Aug. 13, 2020 — A newly released report on addressing the future of long term care insurance spearheaded by the Treasury Department has recommended that Congress should consider giving some authority to the Department of Healthcare and Human Services for inflation protection requirements for LTCI policies if overall regulatory efficiency cannot be achieved. Other than that, the report showed little appetite for Congressional or federal action on LTC beyond monitoring the situation.
The report, published Aug. 11, is light on targeted action items. It mainly encouraged initiatives already underway, like a national approach from the NAIC to rate increases while eschewing Congressional or agency involvement that would require an overhaul of existing tax or labor laws. The task force that developed the report often recommended that the NAIC and the states maintain their focus on their current work in all facets of long term care, from increasing the market to solving challenging solvency issues.
For example, the report called for state policymakers and the National Association of Insurance Commissioners work together to harmonize and streamline standards, in general, in particular, with the “Partnerships for Long-Term Care.”
This Partnership program began with a few states in the 1990s and by 2005, as part of the Congressional Deficit Reduction Act it was extended with consumer protections. Treasury’s report found that the inflation protection requirements among states amounts to a patchwork program of “widely varying” requirements that hamper underwriting and sometimes may actually raise costs for LTCI policies. Thus, the report raised the possibility of HHS taking on a role in inflation protection for Partnership policies.
“The Task Force recommends that state policymakers—legislators, state Medicaid directors, insurance commissioners, and the NAIC—improve regulatory efficiency and effectiveness by harmonizing and streamlining inflation protection requirements under the Partnership program. Alternatively, Congress should consider delegating to HHS the authority to set Partnership program inflation protection requirements,” it stated.
The report, Long-Term Care Insurance: Recommendations for Improvement of Regulation, is a product of the Federal Interagency Task Force on Long-Term Care Insurance, which began meeting in earnest, with a public meeting last July. Treasury Secretary Steven Mnuchin and Assistant Secretary Michael Faulkender are credited as the authors, with work growing out of meetings of the Federal Insurance Office. The task force members include representatives from Treasury, FIO, including LTC point-person Bruce Saul, HHS, the U.S. Department of Labor and the Office of Management and Budget.
Various stakeholders from the industry, the actuarial community, the state regulatory community and others were engaged in the process, sometimes providing hours of researched material, and at least one was underwhelmed and even disappointed. The report made a point of “affirming the primary role of the U.S. states as insurance regulators in the United States,” even as the challenges and scope of funding LTC were called a national interest, requiring a coordinated federal response.
The task force rejected NAIC recommendations for proposed new, generous tax incentives, except for one proposal to get rid of the additional tax on early withdrawal from retirement funds if the money is used to pay LTCI premiums. This idea was popular among some regulators, stakeholders and the insurance industry to increase the purchase of LTC policies on the private market. The idea came from a 2017 list of NAIC policy ideas for financing LTC and bringing the product to more future retirees that would involve Congress.
The Treasury-led report said that, in addition to complicating the already-complex tax code and reducing tax revenue, that the proposed tax incentives, in general, would primarily benefit the wealthy and might not “be fully effective in targeting lower and middle-income individuals who need financial protection against LTC risks.”
Consumer advocate Birny Birnbaum of The Center for Economic Justice said he was “glad to see no tax incentives were proposed and that task force recognized tax incentives were skewed to the rich.”
The task force also rejected two policy proposals for LTCI group products that would involve the Employee Retirement Income Security Act’s fiduciary provisions because it does not believe it would really increase employee participation levels much and has stiff legal barriers.
One proposal was to remove potential exposure to ERISA fiduciary liability and the second is to allow plan participants to purchase LTCI within their retirement accounts, expanding the risk pool and enlarging the pool of policyholders. These ERISA proposals were also put forward under the NAIC’s 2017 potential Congressional action list.
The task force also decided against choosing any particular alternative financing approach such as government-financed public programs, telling state regulators and others that they should keep on doing what they are already doing — namely, developing, reviewing and analyzing these financing reform proposals to gauge their effectiveness and costs.
The task force did instruct actuaries, underwriters and others involved in crafting new and innovative LTC/life insurance/annuity combination products and those supervising them to keep on doing what they are already doing — trying them out, and analyzing their impact.
The four main LTC areas discussed in the report are: innovation and product development; regulatory efficiency and alignment; financial literacy and education; and tax incentives.
TheTreasury-led interagency document lays bare how much long term care matters — and can cost — in the coming decades.
“In their 2019 report, the trustees for Social Security project that the ratio of the number of people age 65 and over to the number of people age 15 through 64 will rise .. nearly 60%,” the report stated. It pointed out that the Congressional Budget Office projected that long term care services will rise to 3% of the GDP in 20150, from 1.3% in 2010.
A huge factor in the LTC usage calculations is the sad fact that “the number of individuals with dementia is expected to triple over the next 40 years.” Deaths from Alzheimer’s are now the sixth-leading cause of death, according to the report, citing the Centers for Disease Control and Prevention.
(The analysis for the report was substantially done before Covid-19 struck the U.S. and does not factor it in. However, the report said in a footnote that “Treasury will continue to monitor the effects of COVID-19 on insurance products and markets, including LTCI,” noting that COVID-19 “disproportionally affects older adults and individuals with chronic illnesses or other high-risk health conditions, making the LTC population.”