet, exercise, etc.

Ms. Ahrens inquired of Ms. Mealer if combination products that are not in Missouri are available in the Compact.

Ms. Mealer raised the point that to improve the LTC market, you may have to start at an earlier age than 40 or 50. She gave as an example her son who graduated college and, in order to graduate, had to take a financial planning course but LTC was not included. She wondered if including LTC as part of such curricula would be a start in reaching 20-year olds.

Bonnie Burns (California Health Advocates—CHA) asked if there is any data illustrating better coverage of shorter-duration LTC (4 years and less) versus beyond 4 years.

Birny Birnbaum (Center for Economic Justice—CEJ) questioned whether a public program would not be a better solution than carving out catastrophic because the private market cannot handle that.

Having no further business, the Long-Term Care Innovation (B) Subgroup adjourned.

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