MedAmerica Rate Increase

Date: January 28, 2013

RE: CareDirections Simplicity® Rate Increase Action

States: All

At MedAmerica, we are 100% committed to cash LTCi as a viable consumer choice in the marketplace. Part of that commitment includes continually monitoring and evaluating policy performance in relation to economic conditions for all of our products, all of the time. This due diligence ensures we can keep our promises and meet our obligations to all of our insureds.


As a result of that continuous analysis, we recently announced that we will be making changes to our Simplicityii Portfolio.These changes are necessary due to a very low interest rate environment and were limited to adjustments to the commissions we pay and to the discounts we allow for good health and for marital/couple status. The changes related to the discounts for good health and marital status only affect new polices issued going forward.
We have completed our analysis of the impact that the low interest rate environment has had on our original CareDirections Simplicity® product that was priced in 2003 and launched in 2004. We have determined that we will need to take rate increase action to specified CareDirections Simplicity products. This rate action does not affect Simplicityii

FAQ’s
Specifically which products in which states will be getting a rate increase?
It’s important to understand that we have two separate policy forms: CareDirections Simplicity and Simplicityii. This rate increase action will affect CareDirections Simplicity in all states except California. Additionally, we will cease sale of Simplicity in Missouri.

Details on this cease sale are below.

Q-How much will rates be raised for CareDirections Simplicity?
While higher than expected persistency is a factor in the need for this rate increase, the low interest rate environment is the main factor, affecting how much additional premium revenue must be generated in order to maintain proper claims reserves.

That means the longer we expect people to pay premium (i.e. the younger the policyholder), the higher the increase we will require. For those people who are older, we will have a smaller amount of increase. For policyholders age 75 and older, rates will not increase at all. The same age-banded rate increases are being requested in all jurisdictions, except where limited by regulatory restrictions. A table illustrating the standard rate increase amounts we are seeking is located at the end of this
communication. Actual rate increase amounts may vary by state.

Q-With rates going up, won’t people drop their coverage?
With the rate increases we have seen in the past, we found that very few people drop coverage. Most either pay the new premium or adjust the policy benefits to a level where premiums are affordable for them. Our goal is for customers to keep their coverage.

Q-This is different than other increases, right? Don’t we generally increase everybody by the same amount?
Yes, in the past, we have increased rates on all policyholders by the same amount. However, since the primary cause of this rate increase is low interest rates which have more of an impact over longer periods of time, we plan to adjust rates based on age where allowed.

Q-Is our actual claims experience worse than what we expected?
No. Our claims for CareDirections Simplicity are in line with assumptions. This rate increase has nothing to do with our claims experience.

Q-Are we doing anything special to make this increase easier on our policyholders?
Yes. We are approaching this issue in the most client-friendly way possible and providing our customers with versatile options in order to help them keep coverage in place at a premium they can afford. Specifically, by adjusting the rate increase based on age, we are making it easier on retired people with fixed incomes. Also, insureds will be given the option to downgrade their policies, or to cancel and take the contingent nonforfeiture benefit. Both of these options will be explained in the rate increase notifications as they are implemented. Insureds will be instructed to contact our customer service department if they choose to downgrade. Our customer service representatives will be able to print quotes and send offers to the insureds.

Q-What options will be available to policyholders who cannot afford the increased premium?
We will be providing maximum flexibility for our insureds, allowing them the option to adjust policy benefits to keep their premiums at or close to their current level.

For example, a 55 year old insured who originally purchased a 60 month benefit with compound no maximum inflation protection could keep her premium near its current level by either reducing the benefit period to 36 months or changing the compound inflation option to simple inflation.

A 40 year old insured who has a 48 month benefit with a $6,000 monthly benefit and simple inflation could keep her premium near its current level by shortening her benefit period to 24 months. Alternatively, the insured could reduce the monthly benefit to $4,500 and change the benefit period to 36 months to keep premiums level.

A nonforfeiture option is being offered to all policyholders except where the shortened benefit period nonforfeiture rider was purchased. In both instances, customers will be offered paid-up policies equal to their premiums paid if they wish to stop paying premiums entirely.

Details on these options will be provided to policyholders when they are notified of the rate increase action applicable to them.

Q-When should we expect to see the first increase?

At this time, our best estimate is that the first increases will be implemented in the mid to late first quarter of 2013.

Q-Are all CareDirections Simplicity products in all states affected by this action?
At this time, we will not be requesting rate increases on our Simplicity True Group products.

Q-When will the cease sale of Simplicity in Missouri take place?
We will be ceasing sale of Simplicity in Missouri effective March 1, 2013. Applications signed through February 28, 2013 will be accepted through March 8, 2013. Applications signed on or after March 1, 2013, and/or received at MedAmerica’s home office after March 8 will not be accepted. If you have a Simplicity ii employer group case with eligible employees in the state of Missouri that is either currently in open enrollment, or will be in open enrollment past March 1, please contact your MedAmerica account executive. Please keep in mind that we continue to offer cash benefit options in Missouri through our FlexCare product.

Q-What are the maximum rate increase amounts being requested?
The chart below illustrates the maximum rate increase percentage we are seeking. Actual increase amounts may vary by state.

75+ 0%

70-74 13%

65-69 20%

60-64 29%

55-59 38%

50-54 46%

45-49 50%

40-44 56%

<40 60%

Q-Where can I get more information?
You can address any immediate questions to your MedAmerica account executive at 800.724.1582. We will continue to keep you informed as we move through this process.
 
Wow, what a way to punish those who bought at younger ages in order to get lower premiums.
 
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