IREG Update - The Emerging Regulatory Battleground Over Long-Term Care Insurance Rate Increases

The emerging regulatory battleground over long-term care insurance rate increases

As class action lawsuits challenging premium rate increases on long-term care (LTC) insurance have faced dismissal in recent years, policyholders have become increasingly active on the administrative front, filing grievances with regulators to protest approved rate increases through the administrative hearing process and making efforts to sway regulators to preempt or limit rate increase approvals.

Background

A relatively new product that gained traction in the late 1980s, LTC insurance pays for some or all of the costs of nursing homes, assisted-living facilities and home health care. When insurers first began pricing LTC policy blocks, they had little comparable experience to draw on. Over time and with the benefit of hindsight, it has become clear that the LTC industry as a whole missed the mark in their initial pricing assumptions and underestimated factors such as the number of policies that would lapse, the longevity of policyholders, and rising health care costs. As a result, LTC insurers set premiums too low for those older blocks of business and have since sought regulatory approval for rate increases. Not surprisingly, policyholders have fought back.

The rise and fall of LTC rate increase litigation

Beginning in the late 1990s, insurers have been faced with class action lawsuits challenging LTC rate increases. A common argument has been that LTC insurers defrauded consumers through a "low-ball pricing" or "bait and switch" scheme intended to deceive customers into buying insurance policies at artificially low rates only to increase rates later, leaving policyholders with no choice but to pay up or forfeit their policies. Although causes of action vary from case to case, policyholders have typically brought claims for fraud, unfair or deceptive trade practices, and/or breach of contract. Yet, despite some initial successes, policyholder class actions to challenge LTC insurance rate increases have faltered in recent years.

In 2008, two federal court decisions signaled a sea change in the judicial response to such claims. In Rakes v. Life Investors, the United States Court of Appeals for the Eighth Circuit affirmed a district court's grant of summary judgment to the LTC insurer, finding that policyholders had been duly warned about the possibility of rate increases "on the first page of its policies, in boldface, capital letters." 582 F.3d 886, 894 (8th...