LTC Insurance Premium Rate Increases Explained

Do not index

Cover Alt Text

LTC Insurance Premium Rate Increases - Hollowtree blog

The History of LTC Premium Increases

The long-term care insurance industry has experienced significant premium instability over the past two decades. Carriers that priced policies in the 1990s and early 2000s based on optimistic actuarial assumptions have subsequently filed for substantial rate increases, some exceeding 100% cumulatively over multiple rounds.

This history has created justified skepticism among consumers and employers. Understanding why it happened and how the market has responded is essential for making informed decisions about LTC coverage today.

Why Premium Increases Occur

LTC insurance premiums are based on actuarial assumptions about how many policyholders will eventually file claims, how long claims will last, and what investment returns the carrier will earn on reserves. When actual experience deviates from these assumptions, the carrier's reserves become insufficient to pay future claims, and premium increases are the primary corrective mechanism.

Three factors drove the industry's pricing crisis. First, lapse rate assumptions were too high. Carriers assumed that a significant percentage of policyholders would let their policies lapse before ever filing a claim. In reality, LTC policyholders lapse at extremely low rates (1-2% annually) because people who buy LTC insurance tend to keep it. This meant far more policies remained in force to generate claims than the carriers projected.

Second, morbidity assumptions underestimated claim frequency and duration. People are living longer with chronic conditions, which increases both the likelihood of filing an LTC claim and the duration of the claim. The average LTC claim duration has exceeded initial projections by 20-40% for many carriers.

Third, interest rate assumptions were too optimistic. Carriers expected to earn 6-8% on their reserve investments. The prolonged low-interest-rate environment from 2008-2021 produced investment returns far below these assumptions, creating a funding gap that required premium increases to fill.

How State Regulators Approve Increases

LTC insurance premium increases must be approved by each state's insurance department. This regulatory process is designed to protect consumers while ensuring carriers remain solvent enough to pay future claims.

Carriers must demonstrate actuarial justification for the requested increase, showing that actual experience has deviated from pricing assumptions. State regulators review these filings, often engaging independent actuaries to verify the carrier's claims. The approval process can take 6-18 months, and regulators frequently approve less than the full amount requested.

Some states have adopted rate stability regulations that require carriers to use more conservative pricing assumptions for new policies, build larger initial margins, and demonstrate that future rate increases are unlikely. These regulations, while increasing the initial cost of new policies, significantly reduce the probability of future premium volatility.

Strategies for Managing Premium Increase Risk

For employers offering LTC benefits, several strategies mitigate premium increase risk.

Choose carriers with demonstrated rate stability. Some carriers have never filed for rate increases on their LTC blocks. Check our guide on the top LTC insurance carriers for detailed comparisons of carrier financial strength and rate history. This track record, combined with strong financial ratings and conservative pricing philosophy, is the best predictor of future stability.

Consider hybrid life/LTC policies. Because hybrid products use life insurance pricing frameworks (which have decades of stable actuarial experience), they offer guaranteed premiums that cannot be increased. This eliminates premium volatility entirely, though at a higher initial cost. For a deeper understanding of how timing affects insurance costs, see how age affects LTC and disability insurance premiums.

Structure benefits to reduce sensitivity. Policies with inflation protection riders are more expensive but less likely to need premium increases because the benefits automatically adjust to rising care costs. Policies with shorter benefit periods (2-3 years vs. lifetime) have lower lifetime claim costs and correspondingly lower premium increase risk.

Build premium increase contingency into budgeting. For employer-paid programs, budget for potential premium increases of 3-5% annually. This conservative assumption ensures the program remains sustainable even if moderate increases occur.

What to Do When You Receive a Premium Increase Notice

Policyholders who receive a premium increase notice typically have several options beyond simply paying the higher premium.

Reduce the daily benefit amount. Lowering the daily benefit from $250 to $200, for example, reduces the premium proportionally while maintaining coverage.

Shorten the benefit period. Changing from a 5-year benefit period to a 3-year period significantly reduces the premium. Most LTC claims last 2-3 years, so a 3-year period still covers the majority of care scenarios.

Increase the elimination period. Extending the elimination period from 90 days to 180 days reduces the premium and still provides protection against the most financially devastating long-term care costs.

Convert to a paid-up policy. Some carriers offer a "reduced paid-up" option that converts the existing policy to a fully paid-up policy with a lower benefit amount. No further premiums are required, but coverage is reduced.

The optimal response depends on the individual's financial situation, health status, and available alternatives. For high-income individuals, consider disability insurance as a complementary strategy to protect income during working years. Dropping the policy entirely should be a last resort, as the policyholder loses all the value of years of premium payments and may not be insurable at their current age and health status.

Contact Hollowtree for a carrier comparison focused on rate stability and long-term value.