LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future

May 16, 2019 @ 4:37 pm

By Greg Iacurci

In an effort to blunt soaring premium increases on its long-term-care insurance policyholders, one insurer is offering policyholders a discount if they agree to a co-pay on claims.

John Hancock Life Insurance Co. is trying the new approach. It will start offering the co-pay option to policyholders later this year, which experts believe is a first among long-term care insurers trying to rein in rate increases.

The idea is similar to that of a co-pay for medical insurance. For example, a policyholder might elect a co-pay, say 20%, on future claims in return for a lower premium.

John Hancock has received approvals for the idea from insurance regulators in a few states and will likely begin offering co-pays to customers beginning in the fourth quarter, according to a person familiar with the matter who asked not to be identified.

"I've never heard it applied as an option to avoid or mitigate a rate increase," said Scott Olson, an insurance agent based in Washington state. "I wouldn't be surprised if more companies did something like this."

Several long-term care insurers have raised policy premiums for customers, sometimes more than 100%, due to a range of factors such as longer lifespans that have made it more expensive for companies to pay benefits. Many have also offered clients benefit reductions in exchange for not raising their premiums.

Traditional long-term care policies have fallen out of favor with consumers and financial advisers partly because of the prospect of premium increases. Sales of traditional policies have fallen more than tenfold since their peak in the early 2000s, when individual policy sales reached about 700,000. All but a handful of companies have exited the market, including John Hancock, which is among the largest LTC insurers based on number of policyholders.

Insurance companies have been offering certain benefit reductions to policyholders for several years as an alternative to a rate increase. The most common include dropping or reducing an inflation-protection benefit, shortening the period of time over which a client receives benefits, and reducing the maximum daily benefit an insurer will pay, said Jan Graeber, senior health actuary at the American Council of Life Insurers.

Carriers are also "exploring new and innovative long-term care policy options," Ms. Graeber said, as the need for long-term care services is expected to grow. Those include cost-sharing options and policies with flexible premium structures, where premiums increase over time to recognize a person's income stream, she said.

John Hancock customers elect a benefit reduction in place of a rate increase roughly 50% of the time, said Naveed Irshad, head of North American legacy business at Manulife Financial Corp., John Hancock's parent company, during a recent earnings call.

As for co-pays, the concept isn't completely new to the industry. Companies such as Prudential Financial Inc. and Continental Casualty Co., a subsidiary of CNA Financial Corp., have sold long-term care policies in the past that had the co-pay concept designed into them from the start, said Mr. Olson. It appears John Hancock is applying the idea in a new way, he said.

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