Actuarial Standard of Practice No. 18

Long-Term Care Insurance

STANDARD OF PRACTICE

TRANSMITTAL MEMORANDUM

February 1999

TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Long-Term Care Insurance

FROM:  Actuarial Standards Board (ASB)

SUBJ:  Revised Actuarial Standard of Practice No. 18

This booklet contains the revised edition of Actuarial Standard of Practice (ASOP) No. 18, Long-Term Care Insurance.

Revision to ASOP No. 18

In 1991, ASOP No. 18, Long-Term Care Insurance, was adopted by the Actuarial Standards Board. This text is a revision to that standard, developed by the Long-Term Care Task Force of the ASB. The reasons for producing a revised standard are as follows:

1. There have been a number of new developments in the field of long-term care (LTC) insurance, including new financing mechanisms, expansion of covered services in LTC insurance policies, the emergence of additional experience information, and changes in the regulatory environment. It was felt that these developments warranted a revised standard.

2. It seemed appropriate to modify the content of the standard. As originally developed, ASOP No. 18 had been somewhat educational in nature, because it addressed a new topic. While LTC insurance is still a relatively young industry, there has been enough progress in this field so that the standard no longer needs to have the same educational focus.

3. The ASB has revised the format for all actuarial standards of practice. This revised edition is in the current format, as adopted by the ASB in May 1996 for all future actuarial standards of practice.

4. Finally, there was some overlap between ASOP No. 18 and other ASOPs. This revised edition eliminates some of that duplication.

Exposure Draft

The proposed revision to ASOP No. 18 was exposed for review in May of 1998, with a comment deadline of September 1, 1998. Fourteen comment letters were received. The more significant or frequent comments were as follows:

1. Should the actuary use separate claim incidence rates and claim termination rates for nursing home and home care benefits? Several thoughts were expressed why the actuary needn’t or couldn’t always do so.

2. Several subjects were suggested for inclusion within the standard of practice, such as recent regulatory developments, loss ratios, data sources, and tax-qualified policies.

3. It was suggested that the subject of asset-liability management be highlighted instead of cash flow testing.

For a more detailed discussion of the points that were raised in the comment letters—including the items listed above—and how the task force responded to the commentators, please see appendix 2.

The Long-Term Care Task Force of the ASB appreciates all who submitted comment letters and comment postcards. The input was helpful in developing a final standard.

The ASB voted in January 1999 to adopt the revised edition of ASOP No. 18.

Long-Term Care Task Force of the ASB

Bartley L. Munson, Chairperson

                      Loida Rodis Abraham                                            Dennis M. O’Brian

                      Donald M. Charsky                                               Andrew M. Perkins

                      Gary L. Corliss                                                     Robert K. W. Yee

                      Jeffrey S. Drake

 

Actuarial Standards Board

David G. Hartman, Chairperson

                      Phillip N. Ben-Zvi                                                Roland E. King

                      Heidi R. Dexter                                                  William C. Koenig

                      Ken W. Hartwell                                                 Alan J. Stonewall

                      Frank S. Irish                                                     James R. Swenson

The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S.

Section 1. Purpose, Scope, and Effective Date

1.1 Purpose

This standard sets forth recommended practices for actuaries involved in designing, pricing, funding, or in evaluating liabilities for insur­ance contracts or similar arrangements providing long-term care (LTC) benefits.

1.2 Scope

This standard applies to actuaries when performing professional services for individual and group LTC insurance plans, LTC insurance benefits issued as riders or included within other insurance and annuity products, and self-insured plans providing LTC benefits. It is not intended to apply when LTC insurance benefits may be an immaterial feature of a contract providing other benefits.

If the actuary departs from the guidance set forth in this standard in order to comply with applicable law (statutes, regulations, and other legally binding authority), or for any other reason the actuary deems appropriate, the actuary should refer to section 4.

1.3 Cross References

When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate.

