Posted on 06 September 2008
By Mark Miller
My recent column on long term care prompted an impassioned response from a reader who became caught in an insurance nightmare after she and her husband purchased a policy some years ago when long term care insurance was a far less mature market than it is today. The couple’s carrier turned over several times and premiums skyrocketed.
Today, the vendor market has settled down and stabilized to a great extent, and tough regulation prevents rate hike abuse in most cases. Still, this couple’s experience illustrates the pitfalls that you still need to watch out for in purchasing insurance. I’m running her letter in full below–along with a length response and offer of assistance from Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance, the industry professional organization:
“My husband and I each purchased a LTC insurance policy on July 14, 1989, from Transport Life Insurance Co. There was no prior hospital requirement; the lifetime benefit period was 1,460 days. We purchased the “increasing protection rider.” My premium that year was $359.75.
“Eight years later, Transport Life became American Travellers Life. Sometime after that, in a Policy Endorsement, I note that American Travellers Life had become Conseco Senior Health Insurance Company. The premium went up each year. This year’s premium was $1,127.75. (Just my premium– My husband’s is considerably more.)
“About May, this year, I received a letter that a rate increase is again necessary, but that I had reached a threshold that entitled me to choose between Option 1: Retain policy and receive a 25.00% increase in current premium and “your current policy (is) subject to future rate increases.” or Option 2: select contingent “non-forfeiture benefit equal to all premiums paid . . .a “non-forfeiture benefit” is a sum of money which will be kept for you by the company, which can be used by you to pay future claims. I had already paid $10,445.00.
“There was a coupon attached where one could sign should they elect Option 2. Since I felt that with the promise of future increases, I could no longer afford this policy, I tore off the coupon, signed it, and gave it to my husband to send in with his also increased premium. (The coupon said “over.” I turned it over. The reverse was blank.)
As my husband expected to get the same options, he kept waiting. Finally, he called Conseco and was told that he would not receive that option–that it had been offered to him eight years ago, and further that his wife’s (my) offer of Option 2 no longer applied as I was beyond the time specified.
It seems that, though there was no indication on the front page which ended with the “coupon”, the back of the letter contained a date–and I was 6 days beyond it. Unfortunately, I had not turned the letter over–it seeming to end with the coupon.
“I immediately wrote Conseco asking for a reprieve; I assumed the coupon would be due at the time the premium was due. Two weeks later, I was informed that “because your response was not postmarked by the deadline, we are unable to comply with this request. . . .your policy has been defaulted to Option 1, retention of your current policy.”
“On August 16, I received a notice from Conseco: Final notice before lapse. If premium is not received by the “EXP DATE” shown below, your policy will lapse. The expiration date is 8/15/08. The letter is dated 8/13/08 –Postmarked 8/15/08. There is no way possible I could have met this date–and they knew it.
“They would have kept my $10,445.00 anyway, but at least had I received Option 2, I would have felt that I had “something” in event of a claim. As it is, I feel Conseco found an easy way to just keep over $10,000.
“My feeling regarding Long Term Health Insurance: Buyer beware. Unless one is wealthy enough to afford nursing home care anyway, the insurance companies will eventually price you out of the ability to afford their coverage. - BH-Lake Wales, Fl
Here is the response of Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance, the industry professional organization:
“First, I truly understand and feel for these individuals and will do my best to shed some light on the subject and, equally, explain to those considering long-term care insurance why the past doesn’t apply to today or tomorrow. That’s a most important part that I want to address first. Then I’ll end with a recommendation for the person who wrote you.
“Several years ago, the National Association of Insurance Commissioners developed regulations that make it incredibly difficult for insurers who issue long-term care insurance policies today to undergo the type of rate increases this couple is experiencing.
“I believe over half of the states have adopted these regulations, others are taking steps to make sure consumer protections are in place. That doesn’t mean rates will never increase in the future. Conditions change (who would ever have anticipated $4 a gallon gas a few short years ago). But, significant levels of protection are now in place to address this matter which certainly is of importance to consumers considering protection now or in the future. And, much has been learned in terms of more accurately pricing policies.
“But, now let’s address the situation at hand. First, it is important I believe to explain that we are an independent trade organization that derives it’s primary support from insurance and financial professionals. We don’t speak on behalf of insurers and Conseco (the company mentioned) is no longer actively selling long-term care insurance policies nor are they a supporter of our organization. The fact that they no longer are active selling long-term care insurance is relevant and I’ll address that in a second.
“Why do rates for long-term care insurance increase? Two primary reasons: interest rates and lapse rates. For every one percent drop in interest rates, insurers need a 10 percent increase in premiums (from the policy’s first year) to achieve the desired level of return. In 1985 when their policy was likely priced, the Federal five-year rate was 10.12%. Today it’s 4 percent (or less). The drop has been great for people refinancing mortgages; lousy for long-term care insurance companies. Then there are “Lapse rates.” The percentage of people who terminate policies also plays a big role and surprise, surprise … the percentage of people who purchased long-term care insurance coverage and kept their policies in force greatly exceeded expectations. More in-force policies equals more potential claimants yields a huge need to raise rates.
“That doesn’t make it any less painful for these individuals does it? Of course not. But, things change over the nearly 20 years (from 1989 to 2008). No one complains when the house they purchased in 1989 for $75,000 increased to $400,000. And, they did have coverage for all those years so it was not wasted money. Just like one hopes to never use their homeowners insurance, with long-term care protection you’re really much better off never needing … trust me.
“My recommendation. If the individual writes to me at the Association I will do my best to forward their letter to senior level people at the company. Conseco just spun off a new operation for their LTC business so I’m not sure how helpful that will honestly be. But, I’m willing to try my best on their behalf. When an insurer ceases selling new policies, they have less incentive to be responsive. In my opinion that’s one of the bigger problems facing the long-term care insurance industry. Companies committed to their customers and the marketplace are tarnished by the deeds of others. And, regrettably there really isn’t an easy solution to that. – Jesse Slome, American Association for Long-Term Care Insurance