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Introduction of long-term insurance
When a consumer buys a fire insurance policy on their home they are betting in favor of a potential risk that most probably will not occur. To appreciate the rareness of a home fire consider all the times you have driven through your neighborhood or have flown into a major city. The number of house fires commonly encountered is rare. But if one does occur, it is a total financial catastrophe for most people. For that reason fire insurance policies are common. This is classic case of insurance at its best: everyone pays a small premium and in return receives the assurance they will not bear the full burden of a rare catastrophe.
In buying long-term health care, the consumer and the insurance company are engaging in a far different bet. The probability of the purchaser needing long-term health care at some time in the future is fifty percent.
Needing long-term health care is not rare. It is virtually guaranteed.
From an insurance standpoint the risk clearly becomes greater as the policyholder grows older and as expected, premiums can be expected to increase to cover this risk, otherwise there is no profit in being in this business.
When buying long-term care coverage, the consumer should anticipate that premiums will increase to levels that in all probability will severely strain a fixed-income budget, resulting in cancellation, just prior to the time when coverage is needed. All insurance companies know this because their records confirm an increasing level of cancellations as premiums increase with aging policies and aging policyholders. The customer does not. The end result is a system that is rich with the potential for fraud. Add to this situation the fact that sales agents are driven by high commissions and the potential for fraud can readily become a reality.
Just as in the case of health care coverage, once a consumer needs the benefits of a long-term care policy they are often physically, mentally and emotionally disabled and unable to assert their rights. This project was undertaken to alert, educate and warn consumers, and their families, now while they have the ability to make intelligent choices. Obviously this effort is not intended to be relied upon as legal advice and anyone who does so is making a dreadful mistake. The purpose of this compilation of information is to open the eyes of purchasers of long-term care insurance, describe some of the major problems consumers encounter and to warn of traps to be avoided.
The best possible advice
Every insurance policy is a legal contract developed by teams of skilled lawyers working and modifying the document over a period of many years. Every time a new court decision alters existing law, trained contract specialists modify the contract in order to take advantage of new developments.
Understanding what a policy means and comparing the policies of different companies requires an understanding of the jargon of the insurance business and a familiarity with how terms of art have evolved and have been interpreted by courts.
If you have any doubts what the contract means and whether or not it will protect you after spending thousands in premiums and to avoid risking litigation in the future, it is far more sensible to pay for an informed opinion at the outset.
The key to having your expectations met when you submit a claim for benefits and to avoid being defrauded is to believe nothing you are told by a sales agent and to rely upon only what you read and understand in the policy. Ignore what you may read in promotional brochures. In 1994 a California appellate court declined to rule that a misleading advertising brochure was actionable and held that all that was needed to determine the relationship between the consumer and the insurance company was to read the policy.
If you do not understand the policy's terms, do not buy it until you fully understand what you are buying or else hire someone who can and will make sure you are making an informed decision. Some attorneys specialize in coverage questions. They know and understand insurance coverage issues. Ask potential lawyers if they have experience in insurance coverage questions and to detail that experience for you. Before you retain a lawyer, come to an understanding on the fees to be charged to interpret the policy.
If you cannot afford to hire a lawyer to interpret the contract you want to buy, you should ask yourself if you can afford to buy coverage and once you are in poor health and look forward to receiving policy benefits whether you then will be able to pay for a lawyer to enforce your rights under the contract if benefits are not forthcoming.
In the absence of an informed legal opinion, deal only with an established and respected insurance brokerage firm that has been in your community for years. An insurance broker is an independent agent for many companies and normally knows what the market is offering. Such a person can explain the advantages and disadvantages of various policies on the market.
Many insurance companies do not sell through brokers, but instead utilize exclusive agents. If you are considering a policy offered from such an agent, be sure to listen carefully and obtain opinions from independent brokers. Ask them to compare their best policy with the one you are considering, explain which is best and why.
When buying long-term care, make it a family decision. Bring together everyone who has an interest: your spouse, children, siblings, and closest personal friend. There is a special value in collective decision-making that will help avoid some of the pitfalls that have been well documented.
