RD596 - Report Regarding Long-Term Care Insurance Premium Rate Cap Legislation [Senate Bill 828 (2023)] – November 2023

  • Published: 2023
  • Author: State Corporation Commission
  • Enabling Authority: Rules of the Senate of Virginia 20 (o) (2023)

Executive Summary:

During the 2023 Session of the Virginia General Assembly, Senator Spruill introduced Senate Bill 828 (SB 828), a bill prohibiting the State Corporation Commission (Commission) from approving any increase in annual premium rates or premium rate schedules for long-term care (LTC) insurance(*1) greater than six percent of the current rates. The Senate Commerce and Labor Committee “passed the bill by indefinitely" with a letter instructing the Bureau of Insurance (Bureau) “to study the subject matter" in SB 828.

In its 2013 study of LTC insurance rates, the Bureau wrote: “While consumers, industry, and regulatory communities are eager to find solutions which will balance the needs and concerns of all parties affected by LTCI premium rate increases, there is no easy answer."(*2)

The answer proposed in Senate Bill 828 is to impose a six percent annual rate cap on LTC insurance rate increases. To assess the impact of this proposal as requested in the committee letter, the Bureau retained an actuarial consultant(*3) to conduct a theoretical retrospective analysis of the potential impacts of the proposed six percent annual rate cap on previously approved premium.(*4) The consultant could not determine the actual premium impacts on future policyholders since the Bureau cannot predict whether and to what extent future premium rate increases will be requested and approved.(*5) The analysis produced the following findings:

• The premium rate cap, applied retroactively over the period of the study, would have resulted in an average (aggregate) premium reduction of 26 percent.

• Depending on the richness of benefit, the reduction in the LTC insurance premium revenue ranged from 4 to 47 percent.

• The cap had the largest impact on policy configurations with richer benefits (i.e., plans with higher inflation and longer benefit periods).

Premium reductions through caps on rate increases translate into premium savings for policyholders. However, they also produce a corresponding revenue loss for insurers unrelated to actuarial justification and other applicable rate standards. This can affect their ability to deliver on their promises to policyholders and operate profitably. While the Bureau cannot determine the specific impacts of the proposal on individual insurers within the scope of this analysis, it can make this high-level observation:

Depending on a variety of factors such as the volume of LTC insurance the insurer writes, the volume of LTC insurance compared to its other writings, the materiality of its Virginia operations relative to its countrywide premium and surplus, and its overall financial position, such a premium revenue loss could adversely affect its ability to pay claims and fund loss reserves and its capacity(*6) and willingness(*7) to write new LTC insurance business in Virginia.
(*1) In § 38.2-5202 of the Code of Virginia (Code), “long-term care insurance," is defined, in part, as “any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense incurred, indemnity, prepaid, or other basis, for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, personal care, mental health or substance abuse services, provided in a setting other than an acute care unit of a hospital…." See also, 14VAC5-200-40.
(*2) Commonwealth of Virginia, State Corporation Commission, Final Report of Findings, Bureau of Insurance Case No. INS-2012-00282, In the Matter of Investigating Long-Term Care Insurance Premium Rates, October 2, 2013. (link)
(*3) In preparing this part of the report, the Bureau engaged the services of Actuarial Resources Corporation of Georgia (“ARC-GA") to conduct an analysis of the theoretical impact of the proposed 6% rate cap on premium revenues. They included the following statement with their analysis: “In arriving at our opinion, we used and relied on information provided by the SCC and contained in SERFF [System for Electronic Rate and Form Filing] filings as of May 30, 2023, of the companies that were in scope of the assignment without independent investigation or verification. If this information is inaccurate, incomplete, or out of date, our findings and conclusions may need to be revised. While we have relied on the data provided without independent investigation or verification, we have reviewed the data for consistency and reasonableness. In the event that we found the data inconsistent or unreasonable, we have requested clarification."
(*4) The “period of the study" included rate approvals between 2008 and 2022.
(*5) The analysis compared the average annual premium based on two scenarios: the actual rate increases approved by the Bureau in past years and the actual rate increases approved by the Bureau but implemented at no more than a 6% increase per year. No related actuarial opinion has been provided or can be implied. Although the analysis did not include products without any previous premium rate increases, the number of those are believed to be statistically insignificant. Nevertheless, the outcome may have been different for these products. The study did not allow the 6% cap to be greater than the approved rate increase. Had the 6% cap been in place, the company may have filed for and received approval of a rate increase sooner than the timing of the actual approved rate increase. Projections could not assume future rate increases the company may have filed other than the 6% cap.
(*6) Any premium reduction and resulting surplus drawdowns could reduce the capacity of LTC insurers to write new business were it to have the effect of reducing the number of premium dollars for every dollar of surplus – a key measure of an insurer’s capacity to write new business.
(*7) One could also expect such a reduction in premium revenue to adversely affect the profitability of an insurer’s operations in Virginia and precipitate further market departures, making it even more difficult for consumers shopping for LTCI to obtain coverage.