Wednesday, January 14, 2009

Problems with Long Term Care Insurance

According to the U.S. Department of Health and Human Services, 70 percent of people over age 65 will require long term care services at some point during their lives. Contrary to popular belief, most of these services are not covered by Medicare. And the cost of this care is high. The average cost of a private room in a nursing home is $209/day. And in many areas, the cost is higher. It is not surprising, then, that people are interested in purchasing long term care insurance.

Unfortunately, purchasing long term care insurance may not be the answer. After reviewing 47 long term care insurance policies, Consumer Reports recently concluded that long term care insurance is too risky and too expensive for most people. A combination of fine print exclusions and unfair practices is denying benefits to thousands of seniors.

Inherent Problems

All insurance policies offer to pay for some “losses” and not others. This is not necessarily unfair, as long as the limitations of the policy are properly explained. Here are some common limitations of current long term care insurance policies:

Your premiums can increase

…and they probably will. Most LTC policies do not contain a restriction on premium increases. This is a problem because, you must keep your long term care insurance in force continuously in order to collect the benefits. Many seniors pay the premiums for many years, but eventually have to drop the coverage because the premiums become too high. If you stop the coverage, you have simply lost that money.

Your benefits may not increase

…but the cost of medical care will. Policies that do not provide increased coverage based upon the rate of inflation can leave you without adequate coverage. A policy which guarantees to pay $200 a day may be sufficient now, but it won’t be in 2020.

They won’t start paying immediately.

Many policies have an elimination period of 30, 60 or 90 days before they will pay any benefits. Most policies will only pay if you can prove a certain level of disability. Some even have provisions that they will only pay if you are transferred to a nursing home after a hospital stay. This can be important because, according to the government, 57% of people go to a nursing home without a prior hospitalization.

They won’t pay forever

Most LTC policies do not pay for nursing care indefinitely. Many policies limit coverage to 4 years. There are also policies that cover less. It is important to know how long they will pay.
They won’t pay for everything

In addition to limiting total payments, there are many services that are not covered. Some plans will not cover home care, even though they would cover the same treatment in a nursing home. Some will only cover “skilled care” and exclude many necessary routine functions that a nursing home would ordinarily provide.

What would cause me to forfeit the policy

Do you forfeit the policy if you miss one payment? Are you required to make payments even when you are collecting benefits? Does the insurance company have to notify somebody else of a potential forfeiture if I develop dementia? These are all important questions to ask.

Is the policy renewable?

This has become less of a problem in recent years. In some early policies, however, the insurance company could simply decide not to renew the coverage. If they fail to renew the policy when you are ill or over 70, (for example), it may not be possible to get other coverage.

All of problems described above are considered “fair” practices for insurance companies. The difficulty is that many consumers don’t know these limitations when they buy the policy. Inquiring about these potential limitations can help you to ensure that you are getting what you paid for.

Unfair Tactics

Unfortunately, there are also some unfair tactics that insurance companies use to deny coverage. If you are a victim of one of these tactics, you should contact the state insurance commissioner. If you cannot resolve the dispute, you may even need to contact a lawyer. Here are a few common tactics:

Agent Overselling

Long term care insurance agents make a substantial commission on each sale. Unethical agents will paint a rosy picture of all of the benefits the policy offers, and downplay any limitations. Remember that the written insurance policy and NOT the agents promises will govern your coverage. It is almost impossible to prove that the agent lied to you about what you would receive. You should assume that if it is not in writing, it doesn’t exist. Given the length of time you will pay for the policy, you should get a copy of the policy and review it before you buy it.

They say I don’t need nursing home care

Insurance companies have a long history of denying medical treatments that they believe are unnecessary. It is not uncommon for them to require a policyholder to visit a doctor chosen by the insurance company for an exam. These doctors are likely to be more concerned about pleasing the insurance company than the patient.

They rescinded my policy for “misrepresentations” on my insurance application

A common practice by unethical insurance companies is to rescind coverage long after the policy was issued. Here’s how it works. The policy application asks you to list any medical conditions that you have. The insurance agent encourages you to only list the “important” conditions. You write down the major stuff, but forget a minor back injury that has mostly resolved. The policy is issued and you pay the premiums for a year or so. A problem arises and you need the coverage. You submit a claim. Instead of paying, the insurance company orders all of your medical records, going back ten years. They discover the back injury and claim that you “misrepresented” your health condition. As a result, they rescind the policy, return your premiums and deny the claim. To get the coverage, you have to fight them in court. This can be difficult when you are near the end of life and in a nursing home.

One way to avoid this problem is to disclose everything on your insurance application. Do not trust an agent who suggests that you don’t have to list everything.

Deliberate bureaucratic hassles

Several long term care insurance companies have become notorious for making it so difficult to make a claim that their policy holders simply give up. The New York Times recently reported that “some long-term-care insurers have developed procedures that make it difficult – if not impossible – for policyholders to get paid.”[1] For example, in 2003, a subsidiary of Conseco insurance sent an 85 year old woman suffering from dementia the wrong form to fill out, according to a lawsuit, then denied her claim because of improper paperwork. In California alone, nearly one in every four long-term-care claims was denied in 2005.

If you, or a family member, are a victim of one of these practices, you may need to fight for your rights. If you are unsuccessful on your own, you may consider calling the Illinois Department of Insurance to make a complaint. The Illinois Attorney General is another option. If none of these are successful, it may be necessary to consult a lawyer.

[1] “Aged, Frail and Denied Care by Their Insurers” New York Times, March 26, 2007

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