1.4 Effective Date

This revised standard is effective for work performed on or after June 1, 1999.

Section 2. Definitions

The definitions below are defined for use in this actuarial standard of practice.

2.1 Activities of Daily Living (ADLs)

Basic functions used as measurement stan­dards to determine levels of personal functioning capacity. Typical ADLs include bathing, conti­nence, dressing, eating, toileting, and transferring (between bed and chair or wheelchair).

2.2 Adult Day Care

A program of social and health-related services designed to meet the needs of functionally or cognitively impaired adults, provided in a group setting other than the adult client’s home.

2.3 Assisted Living Facility

A facility that provides residents some assistance with ADLs. Residents have apartments, rooms, or shared dwellings, and often share community living and dining areas with other residents. Usually meals, utilities, housekeeping, laundry, ambulation assistance, and personal care supervision is provided. Staff members may supervise the self-administration of medication.

2.4 Cognitive Impairment

A deficiency in a person’s short- or long-term mem­ory; orientation as to person, place, and time; deductive or abstract reasoning; or judgment as it relates to safety awareness.

2.5 Continuing Care Retirement Community (CCRC)

A residential facility for retired people that provides stated housekeeping, social, and health care ser­vices in return for some combination of an advance fee, periodic fees, and additional fees.

2.6 Custodial Care

Care to help a person perform ADLs and other routine acti­vities; also known as personal care. It is usually provided by people without professional medical skills. It is less intensive or complicated than skilled or intermediate nursing care and can be provided in many settings, including nursing homes, assisted living facilities, adult day care centers, or at home.

2.7 Functional Impairment

The inability to perform one or more ADLs.

2.8 Guaranteed Renewable Contract

A contract that provides that the insured has the right to continue the insurance in force for a specified period by the timely payment of premiums, and that the insurer may not unilaterally change the contract during that specified period, except that premium rates may be revised by the insurer on a class basis.

2.9 Home Care

Care received at the patient’s home, such as part-time skilled nursing care, custodial care, speech therapy, physical or occupational therapy, part-time services of home health aides, or help from homemakers or chore workers.

2.10 Hospice Care

A program that provides health care to a terminally ill person and counseling for that person and his or her family. Hospice care can be offered in a hospice setting established for this single purpose, a nursing home, or in the person’s home, where nurses and social workers can visit the person regularly.

2.11 Instrumental Activities of Daily Living (IADLs)

Functions, more complex than ADLs, that are used as measurement standards of functioning capacity; examples include preparing meals, managing medications, housekeeping, telephoning, shopping, and managing finances.

2.12 Insurer

An entity that accepts the risk of financial losses or, for a specified time period, guarantees stated benefits upon the occurrence of specific contingent events, in exchange for a monetary consideration.

2.13 Intermediate Nursing Care

Care needed for persons with stable conditions that require daily, but not 24-hour, nursing supervision. Intermediate nursing care is less specialized than skilled nursing care and often involves more custodial care.

2.14 Long-Term Care (LTC)

A wide range of health and social services, which may include adult day care, custodial care, home care, hospice care, intermediate nursing care, respite care, and skilled nursing care, but generally not care in a hospital.

2.15 Long-Term Care Insurance Plan

A policy, contract, or arrangement pro­viding LTC benefits, either on a stand-alone basis or as part of a plan that provides other benefits as well (except where the LTC benefits are an imma­terial feature). The plan will usually describe requirements for benefit eligi­bility, covered services, benefit amount, benefit payment duration, maximum benefit amount, and other coverage features.

2.16 Nonforfeiture Benefits

Benefits that are available if premiums are discontinued.

2.17 Nursing Home

A facility that provides skilled, intermediate, or custodial care.

2.18 Respite Care

Temporary care for frail or impaired persons that allows volun­teers to have a rest from care giving.

2.19 Skilled Nursing Care

Care provided by skilled medical personnel, such as registered nurses or professional therapists, but generally not care in a hospital.

