Ben Lipson Says Cut Executives' Pay to Control Insurance Premiums.

Business Editors

HOBOKEN, N.J.--(BUSINESS WIRE)--June 16, 2003

The honeymoon is over for LTC policyholders. CNA, a major player and innovator in long-term care insurance has announced its costs in the LTC market are forcing it to seek regulatory approval for major rate increases. Such a development for companies selling LTC insurance was foretold by 50-year insurance veteran Ben Lipson in his book, J.K. Lasser's "Choosing the Right Long Term Care Insurance"(Wiley 2002) and is no surprise to him.

"CNA wants to jack up premiums up to 50% for some policies written 15 and more years ago," Lipson observed this week. "Those policyholders bought their LTC coverage when they were younger and healthier and could afford the premiums. Now many are seniors, living on fixed incomes. They're having enough trouble paying for uninsured health care and prescription drug costs."

In "Choosing the Right Long-Term Care Insurance"-a book former Massachusetts Insurance Commissioner Peter Hiam says is clearly written, exhaustive, and is always focused on the needs of the consumer-Lipson warns that an LTC policy may put some consumers on a slippery slope financially.

Consumers, Lipson says, should not take comfort in the familiar promise that "once you're accepted for coverage, your premium will never increase because of your age or any changes in your health. That kind of statement is not a guarantee. It only says that you can't be singled out. CNA in this instance is seeking to increase rates on all policyholders within certain policy series. No one is singled out."

CNS's executive compensation package is paltry when compared with other major players, Lipson says. In 2002, for instance, John Hancock, MetLife, Conseco, UnumProvident and Prudential paid CEOs from $8 million to more than $20 million. Their packages included base compensation, incentives, severance pay, deferrals, pension benefits and stock options.

With costly compensation like this, how can massive rate increases by long-term care insurance carriers be prevented? The answer, the long time senior advocate says, is a rate stabilization fund, where:

-Agents and brokers take a 10% commission reduction.

-Executives earning $1million-$2.5 million take a 10% compensation reduction.

-Executives earning $2.5 million-$5 million take a 20% reduction

-Executives earning over $5 million, take a 30% reduction

The fund would guarantee no increase in premiums for the first five years of the policy. After that, yearly increases would be limited to:

-Up to age 69, no more than 5%

-Ages 70 to 79, no more than 2 1/2 %

-Ages 80 and over, no increase.

Don't forget, Lipson says, future rate increases are more likely with group policies, which are more vulnerable because of lack of regulation. While most states require insurers to file individual forms and rates for approval for sale, no such regulatory oversight requirement exists for group policies.

Lipson urges consumers considering LTC policies to get at least two quotes, determine their risk tolerance and ability to pay, and to be on the alert for any emotional blackmail used in sales pitches. And don't forget considering alternative to LTC including the use of life insurance cash values, reverse mortgages, self insurance and government programs.

Long-term care insurance is still a risky product, is not for everyone and requires intensive study and investigation by those medically and financially qualified to consider its purchase, warns Lipson.

Benjamin Lipson is an independent insurance broker. He can be contacted at [e-mail].