Will a long-term care insurance policy (LTCI) pay benefits when you need them? Uncertainty about the answer to that question keeps many people from purchasing LTCI. Media reports, rumors, and data also confuse or create uncertainty among potential buyers.
In the early days of LTCI reports and anecdotes indicated that insurers made their money by collecting premiums and then denying many claims when they were filed by policyholders. In some policies, the conditions under which claims would be paid were vague. Other times, people believed insurers simply denied most claims and made insureds appeal in order to have their claims paid.
Many things have changed since the early days of LTCI, including the process for determining whether a claim should be paid.
The major change was the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The law is best known for its provisions on the privacy of medical records. Another part of HIPAA, however, specified how disabled a person must be and how the disability is measured to determine when benefits should be paid under an LTCI policy. While the law applies only to tax-qualified LTCI, most insurers adopted the standards for all their policies.
There are two possible benefit triggers under LTCI, a physical benefit trigger and a cognitive benefit trigger. A claim should be paid when the insured qualifies under either trigger.
The physical benefit trigger is when the insured is unable to perform at least two of the five or six (depending on the policy) activities of daily living (bathing, dressing, toileting, transferring, continence, and eating). The condition is certified by a physician or nurse and must be expected to last at least 90 days. The cognitive benefit trigger is a loss or deterioration in intellectual capacity, such as Alzheimer’s disease or dementia.
How the claim is evaluated depends on the insurer, and an insurer may use different means depending on the case. The insurer may send one of its employees or contractors to perform an in-person assessment of the insured. The insurer may have its staff review medical records or accept a written certification from a licensed healthcare worker. When a policyholder is reported to suffer a severe stroke, for example, the insurer might require only a telephone call or letter from the treating physician. When Alzheimer’s or dementia is claimed, the insurer might require a cognitive test by either the patient’s doctor or its own staff of contractors.
The fear of some potential LTCI buyers is insurers will use the standards and process to deny most claims. Let’s look at the data we could find. In 2007, nearly 96% of LTCI claims received immediate approval and about 2% of initially denied claims eventually were approved. The other 2% were denied because the benefit triggers were not met. This is from a report by the Kaiser Family Foundation published in 2008. The Government Accountability Office reviewed data from five states and found the total number of complaints about LTCI fell from 846 to 721 between 2001 and 2007, but complaints about claims settlement rose from 215 to 315.
The National Association of Insurance Commissioners says the data is hard to interpret, because insurers report data differently. For example, if a claimant is in a nursing home that charges $150 per day but the policy provides for a $100 daily benefit, some insurers report this as an approved claim while others report it has both an approval of the $100 claim and a denial of the $50 balance.
As best I can tell, current fears about nonpayment of LTCI claims arose or were re-enforced by a series of articles in The New York Times in 2007 by Charles Duhigg. Here’s a paragraph that sets the tone and basic conclusions:
“Yet thousands of policyholders say they have received only excuses about why insurers will not pay. Interviews by The New York Times and confidential depositions indicate that some long-term-care insurers have developed procedures that make it difficult — if not impossible – for policyholders to get paid. A review of more than 400 of the thousands of grievances and lawsuits filed in recent years shows elderly policyholders confronting unnecessary delays and overwhelming bureaucracies. In California alone, nearly one in every four long-term-care claims was denied in 2005, according to the state.”
That sounds pretty damning about LTCI and the insurers that offer it. A key statement, however, comes a little later:
“A disproportionate number [of complaints] have focused on Conseco, its affiliate, Bankers Life, and Penn Treaty. In 2005, Conseco received more than one complaint regarding long-term-care insurance for every 383 such policyholders, according to data from the insurance commissioners’ association. Penn Treaty received one complaint for every 1,207 long-term-care policyholders. (The complaints touch on a variety of topics, including claims handling, price increases and advertising methods.)
“By comparison, Genworth Financial, the largest long-term-care insurer, received only one complaint for every 12,434 policies.”
Conseco later exited the LTCI business and turned its policies over to the state and a trust to administer. If you want to read the articles, go to The New York Times web site and in the search line type “Charles Duhigg & long term care.”
When considering LTCI, keep in mind advice we’ve given many times in the past. Don’t buy the policy with the lowest premiums. You want an insurer with financial stability and that has been in the LTCI business for a while. You also can check with your state insurance commissioner for histories of both complaints and premium increases. You want an insurer that’s been in the business for a long time and plans to stay for the long term. Otherwise, as we’ve said before, you are likely to trade low premiums today for problems down the road.