Section 3. Analysis of Issues and Recommended Practices

3.1 Coverage and Plan Features

When providing professional services with respect to an LTC insurance plan, the actuary should be aware of and take into consideration all pertinent provisions found in the LTC insurance plan, including benefit eligibility, covered services, benefit amounts, benefit payment duration, and other coverage features that may significantly impact cost. (Such provisions are discussed in more detail in appendix 1 under Current Practices.) These provisions apply primarily to stand-alone indi­vidual, association-sponsored group, or employer-sponsored group LTC insurance plans.

However, there are other insured and self-insured plans that include material LTC plan features and that may need special consideration. Such plans include the following:

a. Acceleration of Benefits under Life Insurance Contracts: Long-term care insurance benefits may be provided by the acceleration of benefits otherwise payable upon death under a life insurance product. The actuary should ensure that assumptions concerning the amount and timing of payments are determined consistently for the contin­gencies of both mortality and LTC morbidity.

b. Other Insurance Products: Insurance products that primarily provide benefits other than long-term care may be designed to provide consid­erable LTC benefits also. The actuary should consider that the methods and assump­tions appropriate for such products might be different from those used for stand-alone LTC insurance plans.

c. Other Programs: Long-term care benefits can be provided by various administrative and risk-assuming programs, such as health mainten­ance organizations (HMOs), preferred provider organizations (PPOs), and exclusive provider organizations (EPOs). The actuary should con­sider that the LTC methods and assumptions appropriate for such programs might be different from those used for other LTC insurance plans.

d. Retirement Communities: Long-term care services may be provided for insureds living within retirement communities. How the insured pays for such services and what those services are can vary consid­erably among commu­nities. The actuary should consider any unique implications of the commu­nity’s administration or service delivery process for persons covered by such programs.

3.2 Assumption Setting

In order to estimate costs or evaluate liabilities, the actu­ary utilizes a number of assumptions. Actuarial assumptions in combin­ation should reflect the actuary’s professional judgment of future events affecting the incidence and cost of LTC benefits. In setting actuarial assump­tions, the actuary should consider available experience data and reasonably foreseeable future changes in experience over the term of the benefit prom­ises. Appropriate provisions for adverse deviation should be considered. Sections 3.2.1–3.2.8 below discuss important considerations for the actuary in setting actuarial assumptions for LTC insurance plans.

3.2.1 Morbidity Assumptions

The actuary should determine morbidity assumptions consistent with all significant plan features, including the types of LTC insurance benefits being provided, the types of optional benefits being provided, the plan’s benefit eligibility criteria, the claim adjudication process, the benefit amounts and benefit limits, and exclusions.

In order to estimate total claim costs, the actuary, where appropriate, should establish claim incidence rates, claim termination rates, and costs of eligible benefits. Also where appropriate, these three com­ponents of the total claim costs should be established separately for at least nursing home, assisted living facility, and home care benefits. When setting assump­tions for total claim costs, the actuary should consider at least the following:

a. the fact that the claim cost elements will vary by nursing home, assisted living facility, and home care;

b. the possible substitution effect among the various benefits in the instances where more than one type is available;

c. the effect of induced demand for LTC services due to the presence of LTC insurance;

d. the availability of benefits from other public and private pro­grams such as Medicare, Medicaid, and Medicare supple­ment policies;

e. the availability of LTC services;

f. the effect of selection and classification of applicants;

g. the financial benefit to the claimant of remaining eligible for benefits; and

h. the effect of mortality on termination rates.

Specific data from the entity to which the actuary’s calculations apply generally are preferable to data from other sources. Where such data are not adequately credible, industry data should be considered next in setting assump­tions. As a last but sometimes necessary source, general population non­insured data may be utilized. When assump­tions are being set, evaluated, or updated, the actuary should carefully evaluate data provided from any source and consider modifications as appropriate.