Promises, easily made
Nearly one out of every two persons age 65 and older will probably spend some time in a nursing home, which costs on average $30,000 annually across the United States and in major metropolitan areas the average escalates to $60,000 and as much as $100,000 per year. With an average nursing home stay of 19 months, seniors living in major metropolitan areas will spend $100,000 on long-term care in addition to medical bills and prescriptions.
Fearful of losing economic independence, older Americans are looking for security in long-term care insurance. Even though for seniors over 65 premiums can range from $2,000 to over $10,000 per year, long-term care insurance is "the fastest-growing type of health insurance sold in recent years." Still, only five percent of those over 65 have purchased private long-term care insurance. Uninsured seniors constitute a lucrative market and as a result over 100 insurance companies now offer long-term care policies.
Long-term care policies pay the cost of the day-in, day-out care for a person with an acute or long-term illness or disability. Many seniors receive this care in nursing homes, but more effective and less expensive care at home and at adult day-care centers is growing in popularity, because it is less expensive and still provides the security of a longstanding home.
That is the theory, but in practice these policies are often riddled with loopholes that do not adequately protect a senior's life savings. Some policies have such strict disability criteria that many policyholders who need help do not qualify for benefits. Other policies narrowly define qualifications so that insurance company doctors, who are given bonuses for controlling costs, can overrule the medical orders of a policyholder's private doctor. Even when policyholders qualify for benefits, many will learn that their coverage has been out-paced by inflation. Yet only five of every one hundred 60-year-old consumers who take out long-term care insurance policies in 1995 will still have coverage in place at age 80 when they need it, because the high cost of premiums, which are likely to rise even higher, will force them to drop their coverage. Insurance companies carefully study buying and use patterns and know from experience that as the cost of policies increases the amount of policies in force declines at increasing rate, especially as consumers on fixed incomes find themselves facing increasingly tighter budgets as inflation continues.
Add to this cauldron of conflict the insurance company's sales commission structure. Insurance agents are loath to disclose policy pitfalls when it means risking the loss of a commission equal to life insurance commissions of 30% to 65% of the first year's premium, far more than the typical 10% commission many auto insurance agents earn. State regulatory agencies are insufficiently staffed to monitor sales presentations, except in undercover investigations such as the one conducted by the New York Superintendent of Consumer Affairs. In effect, no government agency holds insurance agents directly accountable for unacceptable sales practices.
In addition to the complicated terms in long-term care policies, the fear of actually needing long-term care can be even more difficult to face for seniors and their families. The expectation of needing long-term care strikes at the heart of personal concerns about losing one's health and economic independence. Seniors are particularly vulnerable to scare tactics and to stories of the infirm being thrown onto the street because they do not have long-term care coverage and lack the financial ability to provide for themselves.
Complicated policies loaded with fine print, sales agents driven by substantial commissions, and the vulnerabilities of seniors as consumers is fertile territory in which the strong can and will take advantage of those who cannot defend themselves.
Sales presentations are designed to overstate what policies will cover, explain eligibility criteria for benefits in terms that are not grounded in reality and manipulate statistics to make sales now. In addition, agents fail to explain significant aspects of policies and the high probability that premiums will increase. Scare tactics result in sales, so it is not uncommon for agents to report the cases of destitute seniors. Providing the new insured with a copy of the contract is also rare.
It is impossible for a consumer to make an informed purchase based on what is learned in a sales presentation. Even worse, insurance company promotional literature cannot be trusted to carefully explain the terms of the contract being sold.
For example:
AMEX Assurance Company is a subsidiary of American Express Travel Related Services, is a name well known to consumers and enjoys the reputation of the American Express name. Nonetheless, a senior manager of the company relied upon blatant scare tactics in his sales presentation, pressing his customers to recall personal experiences with nursing home patients who were abused. Pushing to close the sale, he declared "my grandfather would be turning in his grave now" if we had passed up the chance to buy this protection.
A CNA agent falsely promised a level premium under the CNA. When pressed as to whether premiums can ever go up, the agent promised that a premium increase "has never happened." Premium increases are common and to be expected.
