Grp Chpt 36 Pricing Grp LTC Ins

Question 1

LTC is a unique group product

Answer 1

1. Why more like individual than group
   
   1. 1 it is entry age (or issue age) rated
   2. 2 Typically an optional coverage, where EEs pay 100% of prem
   3. 3 GLTC has a board set of eligible insureds
2. Special issues in GLTC that do not occur in individual LTC
   
   2. 1 Decreased ability to predict the risk characteristics of the the block of business
   3. 2 Experience rating
   4. 3 Policyholder reporting
   5. 4 Handling reserves when the group changes carrier

Question 2

NAIC LTC Model Act and Regulation

Part 1 of 2

Answer 2

1. Model act covers
   
   1. 1 Definition of LTC insurance
   2. 2 Renewability
   3. 3 Policy exclusions
   4. 4 Min benefit standards
   5. 5 Disclosure
   6. 6 Reporting
   7. 7 Advertising
   8. 8 Requires offering of compound inflation
   9. 9 Requires offering of non-forfeiture benefits
   10. 10 other consumer protections: Producer training; flexibility to reduce coverage to make Prems affordable; claim appeals; prompt payment of clean claims
2. Major changes in 2000 LTC model regulation
   
   2. 1 Requires disclosure of rating practice
   3. 2 actuarial certification: rates adequate in mod. adverse experience
   4. 3 Eliminates minimum loss ratio requirements
   5. 4 Requires reimbursement of unnecessary rate increases

Question 3

NAIC LTC Model Act and Regulation

Part 2 of 2

Answer 3

1. Actuarial certification at initial rate filing
   
   1. 1 initial premium is sufficient under moderately adverse experience
   2. 2 Policy design was taken into consideration
   3. 3 UW and claim adjudication have been taken into consideration
   4. 4 Description of the basis for contract reserves
   5. 5 Reserve assumptions contain margins for adverse experience
2. Premium rate schedule increases
   
   2. 1 The sum of accumulated past incurred claims and PV of future incurred claims will not be less than sum of:
      
      2. 1.1 Accumulated value of initial earned premium * 58%
      3. 1.2 85% of the accumulated value for prior premium rate increases
      4. 1.3 PV of future initial earned prem * 58%
      5. 1.4 85% of PV of future Prems in excess of initial Prems

Question 4

Health Ins Portability and Accountability Act (HIPAA) impact on LTC

Answer 4

1. HIPAA defined qualified LTC plans
2. Clarified taxation of premium and benefits
   
   2. 1 Prem paid by ER is not taxable income to EE
   3. 2 Prem paid by individual is deductible from their income
   4. 3 Benefits are not taxable income
3. Standardized benefit triggers: 2 ADLs or cognitive impairment

Question 5

Group LTC policy design and provisions

Answer 5

1. Employer group
   
   1. 1 A major pricing assumption is the choice of participation rates
   2. 2 Benefits should be tied to the cost of services and availability in the area
   3. 3 5% annual compound inflation must be offered to the policy holder
   4. 4 Modified guaranteed issue is often used
2. Carriers
   
   2. 1 concerns of carriers in GLTC include:
      
      2. 1.1 need to sell both to ERs and EEs
      3. 1.2 up front distribution costs
      4. 1.3 Risk of low enrollment
   3. 2 Morbidity varies significantly by participation and size of group
   4. 3 one strategy: use individual policy form and prem, with group discounts
3. Employees
4. Experience rating (DETAIL ON SEPARATE CARD)
5. group transfer (DETAIL ON SEPARATE CARD)

Question 6

Group LTC policy design and provisions

Experience rating and group transfer

Answer 6

1. Experience Rating
   
   1. 1 # of participants necessary is large due to low freq and high variance in claims
   2. 2 Prospective experience rating is unusual
   3. 3 Retrospective experience rating
      
      1. 3.1 An experience fund may be established
      2. 3.2 Should the fund fall less than expected, the program should be reviewed
      3. 3.3 if performance standards are not met, the fund assessed penalties
2. Group Transfer
   
   2. 1 Active life reserves or experience fund transfers to the assuming carrier
   3. 2 Problems with transfer include:
      
      2. 2.1 Difficulties in determining the experience of the group
      3. 2.2 Inadequacy of the stat reserves held
      4. 2.3 Inadequacy of the experience fund
      5. 2.4 Difficulties in data transmission
   4. 3 Problems with transferring stat reserves:
      
      2. 3.1 Reserves reflect requirements of the state of the current carrier, not the assuming carrier
      3. 3.2 Stat reserve methods vary from company to company
      4. 3.3 May not reflect actual experience

Question 7

Group LTC pricing models

Part 1 of 2

Answer 7

1. Typically asset shared projection models
   
   1. 1 project the financial income and outgo for a given cell
   2. 2 Premium rates are then determined that result in the required profit criteria
   3. 3 Projections should be longer than 30 years
   4. 4 First pricing step is choosing the model cells
   5. 5 Different cells for different plans, gender, issue age, U/W

Question 8

Group LTC pricing models

Part 2 of 2

Answer 8

1. Model Assumptions
   
   1. 1 Lapsation: LTC less than other health insurance
      
      1. 1.1 Higher in group than individual LTC
   2. 2 Mortality: 94 GAM is often used in pricing
   3. 3 Morbidity/ claim costs
      
      1. 3.1 Public data must be adjusted
      2. 3.2 SOA LTC experience committee
      3. 3.3 Claim costs = Freq * Length of stay * ben amount
      4. 3.4 Other assumptions needed: Percentage of claims by type of service, expected number of services used each month, Expected cost of each service, salvage adjustments
      5. 3.5 Important variables that dictate the level of claims: Marital status, gender benefit trigger, area
   4. 4 selection: a measurement of u/w impact by policy duration
   5. 5 expenses
   6. 6 interest
   7. 7 reserve basis
   8. 8 profit criteria: pre-tax profits, prost-tax profits, ROI, GAAP ROE