Because selection and classification affect the incidence and termi­nation rates of claim, the actuary should consider the under­writing and claim processes being utilized. These include, for example, the inten­sity of application questions, the marketing methods, the number and types of under­writing requirements, the number and definitions of under­writing classes, the effect of regulations on the underwriting and claim process, and the experience of the underwriting and claim personnel.

3.2.2 Mortality Assumptions

The actuary should consider the effects of both selection and classification of applicants on expected mortality experience and use a mortality table that appropriately reflects the expected mortality of the insureds.

3.2.3 Voluntary Termination (Lapse) Assumptions

Voluntary termination (lapse) as­sump­tions are critical to the estimation of costs and to the evaluation of liabilities, because for most plans, higher lapse rates will produce lower expected costs. The actuary should select appro­priate lapse assumptions, taking into consideration the method of marketing, policyholders expected to be covered, product and premium com­petitiveness, premium mode, premium payment method, nonforfeiture benefit, and the service of the entity providing the benefits. At the time any rate change is determined, the effect on voluntary lapses should be considered.

3.2.4 Expense Assumptions

Expense assumptions should be consistent with the entity’s business plan and method of LTC insurance plan delivery. The actuary should consider the cost of product develop­ment, marketing, producer compensation (heaped versus level com­missions, as well as regulatory controls over commissions), regu­latory compli­ance, under­writing, issue, policyholder service, and claim administration.

3.2.5 Tax Assumptions

Tax assumptions should reflect the tax reserve basis of the plan and the premium, income, or any other applicable tax rates of the entity.

3.2.6 Investment Return Assumptions

The actuary should recognize the time value of money, especially for level-premium issue age products. The expected investment return used should be consistent with the initial and reinvestment returns on assets supporting the LTC insur­ance benefit promise. For loss ratio and reserve calculations, the actu­ary should be familiar with applicable regulatory considerations.

3.2.7 Mix-of-Business Assumptions

To the extent total financial results could be affected materially by the mix of business, assumptions should reflect the characteristics of the anticipated distribution of business. Some characteristics to consider are age, gender, marital status, underwriting classes, distribution system, and plan options (such as benefit period, elimination period, inflation option, daily benefit, and rider options).

3.2.8 Change-over-Time Assumptions

An LTC insurance plan is expected to remain in force for a very lengthy period of time. Accord­ingly, when such a plan is developed, the actuary should identify the assump­tions for which experience is likely to change materially over the term of the plan and consider reflecting such expected changes when setting the assumptions. At the time of any subsequent review or revision of assumptions, the actuary should, in the same fashion, consider likely future changes in experience when setting assumptions for the remaining term of the LTC insurance plan.

3.3 Premium Rate Recommendations

Any premium rates recommended by the actuary should conform with statutory requirements, including those for loss ratios. Such recommended rates should reflect any premium guarantees of the contract. In developing such recommen­dations, the actuary should not use assumptions that are unreasonably optimistic. If a premium rate schedule is described by the actuary as applicable for the lifetime of the insured, the actuary should use assumptions that are consistent with that description and that have a reasonable probability of being achieved. In particular, the actuary should not rely on anticipated future premium rate increases to justify the selection of unreasonably optimistic assumptions when recommending premi­um rates. On the other hand, the actuary should not use assumptions that are unreasonably pessimistic. It may be appropriate, however, to include pro­vision for adverse deviation in assumptions.

When an actuary makes recommendations regarding premium rates, he or she should be aware of any material variations in experience that would make changes in premium rates for in-force business advisable and should recom­mend such changes in a timely fashion.

3.4 Reserve Determination

Reserves typically required by and appropriate for LTC insurance plans are premium reserves, contract reserves, and claim reserves for both reported claims and incurred but not reported claims. Reserves may be calculated using the same methods as are utilized for other health insurance coverages. In calculating reserves, the actuary should use methods and assumptions in compliance with all applicable regulatory require­ments and accounting standards and should take into account the benefit features of the particular LTC insurance plan in question, including any optional benefits.

