Risky business: long-term care insurance underwriting

Area of Science:

• Health Economics
• Insurance Markets
• Gerontology

Background:

• Rising long-term care costs necessitate innovative financing strategies.
• Private insurance is a key, yet understudied, financing mechanism for long-term care.
• The role of medical underwriting in limiting access to long-term care insurance is not well understood.

Purpose of the Study:

• To assess the impact of medical underwriting on eligibility for private long-term care insurance.
• To determine if current underwriting criteria accurately identify high-cost individuals for insurers.
• To analyze the sensitivity of risk identification to different insurance policy assumptions.

Main Methods:

• Utilized data from the National Mortality Followback Survey.
• Employed simulation modeling to estimate rejection rates based on health status at different ages.
• Evaluated the effectiveness of underwriting criteria in segmenting individuals by financial risk.

Main Results:

• An estimated 12%–23% of 65-year-olds would be rejected for long-term care insurance due to health.
• Rejection rates increase to 20%–31% for individuals applying at age 75.
• Underwriting criteria successfully differentiate individuals by financial risk, though sensitivity to policy type was observed.

Conclusions:

• Medical underwriting significantly impacts access to private long-term care insurance.
• Current underwriting practices can identify varying levels of financial risk among applicants.
• The effectiveness of underwriting in identifying high-cost groups is contingent on the specific insurance policy considered.