Editor’s note: This story is part of the Connecticut Mirror’s “Priced Out” project, an in-depth look at the troubled long-term care insurance industry in Connecticut.
Genworth Financial, one of the largest providers of long-term care insurance in the U.S. and one of only two companies selling coverage through a state partnership program in Connecticut, ties its executive compensation to its ability to obtain annual price increases from policyholders, records show.
Thomas McInerney, the company’s CEO, received more than $9.8 million in compensation in 2023, including $3.2 million in incentive pay, a portion of which was directly linked to the company’s success in increasing rates for long-term care insurance.
In Genworth’s annual financial report, one of the key line items that determined McInerney’s annual incentive pay was for “LTC in-force rate actions,” meaning approved premium increases.
Genworth’s business plan relies heavily on the company getting what it wants from insurance regulators. In 2015, Genworth began reporting to investors every quarter how many rate hikes it got approved and the average of those increases for their long-term care insurance plans. It became a key feature of the company’s plan, according to earnings calls and records filed with the Securities and Exchange Commission.
“As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to ensure the continued self-sustainability of our long-term care insurance business over time,” company officials wrote in one of their most recent annual reports.
Genworth’s filings say the company has been selling long-term care insurance for decades.
In 2023, it suffered an operating loss of $242 million on its policies because of higher claims and the timing of some legal settlements. But Genworth had a better showing in 2022, partly due to more people dying from COVID-19, the company said. That year, it had an operating profit of $320 million in its long-term care insurance business.
Genworth is one of only two companies currently selling long-term care coverage through the Connecticut partnership program. Connecticut was at the forefront of the LTCI movement in the early 1990s, launching the state Partnership for Long-Term Care, one of the first states to offer LTCI at the time through a public-private collaboration. Officials hoped that enrolling people in the program would mean savings on Medicaid spending, a significant budget drain.
Nora Duncan, state director of the AARP in Connecticut, said the executive compensation has been frustrating for policyholders struggling with rate increases.
“The optics are bad and consumers are upset, rightfully so,” she said. “I hear from people who are angry and desperate to hold onto their plans. They’re filled with fear of not being able to take care of themselves if they lose these policies as costs increase. I’m sure as people hear about profits and compensation, it feels like salt in the wound.”
“The perception is bad,” added House Minority Leader Vincent Candelora, R-North Branford. “It’s not good for the consumer, and certainly, it accents the point that it’s a policy people are making money off of at a time when [consumers] are most vulnerable.”
Rep. Gary Turco, D-Newington, who has introduced five bills on long-term care insurance since 2020, said the executive pay creates an appearance of unfairness.
“Rates are going up faster than household income, and the justification is always that their costs are increasing … but executive compensation never seems to take a hit in the process,” he said.
Genworth declined to answer questions about executive pay and its relationships with state regulators. In a statement, company spokeswoman Amy Rein said:
“The stability of the long-term care insurance industry in its current form is dependent on the implementation of actuarially justified rate actions, which are recognized and supported by most state regulators. These rate actions — which can take the form of premium increases or benefit reductions — are needed to meet the rising costs of care, extended lifespans, the prevalence of chronic conditions requiring complex care, and other factors that emerged in the 30-plus years since the first LTC insurance policies were designed.
“Since 2012, Genworth has pursued a transparent rate action program to ensure it has adequate capital and reserves to fulfill policyholder claims over the long term. This is a closed system; increased premiums from rate actions are paid to policyholders through claims. As a result of these actions and other measures Genworth has taken to improve its balance sheet, the company is in a strong financial position today and expects to meet all future obligations to its stakeholders.”
Between 2021 and 2023, Genworth alone got 429 rate hike requests approved in states across the country. In 2023, the weighted average increase was 51%, according to the company’s most recent annual report. Genworth also reported it had another 144 rate increase requests pending at the end of 2023.
During an earnings call in 2015, McInerney said: “We continue to believe our best course of action is to work with regulators, distribution partners and policy holders to fix the long-term care business, and we continue to make progress on this front. We have significantly stepped up regulatory discussions, including with some of the most influential state regulators in the National Association of Insurance Commissioners.”
The efforts appear to be paying off. On another earnings call in February 2023, the Genworth CEO noted: “We had an outstanding year … in LTC premium annual approvals this year, $549 million. That was a very strong year, a record year for us. We’ve been averaging more over time in the $300 million, $350 million range. Last year was a record at a little over $400 million. Obviously, the $549 million is a significant addition on top of that.”
