Insurance regulators in a Northwestern state have tried to make life a little easier for long-term care insurance (LTCI) providers that want to tie inflation protection to growth in the Consumer Price Index (CPI).
The insurance commissioner's office in Washington state has updated the CPI inflation protection standard for insurers that participate in the state's Long-Term Care Partnership program.
A partnership program gives a state a way to encourage consumers to buy private LTCI, by coordinating the private LTCI benefits with Medicaid nursing home benefits.
To sell LTCI coverage as partnership coverage, an insurer must meet coverage quality standards. In Washington state, a partnership policy must protect the holder against inflation. The protection come in the form of automatic annual inflation increases of at least 3% or in the form of automatic inflation increases linked to changes in the CPI.
In the past, the assumption was that the CPI would always go up, perhaps by a lot.
In recent years, the CPI has often been low, and some economists have suggested that the United States could end up having problems stemming from "deflation," or falling prices.
The revised CPI provision rules, which take effect Sept. 30, apply to time periods in which the CPI is a "negative number."
A carrier with a CPI-linked inflation protection feature cannot cut policy benefits during periods when prices are falling, according to the text of the revised regulation.
"However, the carrier may offset this negative number against the next annual increase in the consumer price index to reduce the automatic inflation increase which would otherwise occur during that year," according to the revision text. "If the negative consumer price index exceeds the next annual increase in the consumer price index, it may be offset against multiple annual increases, the net effect of which may never be less than zero."