New rules for long-term care insurance would not cap rate hikes
After five years of fits and starts, Massachusetts regulators are close to adopting rules that would increase oversight of long-term care insurance, a market that has been roiled by skyrocketing premiums for consumers and declining profits for insurance companies.
But some consumers and advocates argue that the proposals would not do enough to protect policyholders from the escalating costs of long-term care insurance, which helps pay for nursing homes, home health services, and assisted living.
The new rules would not include caps on rate increases, a step urged by Attorney General Maura Healey and others.
The proposed rules would extend consumer protections and state regulatory oversight to group policies, not just those purchased individually, a gap in current law that has left tens of thousands of consumers who bought long-term care through their jobs with little recourse when premiums jump.
They would expand disclosures that companies must provide consumers about rate increases, and require companies to make more of an effort to contact elderly consumers before they cancel policies because of nonpayment.
They would also allow Massachusetts’ insurance regulator to consider whether premium increases would be affordable for consumers.
Massachusetts insurance officials have said that the proposals are an effort to strike a balance and help ease sticker shock for policyholders while ensuring that companies can pay for the benefits covered — even as more of them have eliminated or scaled back sales of new policies because of the costs.
Consumers “are certainly better protected than they were before,” said Tim Loff, who heads a committee on long-term care insurance for the Massachusetts chapter of National Academy of Elder Law Attorneys.
But advocates such as Healey and some consumers had wanted the Division of Insurance to cap rate increases. Healey said that would help ensure that as consumers age and their incomes shrink, they won’t have to pay significantly more or be forced to drop their coverage.
“We urge the Division of Insurance to toughen up its proposed regulations,” Healey said in a statement. “These changes are needed in order to stabilize rates and protect Massachusetts policyholders from extreme and unaffordable rate increases.”
Long-term care was designed to fill coverage gaps between Medicare, which pays for short-term rehabilitation and recovery services, and Medicaid, the program for the poor that pays for long-term care for qualified seniors after they have used up much of their own money.
It was pitched to baby boomers and popular through the early 2000s.
But rates have risen rapidly, in part because insurers set prices too low when they first launched the policies, underestimating how long people would live and need nursing home care, and overestimating how many people would drop their plans before collecting benefits.
George Burnell, 87, a Lexington resident, said the controls on premiums are necessary for consumers who have been paying into these plans for years and now face difficult choices just as they need the benefits the most.
Older policyholders are being forced to decide whether to reduce their benefits, pay more, or give up the product entirely, Burnell said
“An increase in premiums is painful,” said Burnell, who bought John Hancock long-term policies for himself and his wife nearly 20 years ago to avoid being burdens to their children.
The premiums for Burnell and his wife grew to $4,466 a year, from $3,785 after John Hancock raised rates 18 percent in 2016. And in January, Hancock received permission from the Insurance Division to raise rates by as much as 10 percent each year for the next four years. In total, 16 companies that serve nearly 55,000 consumers received approval to raise rates by at least 10 percent in 2017.
“It just makes you feel that nobody gives a damn and you’re drifting out to sea,” Burnell said.
Insurers say rate increases are necessary to cover the costs of future claims as people live longer and health care costs rise.
Even with the recent increases, they argue, few consumers are dropping their policies. They oppose a rate cap and have argued that even having regulators consider whether a rate increase is affordable is a step too far.
“Whether a particular rate is ‘affordable’ to a purchaser depends on their finances, their family, their living situation and a host of other personal circumstances that change over time,” a coalition of industry trade groups, the Life Insurance Association of Massachusetts, the American Council of Life Insurers and America’s Health Insurance Plans, wrote to the Insurance Division. “The insurance industry cannot, nor should they be required to, ensure that their product is affordable to all consumers.”
Legislators and regulators nationwide have struggled to control cost increases while making sure insurers can pay the policies’ benefits.
In 2012, Massachusetts legislators approved expanding consumer protections for long-term care policies in response to angry policyholders. But state regulators have taken years to craft precise regulations and have faced diverging demands from the industry and consumers.
Division of Insurance officials are reviewing the suggestions from Healey, consumers, and the industry, said Chris Goetcheus, spokesman for the Division of Insurance.