The missives, sent by a direct-mail company called Senior Direct
Inc., were pitch letters, urging many low- and middle-income residents
to buy long-term care insurance to cover any future nursing home bills.
So, more states are encouraging such citizens to buy private
insurance. Along with California, 14 other states are now promoting
long-term care policies under marketing partnerships with the insurance
industry. More than a dozen others are getting started.
The state endorsements are "the single best thing that has
happened to the long-term care industry," says Jesse Slome, executive
director of the American Association of Long-Term Care Insurance. Total
premiums collected for long-term care, or LTC, policies were $10
billion in 2007, up 21% from $8.2 billion in 2004.
Critics are sounding alarm bells. They argue that the financial
benefits of LTC insurance for many target customers are negligible to
nonexistent. Their income and assets are so low that they would quickly
qualify for free care under Medicaid.
Patricia White, a director of the National Association of Free
Clinics, which provides medical care to the needy, says many people of
modest means are already struggling to pay for prescription drugs and
other essentials. "They can’t even buy medicine, why should they buy a
[long-term care] insurance policy?"
Some states, including Iowa, are floating the partnership concept even as residents complain about steep premium increases.
Mike Niday, a bricklayer who says he has a moderate income,
bought a policy in 2003, costing $1,368 a year, from Guarantee Trust
Life Insurance Co., of Glenview, Ill. "It was a sacrifice to buy it,"
says the Carlisle, Iowa, resident.
He says he now realizes he probably doesn’t need the coverage
and is sorry he bought it. His monthly payments started out at $114,
then rose to $146 in 2005. Last fall, he was told the monthly rate on
his policy would jump to $410 a month, or $4,920 a year — a 260%
increase.
Tom Alger, spokesman for the Iowa Insurance Division, confirms
that Guarantee Trust has imposed a "substantial" price hike on
policyholders, raising the annual cost of certain riders to policies by
as much as 700%.
"How can they expect common, ordinary working people to try to
budget to keep something like this in force?" says Mr. Niday. When he
complained to Guarantee Trust, he says, the company told him he could
keep his policy rate — with a caveat. He’d have to give up several
benefits such as inflation protection. That policy feature is
considered crucial, as it helps to protect benefits against rising
health-care costs.
Rather than trade down, he recently dropped the policy. After
arguing, he says, he got a partial refund. The company kept $4,000 of
the total $7,000 he had paid in premiums, he says.
A spokesman for Guarantee Trust said no one was available to comment.
Even for middle-income people, say consumer advocates, concerns
about LTC insurance loom. Rising consumer complaints indicate that it
is increasingly tough to collect on benefits.
Prudent Approach
State officials stand behind their approach. In a climate of
rising health-care costs, they view it as a prudent way to broach an
emotionally difficult topic. Raul Moreno, a spokesman for the
California partnership, says the state sees nothing wrong with "asking
people to take personal responsibility" for planning their long-term
care.
"We would never suggest you must buy it," he adds. "Our focus
is merely to educate Californians to plan ahead for long-term care, and
to consider [LTC] insurance as a way to fund it."
Some states are promising consumers that if they exhaust
benefits from their LTC policies and eventually need to apply for
Medicaid, the state will make it easier for them to qualify.
Of all the insurance types on the market, long-term care is among the most complex — and expensive — forms of coverage.
Typically sold to people well in advance of need, it promises to
pay for care when a policyholder can no longer perform certain basic
activities on his or her own. Premiums are determined by the length of
coverage and the age of the insured, among other factors. Rates are
also affected by the policy’s daily benefit allowance, an amount capped
by most insurers, as well as the waiting period before benefits kick
in. The cheapest policies often carry the longest waiting periods — 90
days or more is common.
"These policies are very difficult to use, and the payouts and
benefits are difficult to get," says Jamie Court, president of the
Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif. He
calls the partnerships "sort of an unholy alliance between the state
and these corporate titans to sell products that will supposedly save
the state money on health care later."
LTC policies also carry some of the highest commissions in the
insurance business, with lucrative payments to the individual agents
who sell the policies. Agents often pocket between 30% and 65% of the
first year’s total premium payments, then receive annual commissions
between 3% and 5% for a set period after that.
When President Bush signed the sprawling Deficit Reduction Act
in 2006, he lifted a decadelong ban on states partnering with the
insurance industry to sell long-term care insurance.
Rep. Earl Pomeroy, a North Dakota Democrat, was a lead
co-sponsor of the LTC partnership bill, and was instrumental in lifting
the ban in 2006. During the 2007-08 election cycle, Mr. Pomeroy
received the second-largest amount — $115,150 — in Congress from
insurance-industry political action committees, according to the Center
for Responsive Politics, a Washington, D.C., nonprofit.
The contributions, says Mr. Pomeroy, had no influence on his
support for the partnerships. He argues that the programs will curb
Medicaid spending. Echoing many states’ complaints, he says Medicaid is
strained partly because people are artificially impoverishing
themselves by transferring assets to relatives in order to qualify for
free benefits. "To me, this is a version of welfare fraud," he says.
Few Transfer Assets
Last March a study by the Government Accountability Office of
Medicaid applicants for long-term care in three states showed only
relatively few — 9.2% — had transferred assets to relatives in the
prior three years. GAO studies in 2005 and 1993 also found no
widespread evidence of asset transfers.