In setting statutory reserves, the actuary should be familiar with applicable reserve standards, such as the Long-Term Care Insurance Model Regulation and the Minimum Reserve Standards for Individual and Group Health Insur­ance Contracts of the National Association of Insurance Commissioners (NAIC) and the regulations of any states that govern the specific plan for which the reserves are to be calculated.

3.5 Sensitivity Testing

The actuary should perform sensitivity testing of reason­able variations in assumptions prior to finalization of assumptions. Where the data used for establishing actuarial assumptions have limited statistical credi­bility, the range of sensitivity testing should be expanded.

3.6 Cash Flow Testing

Because of the long-term nature of the LTC benefits, future liability cash flows may be different from future asset cash flows. Therefore, the actuary should consider cash flow testing as a potentially important part of any LTC insurance plan’s financial analysis. This is especial­ly true if LTC insurance is the sponsoring entity’s only product or a major portion of the entity’s business.

3.7 Experience Monitoring

The actuary should inform the sponsoring entity that experience data should be collected in a manner that permits an actuary to compare prior assumptions with emerging experience and assess the impli­cations of any significant differences.

To the extent that industry or noninsured data were used in determining assump­tions for estimating benefit costs or establishing reserves, an actuary reviewing LTC insurance plan experience should be aware of significant changes in such data. To the extent such changes are material, the actuary should apply such new data in a timely and appropriate fashion when reviewing the appropriateness of premium rates and reserves.

Section 4. Communications and Disclosures

4.1 Documentation

Because an LTC insurance plan is expected to remain in force over a very lengthy period of time, all assumptions are subject to review and update on a regular basis. Therefore, the actuary should document the assumptions, processes used, and the general sources of the data in sufficient detail such that another actuary could use the documentation where appro­priate.

The actuary should document in detail the assumptions used and the general sources of the data used for deriving such assumptions. For further guidance, the actuary is referred to Actuarial Standard of Practice (ASOP) No. 23, Data Quality; ASOP No. 25, Credibility Procedures Applicable to Accident and Health, Group Term Life, and Property/Casualty Coverages; and ASOP No. 31, Documentation in Health Benefit Plan Ratemaking.

4.2 Disclosure

The actuary should disclose to the client or employer the sensi­tivity of the actuarial work to reasonable variations in assumptions. Docu­mentation should be available for disclosure to the actuary’s client or employer, and, where appropriate and proper, it should be made available to other persons when the client or employer so requests.

The actuary should also include the following, as applicable, in an actuarial communication:

a. the disclosure in ASOP No. 41, Actuarial Communications, section 4.2, if any material assumption or method was prescribed by applicable law (statutes, regulations, and other legally binding authority);

b. the disclosure in ASOP No. 41, section 4.3, if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method selected by a party other than the actuary; and

c. the disclosure in ASOP No. 41, section 4.4, if, in the actuary’s professional judgment, the actuary has otherwise deviated materially from the guidance of this ASOP.

Appendix 1 – Background and Current Practices

Note:  This appendix is provided for informational purposes, but is not part of the standard of practice.

Background

Reasons for This Actuarial Standard of Practice: The utilization of long-term care (LTC) ser­vices has been increasing rapidly, and that growth is expected to con­tinue in the decades ahead as the number of senior citizens increases dramat­ically. Paying for these services is expected to be a challenge for society for the foresee­able future. Many of the funding methods in use involve long-term con­tractual commitments and estimation of expected costs many years in the future—work that requires actuarial analysis and training.

However, this is still a relatively new field of actuarial work. The LTC insurance industry is a young one, and estimating future results is a difficult process for which standards beyond those already established for other products are appro­priate. Some of the reasons that actuarial activity in LTC insurance is such a challenge include the following:

1. A very limited amount of data is available, especially data on insured lives. While the Society of Actuaries produced an LTC insurance experi­ence study in 1995, based on experience from 1984–1991, this was the first such study and it was, of necessity, some­what limited in scope.

