compliance, nutrition, socialization, and falls prevention, all of
which reduce hospital admissions and readmissions—sources
of huge medical expense.
In sum, the forces favoring the persistency and further development of stand-alone LTCI are numerous and strong. But
these may not be enough.
Private LTCI can play a major role in financing the nation’s
growing LTC needs, or it can play handmaiden to a social insurance scheme that may come to pass in the next decade. Which of
these roles it assumes will hinge, I submit, on whether the private
sector has the resolve to push past the short-term orientation
with which it has been preoccupied, to embrace a market future
that is only now starting to arrive—or whether it will decide, in
the final analysis, that such a future is not worth the risk.
PAUL E. FORTE is chief executive officer of Long Term Care
Partners LLC. The opinions and positions voiced in this paper
are those of the author and do not represent the opinions of
Long Term Care Partners; its parent company, John Hancock Life
Insurance Company (U.S.A.) and subsidiaries; or the U.S. Office of
Personnel Management (OPM). The author alone is responsible
for any errors or misjudgments this paper may contain.
Note: This paper had its origins in a presentation given at the Society of Actuaries Health meeting in San Francisco on June 25,
2014. The author would like to thank Tia Goss Sawhney for the
invitation to present; Marc Cohen, Marie Roche, and Sam Gutterman for close readings of the full draft; and Jon Seder for excellent
graphics, research, and editorial support.
1See America’s Health Insurance Plans, “Long-Term
Care Insurance in 2002,” June 2004, p. 22. AHIP
reported that the LTCI market had in fact grown an
average of 18% each year between 1987 and 2002,
while, by the end of 2002, there were more than 5,600
employer group plans in effect.
2Karen Fisherkeller, LIMRA Annual Review 2013, “U.S.
Group Long-Term Care Insurance” and “U.S.
Individual Long-Term Care Insurance.”
3The purpose of the 1985 National Nursing Home
Survey (NHHS) was “to establish a complete ‘baseline’
set of utilization data that can be used in actuarial
models and as a basis of comparison with other
experience.” The survey notes that its objective was not
to develop “utilization data that are directly
appropriate for pricing or reserving of long term care
(LTC) insurance products,” but rather reflects
“tabulation of admission rates and length of stay
distributions that are useful for those who are
interested in LTC insurance.” See “Report of the
Long-Term-Care Experience Committee, 1985 National
Nursing Home Survey Utilization Data,” Transactions
of Society of Actuaries, 1988-90 Reports.
4Rate stabilization was ushered in by the NAIC Model
Act and Regulation of 2000. This was supposed to
prevent large rate increases by requiring pricing
actuaries to certify, in the initial actuarial filing of an
LTCI product, that the premium schedule was
sufficient to cover anticipated costs under “moderately
adverse” circumstances and that the schedule is
reasonably expected to be sustainable over the life of
the form. However “moderately adverse” was never
really defined. In recent years, efforts have been made
to reduce subjectivity by introducing a percentage of
margin that must be maintained as part of the guideline.
The authors of a recent SOA paper, cited below, take
this problem up in the context of parameter risk.
5Allison Bell, “NAHU 2012: The LTCI Fear Factor,”
LifeHealthPro, June 27, 2012.
6Margie Barrie, “Understanding LTCi Rate Increases,”
LifeHealthPro, May 2, 2014. Another view is that of Ali
Zaker-Shahrak of the California Department of
Insurance: Actuaries knowingly adopted unrealistic
assumptions, trusting that guaranteed renewability
would, in any case, allow them to raise rates.
7Karen Fisherkeller, LIMRA Annual Review 2013, 2014,
“U.S. Group Long-Term Care Insurance” and “U.S.
Individual Long-Term Care Insurance.”
8 Thau, Helwig, and Schmitz, “2014 Long Term Care
Insurance Survey,” Broker World, July 2014, p. 2.
9American Association of Long Term Care Insurance,
“Long-Term Care Insurance Facts - Statistics” (http://
10See Rafalko, Akbar, and Gugig, “LTCi Litigation
Update/Prevention,” an unpublished presentation
delivered at the 2015 ILTCI Conference, Colorado
Springs, Colo., March 24, 2015 ( http://www.iltciconf.