In another study last May, the GAO questioned whether there was
a compelling public-policy reason for states to hawk LTC insurance,
saying the partnerships are "unlikely to result in Medicaid savings."
Undeterred, Nebraska Gov. Dave Heineman named November
"long-term care partnership awareness month." Virginia sent out DVDs
touting LTC insurance to 200,000 people. In all, states sent about 11
million letters on the subject last year.
More marketing efforts are on tap. Earlier this month, New York
launched a $1.75 million direct-mail and media campaign to promote the
purchase of long-term care insurance. In March, Pennsylvania will kick
off its partnership with a mailing to a million people. Ohio’s governor
will send letters to 1.7 million residents, inviting respondents to a
Web site where they can be linked with insurance agents.
Other states are partnering with insurers that have run into trouble with regulators.
In South Dakota, insurance officials intervened in the case of
Rudolph Heyd. A former grain farmer who was 92 years old and living in
a nursing home, Mr. Heyd received a letter in 2005 from his insurer,
Penn Treaty Network American Insurance Co., stating that "no further
benefits would be payable on his claim."
After nearly four years of paying benefits, the company in May
of 2006 told state regulators that Mr. Heyd, "despite his diagnoses and
letters indicating otherwise from his attending physician," was
"cognitively intact." Mr. Heyd stayed at the facility, but had to use
his own savings to foot the bill. Last July, Penn Treaty settled a
lawsuit filed by Mr. Heyd in South Dakota’s U.S. District Court,
Northern Division, for an undisclosed sum. He died in October.
Months earlier, Matthew Fonder, division counsel for the
state’s Division of Insurance, had written to Penn Treaty saying "the
South Dakota Division of Insurance is concerned that Penn Treaty may be
wrongfully denying legitimate claims." The division says it has an
"ongoing investigation" into Penn Treaty.
Cameron Waite, executive vice president of strategic operations
at Penn Treaty, says the company enjoys a good relationship with South
Dakota. "Complaints are few and far between, but the reality is that
they do periodically arise," he says.
In a March 2006 regulatory filing to investors, Penn Treaty
said a company review "is showing us that our policyholders… appear
to be living longer than we had previously anticipated…" To
compensate, said the filing, Penn Treaty would "seek appropriate
premium rate increases" among other solutions.
Nevertheless, when South Dakota unveiled its long-term care
partnership plan last June, it recommended 14 "approved partnership"
insurers — including Penn Treaty. The state is currently holding
dozens of community meetings at churches and senior centers to discuss
long-term care options.
Merle Scheiber, director of South Dakota’s division of
insurance, says its regulatory probe doesn’t disqualify Penn Treaty
from joining the partnership. "Currently, the long-term care
partnership certification process is separate from enforcement issues,"
he says.
Complaints to Regulators
Congress is taking note. In October, Sen. Charles E. Grassley,
senior Republican on the Senate Finance Committee, wrote to 10 insurers
involved in partnerships and demanded information about how claims are
processed.
He began his inquiries following a report by the National
Association of Insurance Commissioners that cited a 74% increase in
complaints to state regulators related to claim denials on LTC policies
between 2003 and 2006. NAIC also said that insurers overturned more
than 70% of LTC claim denials after the complaints were made — a
"pattern of error" that it said isn’t found with other types of health
insurance.
Betty Hoff, an 87-year-old widow in Fowler, Calif., says it was
a "battle" to get benefits under her policy with Bankers Life &
Casualty, which she bought after an agent promoting the California
partnership visited her home.
She was paying a yearly premium of $4,080 from her $19,200
income when, in late 2004, she took a fall at home and was unable to
get up. After crawling to the phone for help, she was evaluated by her
doctor. He determined that she couldn’t meet several needs of daily
living, including bathing herself and getting out of bed. The doctor
declared it unsafe for her to live alone at home and recommended
institutional care.
Ms. Hoff filed a claim under her policy, which says benefits
are payable 90 days after proving need. But Bankers Life denied Ms.
Hoff’s claim, saying in a letter that she wasn’t impaired enough. She
drew on her savings to pay for assisted living for seven months until
California Health Advocates, a Sacramento nonprofit, took up her case.
Bankers Life decided to pay.
Bankers Life & Casualty is currently the subject of 10% of
California’s LTC insurance complaints with only 3.6% market share,
according to 2006 state data.
A spokeswoman for Bankers Life, a unit of Conseco Inc. of
Carmel, Ind., says there was confusion concerning Ms. Hoff because she
had recently switched from one policy to another. She said Bankers Life
aims to pay off claims in a timely manner in accordance with policy
terms.
Sometimes, the confusion begins before a consumer picks up the
phone. California’s LTC pitch letters go out under California
Department of Health Services letterhead emblazoned with the state
logo. They urge recipients to return a reply card or call a toll-free
number to be connected to one of "our agents."
The letters are signed by Brenda Bufford, director of
California’s LTC partnership program. But inquiries are routed to
Senior Direct, the Texas marketing firm hired by the state. Operators
at its call center in Minnesota answer a toll-free line by saying,
"Thank you for calling the California Partnership for Long-Term Care."
Ms. Bufford says citizens often express surprise that the state
is involved in marketing insurance. "Some consumers have asked, ‘Is
this fraud?’" she says. "We say, ‘No, it isn’t. It’s the state of
California.’"
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Write to Jennifer Levitz at [email protected] and Kelly Greene at [email protected]
