Long-term dilemma
It took a year of faxing and phoning and $2,000 in attorney bills, but Rose Martin’s long-term care insurer has finally agreed to pay her claim.
“I tell you I have prayed and prayed and prayed,” said the 84-year-old who smiles easily and gets around in a wheelchair.
When Martin moved into Fairview Assisted Living in north Spokane, she was so frail that she required a stay in the center’s heavily staffed special care unit in order to regain the strength to transition into assisted living.
Complicating matters, her long-term care insurer declined to pay benefits after she’d paid premiums for 14 years.
“I was really quite upset. I was a very good customer,” Martin said.
Heidi Bozett, owner and administrator of the home, which offers a higher level of care than many assisted living centers, said she spent months providing letters with information about her resident’s care needs and the qualifications of the facility.
Martin is among a group of seniors who had the foresight to buy coverage in the 1980s and 1990s, when long-term care insurance was young, only to encounter massive rate hikes and a battle to receive benefits down the road.
“There are some good companies and there are some companies out there that seem to be abusing their clients,” said Allyn Edwards, president of the National Association of Insurance and Financial Advisors Spokane chapter. The NAIFA is the nation’s largest financial services membership association.
Conseco Senior Health Insurance Co. and Penn Treaty Network America Insurance Co. have been approved for so many rate increases in Washington that Edwards said some policyholders are nearly paying more than the total value of their benefits. Increases apply to existing policies and are particularly hard on seniors on fixed incomes, who can end up letting policies lapse or deceasing their coverage, Edwards said.
Numbers provided by the Washington State Office of the Insurance Commissioner show that in the past five years, Conseco has been approved for 14 hikes, ranging from 10 to 25 percent. Penn Treaty was allowed to raise rates seven times with increases ranging from 9 to 44 percent. The rate increases applied to different types of longterm care policies offered by each company, although some premiums were raised multiple times.
The increases put premiums out of reach for some policyholders, which could increase lapsed policies, thus creating additional need for government assistance to pay long-term care bills, Edwards cautioned in a letter sent to the insurance commissioner’s office. Edwards wants to change criteria used for granting rate increases in Washington and build in consumer protections that prevent insurance companies from collecting further premiums when total premiums paid in equal total benefits paid out.
Representatives of Conseco and Penn Treaty say both companies have lost millions of dollars on long-term care insurance and that rate increases are needed to build reserves to pay future claims, which are larger than initially projected, in part because people are living longer than anticipated.
Don and Helen Cowan, a middle-class couple from St. John, Wash., purchased a dual long-term care policy in 1996 for a rate of $4,912 a year. Now that they’re on a fixed income, the couple said Conseco has raised their rates to $9,398 annually.
“They are certainly robbing the people in our situation — it’s almost double. I have every reason to believe they will increase our rates again,” said Helen Cowan, 79.
Harvey and Mabel Hagen, also middle class and living on a fixed income, share the Cowan’s frustration with Consecos multiple rate increases.
“Right now we’re into it so deep that we can’t afford to change,” said Mabel Hagen.
The couple, both 74, said as rates increased, Conseco sent letters listing options for decreasing coverage in exchange for lower rates. They contacted their insurance agent, who advised them to reduce a lifetime benefit to five years, because statistics show that average stays in long-term care don’t exceed that timeframe. While that change saved about $150 a month, Hagen said their agent advised against other changes that didn’t save much money but disproportionately decreased benefits.
Martin McBirney, a Sandpoint-based consultant with 17 years expertise in long-term care insurance, said many of today’s problems stem from companies pricing policies to market — rather than to pay benefits down the road. Unlike life insurance, few people let long-term care policies lapse. Another problem, he said, was money that insurers invested failed to earn as much income as was initially projected.
“These companies are getting hurt. It’s worth remembering that they are losing money on these products,” McBirney said, adding that companies can’t be forced to use profits to subsidize long-term care benefits.
Conseco, a Fortune 500 company with more than $4.5 billion in sales last year, quit selling long-term care insurance several years ago, but still serves existing policyholders. Conseco subsidiary, Bankers Life & Casualty, still sells those policies.
Jim Rosensteele, spokesman for the Carmel, Ind.-based Conseco, said the company lost more than $93 million on long-term care policies in 2006. The company has also contributed $713 million from other sources to Conseco Senior, he said.
“Even though policyholders are paying higher premiums today than yesterday, we feel strongly that LTC insurance from Conseco remains a solid value,” Rosensteele wrote.
According to Penn Treaty’s Web site, 96 percent of its business is long-term care policies. It’s among a number of insurers that offer expensive trips as sales incentives for agents. The Allentown, Pa.-based company currently offers top-selling agents a chance to win a trip to Maui — including airfare for two and a view room or suite at the Grand Wailea Resort, rooms that typically rent for $825 to $3,200 a night, according to the hotel’s Web site.
Company spokesman John McInerney said through an e-mail that the trips are an alternative form of agent compensation that’s common in the insurance business and that the trips are awarded only for new business written, he said.
