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Regulation and Compliance > State Regulation

House Panel Looks Closely At LTC Claims And Rate Setting

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Differences among state rules for long term care insurance policies has led to major variations among policies, depending on where they were bought as well as which company they were brought from, experts said in testimony before a House panel on July 24.

Members of the House Energy and Commerce Oversight and Investigations Subcommittee called the hearing to review conclusions of a report from the Government Accountability Office that found inconsistencies in state regulation of the industry. (See NU, July 28.)

The GAO report also found wide variations in rate increases among policies as well as in oversight of company claims-handling practices.

“Despite states implementing more comprehensive standards and using other oversight efforts intended to enhance rate stability, some consumers may remain more likely to experience rate increases than others,” the GAO report stated.

GAO, found, too, that 30% of policies in force were issued in states that have not adopted strict rate-setting standards adopted in 2000 by the National Association of Insurance Commissioners.

GAO found wide variations in state reviews of claims denials. Of 10 states its reviewers examined in depth, 7 reported one or more claims-settlement practices as of March 2008. Four states were preparing to establish an independent review system of denied claims, the report said. Yet one did not even have a standard that required companies to pay claims in a specific period of time. Of the remainder, the standard for timely payment varied from 5 days to 45 days, and 2 specified no time limit at all, GAO found.

In his testimony before the panel, John E. Dicken, director of health care for the GAO, argued that “more comprehensive standards are needed to enhance rate stability.” Many owners of existing policies lack protection against high increases “because they lived in states that have not adopted standards devised by the [NAIC] or else have older policies sold before the standards were adopted in their state.”

As a result, some consumers have experienced increases ranging from 30% to 70%, while others have experienced much lower premium boosts, he noted.

Marc Cohen, president and chief operating officer of Life Plans Inc., Waltham, Mass., told the House panel that the vast majority of LTC policy benefits meet the needs of the policyholders.

His company’s study of LTC insurance claimants found half thought they would have had to seek institutional alternatives care if they had not had their policies.

In addition, 94% of claimants reported no claim that was not resolved satisfactorily, Cohen reported.

Of claimants his company surveyed over 2.5 years, 96% had their claim immediately approved. Of the 4% who were initially denied, about half were ultimately approved within a year, he added. Of the remaining 2%, most claimants had not met the terms of their policies, Life Plans found.

Cameron Waite, executive vice president of strategic operations for Penn Treaty American Corp., Allentown, Pa., told the hearing that from 2004 though mid-2007, his company had 41 pending litigations involving claims disputes, which represented less than 0.2% of nearly 25,000 claims Penn Treaty received in the period.

“Of this small number of cases, most were mutually resolved for relatively small sums,” he said.

Waite also told the legislators that, regardless of where it sold its policies, his company has adopted the most rigid of state requirements for claim payment timing. Only about half of the states have any requirement for timeliness, he noted.

Even in states that impose no claims-handling timetable, his company’s policies require claims to be paid within 15 days of receipt of necessary paperwork, he said.

“We are currently paying 98% of all nationwide claims within 15 days and 99% within 30 days,” Waite said.

To improve claims handling, Penn Treaty is also auditing claim payments, automating its claims-handling system and improving internal training, he said.

In a separate interview, Waite said Penn Treaty decided to adopt the 15-days claims-handling goal within the past year.

“It’s important even in those rare cases of denial that the policyholder should be able to appeal that decision,” Waite said. “It’s ultimately important for the policyholder to understand the reason for a denial very clearly and what their rights of appeal are.”

Despite the GAO’s findings of lack of uniformity among states in claims handling and rate setting for LTC insurance, Waite endorsed the state-based system of regulation.

“State regulators are proactive in looking at these issues and monitoring company performance,” Waite said in the interview. “I believe additional layers of oversight would not enhance the current process.”

Another insurance executive disagreed, however. Thomas Samoluk, vice president, John Hancock Life Insurance Company said in testimony before the committee that his company was leaning more toward federal regulation.

Hancock believes “that consumers will ultimately be better served with an operational Interstate Compact and an Optional Federal Charter, which would provide speed-to-market efficiencies and allow for uniform policies without variations from state to state,” Samoluk said.

In terms of improved consistency on regulation and rate increases, Genworth Financial Inc., Richmond, Va., believes either broader adoption of the NAIC model regulations by the states or adoption of a federal charter would benefit consumers, said Buck Stinson, president of Genworth’s long term care insurance division.

In testimony at the House hearing, Stinson said Genworth has paid over $5.6 billion to over 130,000 LTC policyholders since 1974.

Genworth approves 95% of submitted claims, he said. If a claim does not satisfy the policy’s eligibility requirements, it is reviewed by a benefits analyst, then sent to a technical specialist for evaluation. Moreover, policyholders can appeal denied claims to the company’s chief medical officer. Stinson insisted only claims that do not meet the requirements of the customer’s policy are denied.

In separate comments about the hearings, executives of MetLife Inc. and New York Life Insurance Company backed the model NAIC regulation.

David M. Acselrod, vice president, MetLife Long Term Care, said the NAIC’s model regulation helps ensure premium stability. “We are supportive of the adoption of the model on a nationwide basis,” he said.

He added that MetLife also has established standards for claims paying that meet or exceed state requirements, “with the goal that we treat all insureds equally, regardless of the state in which they reside.”

Dennis O’Brien, senior vice president for New York Life’s long term care operations, said his company “strongly supports all of the provisions of the NAIC model law and model regulation on LTC.”

The models represent the consensus of state officials on how best to regulate the LTC insurance marketplace “without discouraging innovation and without exposing companies to undue risks, while at the same time providing a high degree of consumer protection,” he said.