2. Long-term care insurance products have changed considerably in recent years, in terms of the covered services, benefit design, and benefit eligibility criteria. As a result, there is no experience for the newer policy provisions.

3. New financing approaches are periodically being introduced, such as the funding arrange­ments for LTC services being provided by continuing care retirement commu­nities and accelerated-benefit riders on other insurance products. These approaches might have quite different experience than traditional stand-alone LTC insurance policies.

4. Underwriting, marketing, distribution, and claim payment practices can be quite dis­similar under different LTC insurance financing plans, producing diverse results. This compounds the difficulty of developing homogeneous experience data from which to estimate future activity.

5. There is a very real possibility that consumers’ behavior will change in the future in ways that will affect LTC insurance costs. The following are examples of such possible changes.

a. The use of LTC services may tend to increase when such services are provided in an increasingly insured environment. Increased availability of private or public LTC insurance could encourage much higher utilization of LTC services.

b. Construction of additional nursing home beds has been strictly controlled by many states in order to limit the escalation of Medi­caid expenses. If those limitations were altered or entirely removed, nursing home utilization would be likely to change.

c. Medical advances might reduce LTC insurance costs by preventing or curing maladies requiring LTC services (e.g., a cure for Alzheimer’s disease). However, medical advances could also increase the life expectancy of impaired persons and enable some persons who would have died to survive in an impaired condition.

d. Current attitudes associated with nursing home care might change over time. For example, if improved funding makes nursing homes more attractive places for care, utilization is likely to increase.

e. The high divorce rate and other changes in the family structure in society may reduce the number of family members available to care for the impaired, increasing the need for paid LTC services.

f. Changes may occur in government payment for long-term care, which could impact payment for LTC services under private insur­ance. Such governmental changes could also affect LTC utilization patterns or the rules relating to taxes on LTC insurance premiums and benefits.

g. New LTC services may be developed and the availability of existing services may increase substantially. As new services become avail­able, they can cause changes in consumers’ use of previously existing care services, as well as changes in total service utilization.

The belief is held by some, including some regulators, that standards or controls beyond those for other coverages are needed to protect consumers in the LTC insurance field. This is partly because most LTC users are senior citizens, who are perceived as having few financial options.

Further, many LTC insurance financing mechanisms involve financial commitments of very long duration. Private LTC insurance is required to be guaranteed renew­able for the life of the insured. It is also a product characterized by an extremely high degree of advance funding, with most of the claim dollars paid out long after the policy is put into effect.

For all of the reasons stated above, an actuarial standard of practice for LTC insurance is appropriate.

Current Practices

An Evolving Type of Coverage

Long-term care insurance is still a developing practice, and many diverse methods exist to measure the cost of a benefit design, devise a funding system, and evaluate liabilities. A basic part of an actuary’s work in this field involves taking into considera­tion the pertinent provisions in the LTC insurance plan, such as the following:

1. Benefit Eligibility (Definition of Insured Event): In order to qualify for benefits, an insured person may have to satisfy an elimination period and must provide satisfactory evidence of benefit eligibility. Long-term care insurance plans may define benefit eligibility in several ways. The most common criteria for benefit eligibility are functional or cognitive impair­ment (as defined in the LTC insurance plan), and sometimes medical neces­sity. Benefit eligi­bility is also frequently dependent on the use of covered services or services on a day for which the benefit is payable.

2. Covered Services: An LTC insurance plan may provide coverage for only a limited set of LTC services or a very broad set. A particular plan might cover only nursing home care, or only home care, or could cover a combi­nation of both. Any number of additional types of care, such as assisted living facility care, adult day care, and respite care, may also be covered. When coverage is included for different types of services, the coverage can either be integrated or non-integrated. One example of integrated benefits is a single lifetime benefit maximum that may be utilized for any combina­tion of nursing home care or home care.

