Long-term care services assist people who need help in performing activities of daily living (ADLs), such as eating, bathing, and dressing. As some of these services can be expensive, especially services provided in a nursing home, long-term care insurance helps people pay for the cost of care. However, relatively few people have obtained long-term care insurance through products sold in the individual and group markets. To help federal employees, retirees, and others obtain coverage, the federal government began offering the opportunity to apply for long-term care insurance in 2002 through an employer-sponsored group program in which enrollees pay the entire cost of their premium. Long-term care refers to a range of support services provided to people who, because of illness or disability, generally are unable to perform ADLs for an extended period. Long-term care services include medical, social, and personal services. Care may be provided in various settings, including facilities such as nursing homes or assisted living facilities, a person’s own home, or the community. Both paid and unpaid caregivers may provide long-term care services. As a person ages, his or her ability to perform basic physical functions typically declines, increasing the likelihood that he or she will need long-term care services. People can purchase long-term care insurance directly from carriers that sell products in the individual market or can enroll in products offered by employer-sponsored and other groups. Long-term care insurance policies sold in the individual and group markets cover costs associated with long- term care. For a specified premium amount that is designed—but not guaranteed—to remain level over time, the carrier agrees to provide covered benefits under an insurance contract. First sold in the 1970s, long- term care insurance has evolved from initially offering coverage for nursing home care only to offering comprehensive coverage. Comprehensive coverage pays for care provided in facilities such as nursing homes and other settings such as a person’s home. Insurance is generally purchased for defined daily benefit amounts and benefit periods, with elimination, or waiting, periods. For example, long-term care insurance might provide coverage at $100 per day for care provided in a nursing home or in other settings for 3 years after a waiting period of 90 days. Because long-term care insurance claims might not be filed for many years after the product is purchased, the insured can purchase protection against inflation, which can increase the daily benefit amount covered. In addition, long-term care insurance products can (1) cover home care at varying percentages of the daily benefit amount; (2) offer people a range of other types of options, such as policies that return a portion of the premium payments if the person dies; and (3) include selected benefits, such as international coverage or care-coordination services that, among other things, provide information about long-term care services to the enrollee and monitor the receipt of services. Many factors affect long-term care insurance premiums. Carriers charge higher premiums for richer benefits; for example, higher daily benefit amounts, longer benefit periods, and higher levels of inflation protection will increase the cost. Premiums are based on the age of the applicant, with premiums increasing more rapidly as age increases. Premiums are also based on the health status of the applicant. Most carriers selling coverage in the individual market assign applicants to one of three general rating categories based on health status when underwriting the coverage— preferred, standard, or substandard—with associated discounts and surcharges. In addition, carriers in the individual market usually offer discounts to married couples when both spouses purchase coverage. Products sold in the group market may be sold on a guaranteed issue basis during an open enrollment period, with no or limited underwriting for employees actively at work who enroll through an employer-sponsored program, and the products generally do not provide discounts for spouses. Carriers cannot increase a particular person’s premiums but can increase premiums for a group of people who bought the same type of policy when the carrier can demonstrate that anticipated costs will exceed premium revenue. Carrier pricing assumptions, including projected interest rates, morbidity or illness rates, and lapse rates—the number of people expected to drop their policies over time—all affect premium rates and rate setting. Carriers estimate the total amount of premiums to be collected for long- term care insurance policies sold as well as projected claims and administrative costs for these policies using an anticipated lifetime loss ratio. This ratio describes what portion of total premiums is expected to be paid for claims for the reimbursement of the costs of long-term care over the life of a set of policies. The portion of premiums not spent on claims is used to pay for administrative costs, such as marketing, agent commissions, claims handling, overhead, and taxes, and for profits. In the past, National Association of Insurance Commissioners (NAIC) model regulations for long-term care insurance stated that carriers should spend a minimum of 60 percent of collected premiums on claims. However, in model regulations released in August 2000, NAIC recommended that carriers price their products high enough initially to prevent the need for future rate increases rather than target a minimum percentage to be spent on claims. So far, according to NAIC, a majority of states have adopted long-term care insurance regulations based on the 2000 NAIC model, while some states still require minimum loss ratios. Many large carriers set premium rates on a national rather than regional basis. Carriers also price to cover a profit margin and administrative costs as well as to meet minimum loss ratios. Few claims are expected to be submitted during the early years of a long- term care insurance policy. As a result of underwriting, it is unlikely that many people could meet the eligibility requirements to buy the policy yet submit a claim within 3 years. Industry experts suggested that the effects of underwriting begin to decline and the rate of claim submissions starts to increase after about 3 to 7 years. The rate of increase in claim submissions depends on the average age of the enrollees, with most long-term care insurance claims submitted when people reach their mid-70s to mid-80s. Industry experts also noted that the rate of claim submissions in the federal program is expected to peak 25 years or more after the program began. Because the average age of enrollees in the individual market is higher than the average age of enrollees in the federal program, the rate of claim submissions is likely to peak earlier in the individual market, after 15 to 25 years. The rate of claim submissions is likely to peak after 30 to 40 years in the group market because of the younger average age of its enrollees. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) specified conditions under which long-term care insurance benefits and premiums would receive favorable federal income tax treatment and provided specific protections to people who purchased tax-qualified plans. Long-term care insurance plans must meet certain requirements contained in HIPAA to be considered tax-qualified. For example, according to HIPAA, a plan must begin coverage when a person is certified to need substantial assistance with at least two of the six ADLs and a disability is expected to last 90 or more days, or to need regular supervision because of a severe cognitive impairment. In addition, federally tax-qualified plans must comply with the NAIC long-term care insurance model act and regulations in effect as of January 1993, as incorporated into HIPAA. These provide certain consumer protections, such as preventing a carrier from (1) not renewing a long-term care insurance policy because of age or deteriorating health and (2) increasing the premium of an existing policy because of a person’s age or claims filed. Another consumer protection was that carriers had to offer inflation protection as specified in the NAIC model regulations. Each state establishes its own long-term care insurance laws and regulations that cover areas such as benefits, premium setting, and consumer protections. As a result, product requirements in the individual and group markets can vary among the states. According to NAIC, 41 states based their long-term care insurance regulations on the NAIC model, 7 based their regulations partially on the model, and 3 did not follow the model. The number of long-term care insurance policies sold has been small— about 9 million as of 2002, the most recent year for which data were available. About 80 percent of these policies were sold through the individual insurance market and the remaining 20 percent were sold through the group market. In March 2005, 13 percent of full-time workers in private industry had access to employer-sponsored long-term care insurance benefits; within private industry, 21 percent of workers in large establishments with 100 or more workers had access to this benefit. People purchase policies from carriers in the individual market, usually through agents or brokers, and choose their own benefits from among a range of options the carriers offer. Groups—for example, employers, associations, or unions—purchase policies from carriers in the group market. Groups usually design the benefits, and enrollees are often given some benefit options from which to choose, for example, differing daily benefit amounts and benefit periods. However, benefit choices offered in employer-sponsored group products tend to be more limited than those that are available in the individual insurance market. Some groups offer benefit packages in which the benefit options are predetermined. In contrast to health insurance, where employers often contribute a share of the premium costs, enrollees in group long-term care insurance coverage usually pay the entire premium. A recent downturn in the long-term care insurance industry has led to more conservative assumptions when setting premiums and consolidation among carriers. The long-term care insurance industry experienced 18 percent annual growth in the number of policies sold from 1987 through 2002, but the industry has experienced a downturn in more-recent years. Beginning in 2003, many carriers in the individual market raised premiums, left the marketplace, or consolidated to form larger companies.