The State of Long-Term Care Insurance

1 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.

2 Cali Teresa D. Miller Andrew Caplin Tanji Northrup Marc A. Cohen Dan Schwartzer John Cutler Mathew D. Shapiro James M.

3 Glickman Jesse Slome Robert L. Kane Christopher Tonetti Eric King

4 May 2016 /WZ ^ LJ i 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.

5 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.

6 CIPR Study Series 2016-1 Date: May 2016 ii Authors: John Ameriks, Principal, Vanguard Vincent Bodnar, Chief Actuary, LTCG: Joseph Briggs, Candidate, New York University: Bonnie Burns, Policy Specialist Consultant, California Health Advocates: Laura N. Cali, Commissioner, Division of Financial Regulation: Andrew Caplin, Professor of Economics, New York University; National Bureau of Economic Research (NBER): Marc A. Cohen, Chief Research and Development Officer, LifePlans, Inc.: John Cutler, Senior Fellow, National Academy of Social Insurance : James M. Glickman, President and CEO, LifeCare Assurance Company: Robert L. Kane, Professor, University of Minnesota School of Public Health: Dimitris Karapiperis, Analyst, NAIC Center for Insurance and Policy Research: Eric King, Health Actuary, NAIC: LaRhae Grindal Knatterud, Director of Aging Transformation, Minnesota Department of Human Services: Kevin M.

7 McCarty, Commissioner, Florida Office of Insurance Regulation: Tom McInerney, President and CEO, Genworth Financial, Inc. Teresa D. Miller, Commissioner, Pennsylvania Insurance Department: Tanji Northrup, Asst. Commissioner, Utah Insurance Department: Dan Schwartzer, Dep. Commissioner, Wisconsin Office of the Commissioner: Mathew D. Shapiro, Professor of Economics, University of Michigan; NBER: Jesse Slome, Executive Director, American Association for Long-Term care Insurance : Christopher Tonetti, Assistant Professor of Economics, Stanford GSB; NBER iii Contents The State of the Long-Term care Insurance Market Insurance Companies in the Claims Activity and Market Sizing Product Consumer Consumer Insurer Section Economics and Benefits of Private Long-Term care Why Insurance ?

8 34 The Benefits of The Benefits of Insurance for The Benefits of Insurance for Insurance and Medicaid Section The Long-Term care Insurance Puzzle ..48 Current Financing of Long-Term iv Consumer Attitudes ..50 Unique Distribution Early Distribution Early Successes Soon Faced Estimating Demand for Improved Long-Term care Model-Implied Stated Section Insurer In-Force Long-Term care Basics of Long-Term care Insurance Financial Unforeseen Developments and Corrective Nontraditional Funding for Underwriting and Private Long-Term care Insurance Underwriting Point-of - care and Point-of -Need Funding Financing Options for Long-Term Who Would Benefit Most from Long-Term care How Could the Basic Design of Long-Term care Insurance Change to Meet Greater Next Long-Term care Reform v The Other Major Other Interesting Section Minnesota Efforts to Develop Long-Term care Financing Options for Middle Income Own Your The Current Long-Term care Financing The

9 Work of the Subgroup on Product Overarching Section Regulation of Long-Term care Insurance Long-Term care Insurance Rating Regulations and Related Rating Model #641 Pre-Rate Stabilized and Amended NAIC Guidance Manual for Rating Aspects of the LTCI Model Model A Consumer Advocate s View on Financing Long-Term care : A Tsunami of Another The Need for Long-Term care Insurance and Available Areas of Future Section vi Insurance Industry Executive Views on Long-Term care The Path Forward Runs Through a Competitive and Grow Private Long-Term care Insurance Three Minor NAIC Regulatory Changes That Would Revitalize Long-Term care State Regulator Views on Long-Term care Kevin M.

10 McCarty, Commissioner, Florida Office of Insurance Regulation, NAIC Past Laura N. Cali, Commissioner, Division of Financial Regulation, Oregon Department of Consumer and Business Services ..158 Teresa D. Miller, Commissioner, Pennsylvania Insurance Department ..162 Tanji Northrup, Assistant Commissioner, Utah Insurance Dan Schwartzer, Deputy Commissioner, Wisconsin Office of the Commissioner of Long-Term care Insurance Study Forward 1 Forward Forward 2 Forward By Dimitris Karapiperis, Analyst, NAIC Center for Insurance Policy and Research and Eric Nordman, Director, NAIC Center for Insurance Policy and Research As baby boomers enter their golden years they will be confronted with one of the largest financial risks in the history of their generation.