11See Eric Stallard’s recent article in Long Term Care
News, Society of Actuaries, August 2014, pp. 23-27.
Stallard cites the famous postulate of James F. Fries,
MD, now more than 30 years old, concerning a
“compression of morbidity” paradigm, or reduction in
lifetime morbidity. Fries affirmed a natural point at
which human homeostasis is not achievable even if
chronic diseases are effectively eliminated, thus
reducing the length of morbidity itself (“Aging, Natural
Death and the Compression of Morbidity,” New
England Journal of Medicine, Vol 303, No. 3, July 17,
1980, p. 130-135.) See also Fries “The Theory and
Practice of Active Aging,” Current Gerontology and
Geriatrics Research, Volume 2012, article ID 420637.
12I am indebted to Sam Gutterman for this insight.
13“The Volatility in Long Term Care Insurance,” Society
of Actuaries, Long Term Care Insurance Section, 2014.
14See Roger Loomis et al., “Understanding the Volatility
of Experience and Pricing Assumptions in Long Term
Care Insurance,” Society of Actuaries, May 2014, p. 20.
The authors note that with respect to a moderately
sized block of business, “process risk can cause
significant variance in certain financial and
operational metrics over short periods of time, but that
over longer periods, that variance is largely diversified
away. If the level of process risk is not correctly
understood, there can be unreasonable expectations
for smooth short-term results. Over the long term,
process risk has a tendency to even itself out. …
Process risk is the strict responsibility of the insurer
and constitutes the risk the insurer must absorb;
parameter risk represents potential outlying risks, and
should arguably be set by insurers and regulators
15A 2009 Government Accountability Office (GAO)
investigation of increased national Medicare spending
concluded that “Upcoding—overstating the severity of
a beneficiary’s condition—by home health agencies
(HHA) and other fraudulent and abusive practices
contributed to Medicare home health agency spending
and utilization.” See “Improvements Needed to
Address Improper Payments in Home Health,” U.S.
Government Accountability Office, Report to the
Ranking Member, Committee on Finance, U.S. Senate,
May 12, 2009, p. 1-6.
16See “State Long-Term Care Partnership Program:
Reporting Requirements for Insurers,” final rule by the
Health and Human Services Department on Dec. 18,
17Such changes would include making pre-rate
stabilization provisions consistent with current
provisions applicable to rate stabilizing policies,
establishing complex administrative systems to
produce durational loss ratios that would vary from
state to state, and using the primary interest rate in
place of the maximum valuation interest rate for loss
ratio calculations. See “Long Term Care Insurance
Model Regulation,” National Association of Insurance
Commissioners, September 2014, Sections 20 and 20. 1,
18See Mark Merlis and Paul N. Van de Water, “Long
Term Care Financing Models from Abroad,” National
Academy of Social Insurance, No. 9, November 2005.
19See Joe Caldwell and Howard Bedlin, “Beyond the
CLASS Act: The Future of Long Term Care Financing
Reform,” The Gerontological Society of America,
Public Policy and Aging Report, 2014, p. 50-55.
20According to the Center for Medicare and Medicaid
Services (CMS), the final rule of Section 1915(i) State
Plan HCBS, under which states may use federal
Medicaid funds to pay for home and community-based services (HCBS) “reflects CMS’ intent to ensure
that individuals receiving services and supports
through Medicaid’s HCBS programs have full access
to the benefits of community living and are able to
receive services in the most integrated setting.” See
CMS Fact Sheet, “Home and Community Based
Services,” CMS Media Relations, January 10, 2014.
21See Nina Bernstein, “Pitfalls Seen in a Turn to
Privately Run Long-Term Care,” New York Times,
March 6, 2014.
22Leora Friedberg, Wenliang Hou, Wei Sun, and
Anthony Webb, “Long-Term Care: How Big a Risk?”
Center for Retirement Research at Boston College,
November 2014, Number 14-18.
23Steve Holland, MD, Sharrilyn Evered, PhD, and Bruce
Center, PhD, “Long-Term Care Benefits May Reduce
End-of-Life Medical Care Costs,” Population Health
Management; 17; 332-339.