Recent data from the National Association of Insurance Commissioners (NAIC) sheds light on why consumers may accept increases in long-term care insurance (LTCI) rates. The study, led by NAIC communication research scientist Brenda Rourke, involved surveying 1,118 individuals aged 55 and older, supplemented by phone interviews with nine participants.
The study reveals varied responses to potential rate hikes. Approximately 28% of respondents expressed willingness to pay higher premiums to maintain their current benefits, while 25% were open to accepting reduced benefit options. Additionally, 16% indicated they would prefer to surrender their policies.
Participants were shown a hypothetical rate increase notice outlining reduced benefit options. The findings indicated that acceptance of rate hikes was more common among those who had previously experienced rate increases, found the communication clear and understandable, felt they had sufficient information, and believed they had control over their decision. Conversely, those who found the letter confusing were less inclined to accept the higher premiums.
These insights suggest that consumer reactions to financial decisions, such as maintaining investment strategies post-market downturns, may be influenced by their understanding and control over the situation.
Historically, LTCI was widely offered in the U.S. during the 1980s, 1990s, and early 2000s, with insurers initially promising stable premiums. However, most insurers have since exited the market, and remaining providers have implemented cumulative rate increases of 50% or more due to underestimated policyholder behavior and lower-than-expected investment returns.
Regulators now mandate that insurers proposing significant rate hikes offer consumers choices between paying higher premiums, cashing out, or accepting reduced benefits. Consumer advocates and regulators have raised concerns about how well older adults comprehend these reduced-benefit-option notices.
The study’s presentation at a recent NAIC Long-Term Care Insurance Task Force meeting in Chicago also revealed an interesting observation regarding “phantom” long-term care insurance coverage. Initially, 16% of survey participants reported having LTCI coverage. After clarifying the term, this figure dropped to 12%, indicating that approximately one-quarter of those initially claiming to have LTCI did not actually hold such policies.
Factors influencing a willingness to accept higher premiums included expectations of needing care, perceptions of peer behavior, financial literacy, and risk aversion.