But not all of the relationships are cordial. Genworth reported in early 2024 that it is suing two state insurance departments for dismissing rate increase requests for their long-term care insurance policies. It does not mention which states those are, though court records in Massachusetts show Genworth recently sued that state over a rejected rate hike request.
Massachusetts regulators argued Genworth’s request for a rate hike of 161% was “unjust, unfair and inequitable.”
Genworth filed the lawsuit charging that the state’s denial was “based on errors of law, a misreading of the facts, or unsupported by the record.” And it claimed the decision was undermining the company’s “fiscal stability.”
Genworth itself has also faced three class action lawsuits accusing the company of failing to disclose planned multi-year rate increases, leaving consumers without information they needed to make decisions about their policies, KFF Health News reported.
Rein, the Genworth spokeswoman, declined to answer questions about the lawsuits.
In Connecticut, rates have gone up substantially for many policyholders in recent years.
A CT Mirror analysis of premium increases from January 2019 to October 2024 shows more than 17,000 people with long-term care policies have gotten hit with rate hikes of 50% or more. Some of the biggest companies in the market, including Genworth, Metropolitan Life Insurance Company and Transamerica Life Insurance Company, requested rate increases for five years in a row beginning in 2019.
In 2022, Genworth raised rates for more than 2,000 people by an average of 97%, with increases ranging from 79% to 173%, depending on the policy. The approved amounts were a slight reduction from the company’s original request.
Insurance Commissioner Andrew Mais said his department is thorough in its rate review process.
“It is not a matter of being deferential to insurance companies,” he said. “We make sure any rate increase is justified. We go through all the numbers. We look at historical claims data, we look at the premium income, we look at future projections.
“When it comes to insurers, we’ve got examiners in there. We’ve got them reporting to us. We need to have all the information about any given company to ensure that company is fit to do business in Connecticut.”
Mais said the insurance department doesn’t turn down a rate hike request based solely on executive pay.
“Because of the complexity of the calculations that go into the ratemaking and review process, it would be difficult to challenge or deny a rate request solely on the basis of executive compensation,” he said.
“Many of the factors considered, such as investment returns, operational costs, and underwriting expenses, are multi-faceted expenses. … Executive compensation is one component of the general expenses within the broader category of underwriting expenses.”
A major concern is the prospect of companies becoming insolvent and leaving policyholders in the lurch if rate hikes aren’t approved.
Several state officials noted that long-term care insurance provider Penn Treaty went insolvent and had to liquidate in 2017, leaving states on the hook for payouts.
When an insurance company fails, each state’s guaranty association steps in. The associations offer protection to policyholders and pay claims using funds from an assessment on other insurance carriers. If a company goes bankrupt, its assets are liquidated and the money covers outstanding claims or is directed to the guaranty associations.
Each state sets a maximum allowable benefit for what consumers can get if a company becomes insolvent. In Connecticut, that is $500,000.
“If you have long-term care benefits that you’ve accumulated over time in excess of $500,000, you lose those benefits entirely,” said Paul Lombardo, director of the Connecticut insurance department’s life and health division. “Let’s say you had $750,000 of long term-care benefit; it automatically gets reduced to $500,000.”
Each state sets its maximum allowable benefit. Several states have lower amounts than Connecticut, Lombardo said, while a few have higher limits.
The maximum benefit paid out depends on where a person lives, not where a plan is purchased. For example, if a person buys coverage in Connecticut and moves to Florida, they would be subject to Florida’s maximum allowable benefit, which is $300,000.
Genworth’s CEO told investment analysts in 2018 that Penn Treaty’s collapse two years earlier made it easier to justify rate increases to regulators.
“I think post the Penn Treaty insolvency in 2016, regulators have taken the viewpoint that they do have to provide these actuarially justified increases in order for the insurance companies to be able to pay their long-term care claims,” McInerney said. “So I think we generally have – it varies by state – but we have a generally cooperative regulatory environment. And we’re very pleased with the rate approvals we’ve been receiving.”
State insurance officials say they are trying to avoid a situation like Penn Treaty.
“What happens if the company doesn’t have the money to pay its bills?” Mais said. “Then nobody is being served.”
CT Mirror Reporters Dave Altimari and Katy Golvala contributed to this story.