From the June 2007 issue of Investment Advisor • Subscribe!

Long-Term Damage?

Are your clients at risk from problems within the LTC insurance industry?

These days you know there's trouble when the blogosphere takes up a subject, and blogging was hot and heavy after a recent spate of negative press on the topic of long-term care insurance.

The New York Times launched the attack, with tales of helpless and fragile elderly people denied coverage, made to resubmit paperwork over and over, and forced to rely on their children's assets for care when they'd purchased policies to avoid just such a scenario. Other newspapers across the country followed, with cases from their own circulation areas and editorials severely criticizing the industry as a whole and calling for reform.

That's when the blogs got into the act. From HealthLawProf Blog to Thoughts of an Average Woman to titusonenine to the Daily Kos, the air was thick with comments. The Daily Kos was particularly outspoken, with its title "Murder by Spreadsheet: Insurance industry targets elderly."

While the Times article made serious allegations--that some companies were denying legitimate claims, stalling aged clients sometimes until they died, and engaging in other improper practices to avoid paying for care--it also focused on a few companies with the highest complaints. Many readers, however, took the problems to be industrywide, and insurance companies took umbrage. Insurance blogs responded with statistics and warnings of turbulent times ahead.

Whether the problem is as serious as the broad news coverage implied, one thing is clear: the problems that do exist have created a public relations nightmare, and 2008 presidential candidates Hillary Clinton and Barak Obama have asked for the U.S. Government Accountability Office to step in, with Obama also calling for investigation and possible further regulation of the industry.

In previous issues we've looked at LTC insurance, discussing everything from the underwriting involved in getting coverage to the riders that make it possible for beneficiaries to remain at home or for family members to be paid for providing care. We've also looked at some troubles within the industry, such as the bankruptcy of Conseco in 2002 (it emerged in 2003), and cautioned advisors to be wary of companies that raised rates frequently or that quoted rates "too good to be true."

Are companies denying benefits? The uproar was focused mainly on three companies: Conseco; Bankers Life and Casualty, which is a subsidiary of Conseco; and Penn Treaty American. These companies had a disproportionate number of complaints, and have made less than favorable headlines before. Other companies came in for criticism, but not in the same proportion, and indeed, we spoke with an advisor who feels that the coverage was very unfair to the industry as a whole.

Arthur Stein, a planner at First Financial Group in Bethesda, Maryland, who specializes in long-term care insurance, says that neither he nor his clients have had a problem. He also says that the concentration of complaints focused on the "worst companies in the industry, and if you look at the bottom of the barrel in any industry, you're going to see companies that cause problems for people."

Overall, Stein feels that the complaint rate for the long-term care industry is much better than that for some other groups. In discussing another company mentioned in the article, he said, "Less than three tenths of one percent had a complaint. I think that's a great record. You wouldn't find that with health insurance." Mentioning that a couple of other companies had complaints that numbered "one out of 10,000 or 11,000, something like that," he added, "I don't see the problem."

The problem is that a few companies are tarring the rest of the industry with a very broad brush.


Marlene Y. Satter, a freelance business writer based in New Jersey, can be reached at harpwriter@verizon.net.

Reprints Discuss this story
This is where the comments go.