From the July 2007 issue of Investment Advisor • Subscribe!

A Long-Term Problem?

Long-term care insurance has gotten a very public black eye among consumers

Last month we looked at the public outcry over long-term care insurance and the resulting repercussions throughout the industry, as companies strove to overcome a public relations disaster from widespread coverage of alleged abuses by a few companies. You may recall that recent press coverage alleged severe problems, charging that some companies stalled on paying claims, in some cases until policyholders had died, or denied claims that were legitimate under existing contracts.

While statistics showed that most of the problems originated with only a few companies, the reaction of the press and public seemed to imply that the difficulties might be more widespread. We spoke with advisors and industry professionals, and found that abuses, while they may be confined to just a few insurers, have definitely created an atmosphere of concern--not only among the general public, but also among professionals who advise on the purchase of such policies and sell them to clients.

The level of concern among professionals does seem to be directly related to the experiences each has had with claims filed on policies. Greg Olsen, a partner with Lenox Advisors in New York, when asked how he felt when clients broached questions related to the recent news coverage, said, "We like when our clients bring it up because it actually accentuates the companies that were selling long-term care insurance before there was any standardization. Those are companies that are mostly out of business right now, and of course they're not going to want to pay claims."

However, Olsen also said that the average client age at Lenox was "not the [national] average of age 58 or 60; they're more 45-48." And when asked about Lenox's clients' experience with claims, he noted that the firm has "hundreds of clients with LTC policies in effect, with less than 2% in claim because of the young age of the client base." Lenox uses it as a planning tool, he explains, to protect client assets against a possible future disability "that can cost them hundreds of thousands of dollars."

It Can Happen to Anyone

Not all planners were so sanguine about the industry criticism in the news coverage. In fact, one was in the process of fighting a claim denial for her own grandmother. Holly Carroccio, of H.F.G. Advisors in Dallas, has her grandmother Marie Billingslea as an investment client. Holly's mother, Diane Billingslea, who is an insurance agent, had sold Marie a long-term care policy from Life Investors Insurance, a company Diane was familiar with and considered to be reliable. Marie is currently in assisted care and Life Investors has denied her claim.

We spoke with both Holly and Diane about the situation. The policy, in effect for some 11 years, was to cover Marie Billingslea in the event she needed care. For the coverage to go into effect, says Holly, the insured had to need assistance with two activities of daily living (ADLs) or have cognitive impairments.

Marie Billingslea's story, as described by her daughter and granddaughter, tracked that of so many older people currently in assisted living or LTC. She was growing increasingly forgetful; her short-term memory led to problems in taking medication and in remembering to eat. Says Holly, "She would not eat for long periods of time, and was getting real thin and gray-looking." Marie lived two hours away from her daughter Diane, in Paris, Texas, but even so Diane would make the four-hour round trip on at least a weekly basis -- more often when she would get a phone call from her mother that she needed to go to the emergency room because "something was wrong." Nothing was wrong, says Holly, and Diane took her mother to specialist after specialist to be sure.

But things came to a head, says Holly, when Marie overdosed on full-grain aspirin last summer. "She wouldn't throw out old medications," relates Holly. "If one was good, two were better, and if she was in pain she'd take way higher doses than she needed." When Marie overdosed on the aspirin, she ended up in the hospital with a severe kidney infection, and there the doctor diagnosed her with severe dementia, as well as obvious chronic mental deterioration from which she would not recover. He recommended that she get long-term care.

"We had a real battle with her," says Holly, "because that wasn't what she wanted and she thought she was fine." But at last, in August of 2006, after Diane had "turned her life upside down" to care for her mother, Marie entered an assisted living facility.

"Our Expert says you're okay"

Her policy, according to Holly, covers up to six years' worth of benefits, at $70 per day for a nursing home and 75% of that for an assisted living facility--a total of $1345 a month. "We went through normal processes submitting a claim," says Holly, "and gave a copy of the doctor's letter and that kind of thing." The insurance company came and did a cognitive assessment of Marie, but, says Holly, "to talk to her she seems fine. She knows what day it is and who the president is." But she can't care for herself, or remember to take her medication properly or even to eat--and the insurance company denied her claim after an evaluation that implied that Marie was perfectly sound and competent.

According to the letter received by Diane Billingslea, the assessing nurse from an independent care coordination firm found Marie able to perform all ADLs and not subject to cognitive impairment. Therefore, the letter stated, it was determined that Marie's stay at the assisted living facility did not qualify for reimbursement under the terms of the policy. However, says Holly, "She's been examined by a neurologist, and had all kinds of testing by various physicians, and her diagnosis is that she has dementia and they will not pay. And it has been appealed and they say they still won't pay the claim."

Holly and Marie are considering further actions, such as legal representation and reporting Life Investors to the state Board of Insurance and the attorney general of the state of Texas. With their permission, we called Life Investors to discuss the circumstances of the claim with the insurer for this article. In a phone message we were told by Bob Glowacki at Life Investors that, while the company cannot discuss any claims with anyone due to HIPAA privacy concerns, "with regard to a particular claim that has been denied, certainly we can go through a reassessment of the individual." He also asked that I pass his direct number along to Marie's family.

At press time Holly and Diane had not yet spoken with Glowacki, but the issue has left its mark, regardless of the outcome. Says Holly, "Over the last several years I've had one or two clients refuse to buy [LTC insurance] because they're not sure benefits will be paid, and I tried to reassure them that if they went with a quality company that wouldn't happen. I would have thought that with Life Investors' longevity and company history it would not have happened."

Diane adds, "I would not have sold anything that I thought wouldn't pay. I don't want this to happen to someone else . . . to my knowledge there's never been a problem with Life Investors." The week Marie's appeal was denied, adds Diane, there was an article in The Wall Street Journal on the subject.

We also spoke with the president-elect of the National Association of Insurance Commissioners (NAIC), Sandy Praeger, who is the insurance commissioner of Kansas. In the midst of the public outrage over the abuses alleged in the media, there have been calls for insurance commissioners to take a more active role in monitoring LTC companies.

Praeger, acknowledging the situation, suggests that advisors and clients with problems similar to that faced by the Billingslea family call their state insurance department. That, says Praeger, "is the first, best step if they've exhausted their ability to get any response from the company." The main reason she says it's important is that "there may be a pattern the advisor may not be aware of, and there may be an ongoing examination of the company that the advisor is not aware of."

The investigation Praeger refers to is one of a company's claims, response to claims, filings, promptness of pay, and other factors. Praeger adds that if a number of states are experiencing the same problem, the NAIC can conduct a multistate market conduct exam--something done when the NAIC sees "a pattern of behavior that looks like we may need to step in." She adds, "We can make some real inroads in making a company turn around its decision." If a benefit is covered, she points out, it is a contract, and "they have to live up to their contracts. If they're dragging their feet and the contract requires them to pay, that's where we can have a real impact."


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

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