The need for rate increases for Penn Treaty policies stems from losses that were larger than initially estimated, due to changes in the delivery of care that include assisted living facilities, McInerney said. Premium increases are intended to build reserves to cover longevity trends, he explained. Polices issued after 2001 haven’t been increased, he said.
Penn Treaty has paid more than $1.5 billion for senior-related care over the past three decades and denied less than 1.7 percent of claims related to problems with eligibility, McInerney wrote.
Many policies were written before assisted living became mainstream, creating problems when people try to access their benefits.
Corrine Thor, an 84-year-old resident of Harbor Crest at Cedar Canyon Estates in South Spokane was denied long-term coverage by Penn Treaty even though she’d suffered multiple falls and needed a significant amount of attention when she initially arrived at the assisted living home.
Her policy covers skilled nursing and intermediate care facilities, but a letter from Thor’s attorney said Penn Treaty denied coverage because the company defined Harbor Crest as a custodial care facility instead of intermediate care.
“It’s all coming out of my pocket. I thought that when I had to come to one of these places that I would be covered,” said Thor who has paid her premium since 1988.
The New York Times recently did a story examining long-term care insurers and found that Conseco Senior Health, Bankers Life and Casualty,and Penn Treaty American, had the highest percentage of complaints per volume of policies, although the exact types of complaints were separated out.
Companies with low complaint ratios included Genworth Life Insurance, John Hancock Life Insurance, Metropolitan Life Insurance, Unum Life Insurance and MetLife Insurance.
Bozett, of Fairview Assisted Living, has helped a dozen residents and their families work through red tape to get insurance benefits over the past decade.
Genworth was the only insurer to pay benefits promptly, while several other insurance companies, which she declined to name, repeatedly denied benefits and stalled on paying claims — sometimes for years.
One claims adjuster that she dealt with for multiple residents took weeks to return phone calls and letters, requested multiple copies of the same documents at different times and denied receiving faxes even though transmittal records showed they went through, Bozett said. The seniors eventually hired attorneys and got their benefits, said Bozett who said she can’t imagine how an elderly person could fight this battle alone.
“Elderly people just don’t have the energy to fight,” she said.
As the claims process drug on, she said residents had the double-whammy of paying their own long-term care bills along with their insurance premiums, lest their policies should lapse.
Reputable insurance agents are now apprehensive about selling certain policies offered by companies that are repeatedly raising rates, said Edwards the insurance advisors Spokane chapter president.
In a letter sent to top officials at the state’s insurance commissioner’s office and healthcare lobbyists, Edwards called for an investigation into criteria used to grant increases in Washington. The problem stems from the state declining to participate in universal standards recommended by the National Association of Insurance Commissioners, in the 1980s, and adopted by most states.
Now some companies seem to be taking advantage of loopholes, Edwards said, adding, “They don’t have the same tools that other states do to deny those rate increases.”
In Idaho, the legislature just passed a law that offers an incentive for purchasing long-term care insurance. The law increases the amount of assets a person can have and still access Medicaid. If a person purchases a policy with $100,000 in benefits, the state will disallow $100,000 of personal assets to let the person access Medicaid, if their coverage runs out.
Although the state follows the NAIC guidelines, officials for the Idaho Department of Insurance said the rules give companies too much leeway for how far they can project into the future to calculate losses, said Donna Daniel, insurance analyst. Existing laws give the agency too few tools to deny increases.
“We have had a lot of increases come in and we have allowed most if not all,” Daniel said.
Beth Berendt, deputy commissioner of Washington’s OIC, said part of the agency’s job is to ensure that companies are healthy enough to stay in business and pay out claims down the road.
To get the rate increases, Berendt said, companies must demonstrate that their initial pricing assumptions were flawed and that anticipated losses place the future health of the company in jeopardy. Although Hoover’s, a company that provides research on businesses, said Conseco posted a net income of $96.5 million last year, Berendt said that OIC guidelines don’t allow the state to factor in revenue from other blocks of business, such as life insurance, when granting rate increases.
“If a company can demonstrate that (significant future losses) then we have no choice but to approve it,” Berendt said.
So how do consumers know which companies will have stable rates?
Edwards said getting advice from a reputable agent is crucial to choosing good coverage and recommends contacting the state to see if complaints have been filed against the agent.
“Designations can be misleading. Just because a person has a designation behind his name doesn’t mean he walks with integrity,” he said.
McBirney, the Sandpoint consultant, said saving a few dollars isn’t usually a good idea because “the price you pay today is not the price you will pay tomorrow.”
He suggests that consumers ask agents for a company’s regulatory rate history, he said, including operations under a previous name. Consumers should be wary of companies that take people with pre-existing health conditions for low premiums and offer rich benefits. Companies with strong underwriting have the best chance of success, he said.
Rate history is particularly important, McBirney said, because in some cases people are paying two and three times as much as when they purchased their policies.
McBirney said sales within the industry have declined for the past six years, in part because some agents are no longer comfortable selling those products. But the chore will be creating a more salable product that appeals to Baby Boomers, he said.
“The industry hasn’t come up with the right business model to appeal to them.”