Consumers should be equally leery of sales literature. An AMEX pamphlet tells buyers, "Your nursing home stay is covered when your doctor certifies that it is appropriate." That is a lie. The policy clearly states that the company, not the policyholder's doctor, makes the final decision whether the policyholder qualifies for benefits.
Long-term care policies contain strict restrictions and limitations on benefits. Strict definitions control when and where patients can receive care. For example, it is not uncommon for policyholders to need "continuous one-on-one assistance" in performing daily activities in order to receive benefits. To qualify, one would have to be severely ill and be in need of admission to an intensive care unit to collect under the policy.
The solution to these abuses must come from government. Government has not acted because in large part insurance companies spend thousands of dollars in lobbying and consumers do not. In addition consumers lack the financial standing to prosecute cases and many times the actual damage is not suffered until the victim's health has so deteriorated that they are physically incapable of assisting their attorneys in fighting a major insurance company. In a perfect world government should mount undercover investigations of insurance agents who mislead consumers and make public examples of them by criminal prosecution. Insurance companies should be held strictly liable for the acts of their agents to make sure policies are not exaggerated and sales presentations are honest and straightforward.
Consumers should never believe they are smarter than the carrier's lawyers. Buying insurance is a legal gamble and consumers need to know the odds. Even with coverage, out-of-pocket costs of hundreds of thousands of dollars are not uncommon. Never buy a long-term care policy unless you fully understand it and have analyzed your complete financial needs. Always have a policy studied by a trained professional before spending. Make sure you know what you are buying. The General Accounting Office of the U.S. government is clear in its warning that consumers should never rely on the price of a policy "as a good measure of value." The question of buying coverage is not what the price is today, but what will it cost in the future, what are the benefits and what do you need to do to qualify.
Defining long-term care
As a result of disability or a prolonged illness, long-term care is the assistance provided when a person is unable to provide for himself or herself. It ranges from providing personal care at home, such as bathing and dressing, to skilled nursing services in a nursing home.
Long-term care is offered through home care agencies, senior centers, adult day care centers, traditional nursing homes, and retirement communities that provide on-going care.
In considering long-term care insurance policies various kinds of care are mentioned. Here are the most commonly used terms and their generally accepted meaning. Remember, the definitions given here can and often times are re-defined by carriers in their policy and given special meaning under a particular contract. It is important to read the fine print.
Skilled nursing care is needed for medical conditions that require care by specially trained nurses or therapists, who routinely are licensed by the state. This level of care is on the specific orders of a doctor who dictates the care to be provided and is usually required around the clock, 24 hours a day. It is the care given as part of a severe illness and can extend well after the severest level of an illness has passed. Skilled care can be provided in a person's home with help from practical, as opposed to registered, nurses.
Intermediate nursing care is associated with stable conditions that require daily supervision, but not around the clock care. It is less specialized than skilled nursing care, often involves more personal care and is supervised by registered nurses. Intermediate care is commonly needed for a matter of months and years.
Custodial care is intended to assist with daily living, which includes bathing, eating, dressing, and other routine activities. Special training or medical skills are not required. It is provided by unskilled nursing assistants in nursing homes, day care centers, and at home. It is often called personal care.
It is common for long-term care services to be provided in a person's home. It includes part-time skilled nursing care, practical nursing assistance, the services of a nurses aide, physical or occupational therapy, homemaker assistants, and chore workers, who provide assistance with daily living activities. The cost of long-term care Long-term care is expensive, depending on the severity of a disability, the degree of care needed and where it is to be provided. In 1991, the cost of a year in a nursing home averaged $30,000 across the United States. Skilled nursing care at home with two-hour visits by a nurse three times a week over a year, would cost approximately $12,500. Personal care at home from a home health aide three times a week for two hours would cost approximately $8,400 a year.
In major cities, the cost can be expected to reach $60,000 a year and as much as $100,000. With an average nursing home stay of 19 months, seniors living in major metropolitan areas can expect to pay $100,000 on long-term care in addition to medical bills and prescriptions.
To answer this question, you need to check with your own health insurance company. Many health insurers do not cover international health coverage.
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