3. Benefit Amount: The amount payable for a given service, or for a given day of care, may either be a fixed contractual amount, such as $100 per day of eligibility, or may be related to the actual cost of services provided that day. In the latter case, the reimbursement may be either the full cost of ser­vices or a percentage of the cost and may be capped at a particular daily maximum. If there is a daily maximum, it may vary depending on the type of service. The daily benefit amount may be increased under an inflation protection provision.

4. Benefit Payment Duration: There are different ways in which benefit length and frequency may be structured for payment. Some examples are as follows:

a. Benefit Period of Consecutive Days: The maximum benefit period is defined as a stated number of days or years, and benefits are pay­able during a continuous period of time of that length, starting from the first day of eligibility. Under this approach, days without covered services may not result in a benefit payment, but do not extend the benefit period.

b. Benefit Days: The maximum benefit period is defined as a stated number of days or years, and benefits are payable for days on which the insured person meets the eligibility requirements, until the maxi­mum number of days or benefits have been paid. Under this approach, any day for which the insured is ineligible for bene­fits does not count as part of the benefit period, and the benefit period is thereby extended.

c. Maximum Benefit: The maximum benefit is defined in terms of a total dollar amount, and benefits are payable until that amount has been paid. The total dollar amount may be increased under an inflation protection provision.

5. Other Coverage Features That May Significantly Impact Cost: Some examples of additional features that may be found in LTC insurance plans are the following:

a. an alternative plan of care provision, under which services not expressly covered under the insurance contract may become covered, usually when viewed as an appropriate substitute for a covered service;

b. a shortened benefit period provision, i.e., a type of nonforfeiture benefit under which the insured has paid-up coverage with a benefit period whose length is determined by the nonforfeiture benefit value that has accrued;

c. a restoration of benefits provision, under which an insured who has used a portion of the maximum benefit can have the full benefit restored after a stated minimum time period during which the insured person either did not use, or was ineligible for, benefits; and

d. a provider discount benefit provision, under which an insured is entitled to pay a provider of care a smaller charge than that pub­lished for services rendered.

Apart from the actual provisions in the LTC insurance plan, numerous forms of individual LTC insurance are being offered, ranging from stand-alone nursing home or home care coverage to combination or integrated products that cover a broad range of services in many locations. Long-term care insurance plans are available on both tax-qualified and nontax-qualified bases. There are also LTC insurance riders to life, disability, and annuity products that can enhance benefits, accelerate benefits, waive surrender charges, guarantee purchase rights, or offer conversion options.

The group market consists of both insured and self-insured plans. In either instance the employer or other sponsor may fund none, a portion, or all of the required contribution. Group coverages also can be extended to eligible groups such as association members, affinity groups, and congre­gate community residents.

Existing Practice: Much of the current practice employed by actuaries in per­forming their work with LTC insurance has been borrowed from the other indi­vidual and group insurance products. ASOP No. 18 provides actuarial guidance specific to LTC insurance. Technically, the individual and group methodologies employed in designing, pricing, funding, or in evaluating liabilities are not unique to practice in this area.

What is unique to practice in this field is that the actuary has had to rely heavily on non­insured data and emerging experience in performing his or her work. Given these limitations and relia­bility concerns, the actuary performing LTC insurance work dedicates much effort to sensitivity testing of assumptions.

The level funded structure of LTC insurance and the long potential time lags between receipt of premiums and their disbursement as benefits also requires the actuary to be sensitive to both the product’s cash flow requirements and the appro­priate investment strategies, as well as to monitor closely future trends in all actuarial assumptions.

Appendix 2 – Comments on the Exposure Draft and Task Force Responses

The proposed revision to Actuarial Standard of Practice (ASOP) No. 18 was exposed for review in May 1998, with a comment deadline of September 1, 1998. Fourteen comment letters and twenty-two comment postcards were received. The Long-Term Care Task Force of the ASB carefully considered all comments received.

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