Long-term care insurance policyholders across the country are facing an unprecedented crisis. Insurance companies that sold policies decades ago are now implementing massive premium increases, often making coverage unaffordable for the very people who need it most. While the National Association of Insurance Commissioners (NAIC) has attempted to create a multistate framework to address these issues, the reality is that policyholders are still being left behind by a system that prioritizes insurance company profits over consumer protection.
The Premium Rate Increase Crisis
Insurers that aggressively sold these policies decades ago are now demanding substantial rate hikes, often at the precise moment policyholders are nearing the age when they'll need the coverage. This timing, while financially devastating for consumers, is not coincidental; older policyholders have fewer alternatives and are more likely to accept the increases to avoid losing their coverage entirely.
The Actuarial Miscalculation
While some critics argue that insurers intentionally underpriced these policies, industry experts like those from the American Association for Long-Term Care Insurance suggest the issue is more nuanced. The original pricing was based on reasonable assumptions that ultimately proved incorrect. Two key factors didn't play out as expected by actuaries: the evolving nature of long-term care and, most significantly, policy lapse rates.
- Changing Care Dynamics: The original LTCI products, dating back to the 1970s, were simple policies designed to cover nursing home stays. However, as policyholders began opting for home healthcare and assisted living, insurers added more "bells and whistles," expanding coverage and increasing costs.
- Lower-than-Expected Lapse Rates: Actuaries initially assumed that LTCI policies would have a lapse rate (the rate at which people drop their coverage) similar to other insurance products, around 4%. However, the actual lapse rate for LTCI policies settled at about 1%. This seemingly small difference has a massive impact. For example, if an insurer sells 100,000 policies, a 4% lapse rate after 20 years would leave them with roughly 80% of policies dropped, whereas a 1% lapse rate leaves them with 80,000 active policies. This means the number of potential claims is far higher than what was originally projected.
This actuarial imbalance has led to a wave of rate hike requests from major insurers, with some companies seeking numerous increases from state regulators. It also means insurers have reduced benefits or outright denied coverage to nearly half of applicants age 70–74. This has even led to some insurers becoming insolvent or leaving the LTCI market entirely.
Understanding the NAIC Multistate Framework
The NAIC developed its multistate framework as an attempt to create consistency in how states review and approve long-term care insurance rate increases. This framework was supposed to streamline the review process and provide better protection for consumers. However, the reality has been far different from the promise based on the experience of many.
Under this framework, insurance companies can file for rate increases across multiple states simultaneously, creating efficiencies for insurers while doing little to protect policyholders. The process still varies significantly from state to state, as each state maintains its own regulatory authority and standards for reviewing rate increase requests.
The framework includes provisions for actuarial review, consumer notice requirements, and opportunities for public comment. Yet despite these safeguards, rate increases continue to be approved at alarming rates. State regulators often face pressure from insurance companies threatening to exit markets entirely if increases are not approved, leaving regulators with limited options to protect consumers.
State-by-State Variations in Protection
One of the fundamental problems with the current system is that every long-term care policy is regulated by the state where the policy was issued. This creates a patchwork of different rules, standards, and levels of consumer protection. What constitutes adequate consumer protection in one state may be woefully inadequate in another.
The variation in state approaches means that identical policies issued by the same insurance company can face vastly different treatment depending solely on where the policy was purchased. This geographic lottery system fails to provide consistent protection for consumers nationwide.
In the fall of 2024, Long-Term Care Actuarial Working Group voted in a single LTC rate review process based on the Minnesota method. This method, developed by Fred Andersen of the Minnesota Department of Commerce, looked like the following:
- Aims to distribute the cost burden of rate hikes more fairly.
- Includes a formula that avoids disproportionately punishing long-time policyholders, specifically those aged 85 and older or those who have held their policies for 25 years or more.
- Seeks to prevent newer policyholders from having to subsidize the losses from older, poorly priced policies.
- Focuses on forcing insurers to bear a substantial portion of the financial hit, rather than passing it all on to consumers.
The Insurance Industry's Aggressive Tactics
Insurance companies have become increasingly aggressive in their approach to rate increases, often using scare tactics and misleading information to pressure regulators and policyholders. They frequently claim that without massive rate increases, they will be forced to stop paying claims or exit markets entirely.
These companies present worst-case scenarios to regulators while downplaying their financial strength and ability to absorb losses. They conveniently ignore the substantial profits they earned during the years when they were collecting premiums but paying few claims. The same companies that aggressively marketed these policies as stable, predictable coverage options now claim they had no way of anticipating future costs.
Insurance companies also exploit the complexity of actuarial science to justify increases. They present complex models and projections that are difficult for regulators and consumer advocates to challenge effectively. These presentations often obscure the fundamental question of whether the increases are truly necessary or simply designed to boost profitability.
Legal Challenges and Policyholder Rights
Policyholders facing unreasonable rate increases do have legal options, though many are unaware of their rights. Depending on the state where the policy was issued and the specific circumstances of the rate increase, policyholders may have grounds to challenge the increase through administrative processes or in court.
Some successful challenges have focused on procedural violations in how the increase was implemented. Others have challenged the underlying actuarial assumptions or questioned whether the insurance company properly considered alternatives to rate increases.
The key is understanding that each state has its own rules for challenging rate increases, and the time limits for taking action are often strictly enforced. Policyholders who wait too long to seek legal advice may find their options severely limited.
Taking Action Against Unfair Treatment
Policyholders who believe they are facing unreasonable rate increases or unfair treatment from their long-term care insurance company should not simply accept the situation. Each case requires individual analysis considering the specific policy terms, state regulations, and circumstances surrounding the rate increase.
Professional legal assistance can help evaluate whether the insurance company followed proper procedures, whether the increase is actuarially justified, and what alternatives might be available. Some cases may warrant challenging the increase directly, while others may benefit from negotiating alternative arrangements with the insurer. The aging population means these issues will only become more prevalent over the next two decades. Insurance companies will continue pushing the boundaries of what rate increases they can implement, making it essential for policyholders to understand their rights and options.
If your long-term care insurance company has denied your claim or hit you with unaffordable premium increases, you have legal options. Sandstone Law Group fights aggressively against insurance companies that put profits over policyholders.
Call (602) 615-0050 now for a consultation. We're ready to take on your insurance company.