Steven Wevodau - Accident & Health Insurance News

Long-term care policies prove costly - posted by Steven Wevodau

Absence of federal rules leaves buyers confused

By JEAN MIKLE
STAFF WRITER

When Claudio “Claude” M. Assini purchased his long-term care insurance policy in 2001, he thought he was taking a prudent step to protect himself and his family from future medical costs.

That’s until the insurance company wanted to boost his rate by 11 percent.

Assini paid about $3,600 a year, which has cost him nearly $30,000 in premiums since 2001. Faced with the rate increase, Assini canceled his policy, fearing that there would be even more increases to come.

The money he spent to protect himself and his wife, Joanne, has now been lost.

“I didn’t want to be a burden on the system,” said Assini, 69, of Stafford. “You try to do the right thing, and look what happens.”

Assini is one of a growing number of policyholders in the nation who are being hit by a round of double-digit increases, making it harder for them to keep the insurance they need to protect their assets.

MetLife announced recently that it would raise premiums an average of 18 percent for those who were under 70 when they bought their policies between 1998 and 2005. John Hancock announced double-digit increases for several types of policies in the spring.

Assini’s policy from Genworth Financial was purchased in New Jersey but issued from its office in Alabama — beyond the purview of New Jersey regulators.

In its rate increase letter to Assini, Genworth said New Jersey regulators were informed of the boost. Assini complained to New Jersey, and regulators here said no rate increase ever came before them.

But the point was moot, regulators said in a letter to Assini; Genworth doesn’t need New Jersey’s permission to raise rates.

Only policies issued in New Jersey are covered by the department’s rules and regulations, leaving policyholders like Assini out in the cold.

“New Jersey hasn’t protected me, and Alabama hasn’t protected me,” Assini said. “The reason why I canceled it is, if you look at all the facts, you say, “These people are going to kill me, if they keep jumping the rates up every three to four years.’ ”

Assini’s experience with long-term care insurance is not unusual, according to Marilyn Askin, an elder law attorney who is chief legislative advocate for the New Jersey chapter of AARP.

Askin and other experts said insurance policies that cover long-term care are often difficult for consumers to understand. Regulation of long-term care insurance has been left to individual states, creating a hodge-podge of laws and requirements for insurers that vary widely across state lines.

Even those who strongly advocate the purchase of long-term care insurance admit that shopping for a policy can be bewildering for consumers.

“There is no national legislation; every state has its own, and the national government has said, “There is no need for that,’ ” Askin said.

Askin compared the situation to that of Medicare Part B supplemental insurance, which was eventually regulated by the federal government after numerous complaints that some consumers had been sold several policies that all essentially provided the same type of coverage.

Insurer complaints

New Jersey has adopted long-term care regulations promulgated by the National Association of Insurance Commissioners, which assists state insurance regulators.

These include a wide range of consumer protections, such as disclosure of past rate increases at the time a policy is purchased, a requirement that purchasers have the opportunity to buy policies that include protection against inflation, and restrictions on future rate rises.

But these regulations only apply to policies issued in this state, according to Marshall McKnight, spokesman from the state Department of Banking and Insurance.

McKnight said the department has investigated and closed 227 complaints regarding long-term care insurance since 2003 without finding any violations that required administrative action. He said the department continues to add information to its Web site and believes in “transparency” when it comes to administrative actions and violations.

But with about 100 different companies selling long-term care policies in New Jersey, “it’s a jungle” for consumers shopping for coverage, Askin said. Many longtime policyholders are now seeing their premiums rise substantially, she said.

“People who bought it when they were younger were under the impression that their premiums would never increase,” Askin said. “That was 10 or 11 years ago, and the insurance industry was pricing them very low, and very few people were actually using the insurance.”

Now, Askin said, as more people file claims, some insurance companies are raising premiums to compensate for increased costs.

In 2007, insurers paid $3.5 billion in benefits to 180,000 Americans with long-term care insurance, according to the American Association for Long-Term Care Insurance, an industry trade group located in Westlake Village, Calif.

“Their pricing was not based on actual experience,” Askin said.

Genworth is just one of the long-term care insurers that has announced hefty premium increases within the last year.

Genworth spokeswoman Yokima Cureton pointed out that this was the first premium increase in long-term care since the company began selling such insurance 30 years ago.

“We don’t just increase premiums,” Cureton said. “We have to gain approval from state regulators.”

Cureton said that when Genworth and other companies began selling long-term care policies, they overestimated the “lapse rate,” or the number of policyholders who would cancel their insurance over time. Few canceled, which means more people filed claims — and increased the companies’ costs.

“We know that people need this insurance,” she said. “We wanted to work with people to make sure no one was unduly penalized.”

Cureton noted that Genworth had worked with policyholders and given them the choice to keep their policies at the lower premium in exchange for some reductions in coverage.

Long-term care is not cheap.

The National Association of Insurance Commissioners estimates that such insurance policies cost an average of $888 annually at age 50, $1,850 a year at age 65, and $5,880 at age 75.

But with the average cost of a semiprivate room in a New Jersey nursing home at more than $90,000 a year, a good policy could be a bargain, advocates for long-term care insurance argue. About 10 million Americans have long-term care insurance, and that number has been growing steadily in recent years.

“If you have the means to pay for care, that’s going to put you in the front of the line,” said Beth Ludden, senior vice president of Long-Term Care Product Development for Genworth. “Many people may have thought they were wealthy enough to self-insure, but with the state of the economy the way it is now, their portfolio has likely taken a significant hit, and it may be more difficult to pay for it now.”

Assini said he feels as though there is not enough oversight of long-term care insurers and policies.

“We have a guy with a mask and a gun, and there is no sheriff to watch him,” Assini said. “Every other insurance policy that I ever heard of has to have the state of New Jersey give its official blessing.”

Limited coverage

Middletown resident Marjorie Bertrand is another critic of long-term care insurance. Her 85-year-old father, Aldo Hofmeister, holds a long-term care policy through Genworth Financial.

Hofmeister purchased the policy about 12 years ago but did not pay for a more expensive inflation rider that would have kept pace with the rising costs of nursing home or assisted-living care.

Hofmeister’s policy only covers $80 a day for nursing home care and $62 for care in an assisted-living facility. In the northern and central New Jersey area, daily rates at assisted-living facilities averaged $148 in 2008, while nursing homes average $264, according to an annual report issued by Genworth Financial.

“Health care has just increased so much that the daily rate he paid for or agreed to, they thought was sufficient, now does not come close to covering the costs,” Bertrand said.

She and her husband now care for their father at home and send him to an adult day care facility during the day.

“My husband and I explored getting it before realizing it is a waste of money unless you get the inflation rider, which makes the premiums unpayable,” Bertrand said.

Some experts argue that it is unreasonable to expect long-term care premiums not to increase, because other types of insurance, such as homeowners or automobile policies, rise regularly.

“Your automobile insurance premium is going to go up, your homeowners insurance premium is going to go up, your medical insurance is going to go up,” said Burton “Tom” Beam, associate professor of insurance at The American College in Bryn Mawr, Pa. “The concept of premiums going up for any reason is not unusual.”

But Beam also argues that long-term care insurance is just one of several methods that can be used to pay for health care as the population ages. Family members could provide some care, and a person’s assets can be used to pay for additional services, Beam said.

Those with limited assets can turn to Medicaid, he said. Some experts question the viability of Medicaid over the long term, and note that Medicaid pays almost exclusively for nursing home care, and not more popular alternatives, such as assisted living or home health care.

“It’s one financing mechanism, but it’s not the only one,” Beam said of long-term care insurance.

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