LTCI Watch: Underwriting

Can nice people and nice companies keep people who are obviously at a high risk of needing long-term care insurance (LTCI) from buying LTCI coverage?

What if the would-be applicants already could be defined as people who need LTCI?

What if the applicant was Helen Keller or Stephen Hawking, and was, at one and the same time, a highly productive, high-earning individual and someone who needed help with important activities of mundane daily living? What then?

Many have questioned the ethics and practicality of allowing the free use of medical underwriting in the sale of personal insurance.

In recent years, for example, the drafters of the Patient Protection and Affordable Care Act (PPACA) have included a provision that seems to forbid use of personal health information when health insurers are deciding whether to issue policies or price the policies they do issue.

It seems as if the wellness regulations that the U.S. Department of Health and Human Services has proposed wellness regulations could add footnotes to those limits. The draft regulations seem to give group health plans the ability to adjust rates by as much as 50 percent depending on how well employees participate in wellness programs and get health indicators, such as blood pressure, to what the plans and the government think of as being acceptable levels.

But the Senate was debating a treaty — apparently, probably a doomed treaty, for now, but a treaty that the Senate could possibly ratify — that includes provision, Article 25(e), that forbids use of disability information in life insurance underwriting as well as health insurance underwriting. 

It’s not really clear what that provision means, and it’s hard to find many discussions about it on the Web. But, in theory, “health insurance” could refer to disability insurance and long-term care insurance as well as major medical insurance, and, in theory (probably not, but, in very theoretical theory), maybe ratifying the treaty could somehow affect U.S. life and health underwriting standards. 

Australia, insurance policy specialists seem to be thinking that the treaty would let insurers continue to use any disability-based underwriting criteria that they could justify with actuarial data.

If Hellen Keller — who lived from 1880 to 1968 — came back to life and applied for LTCI coverage, and the Australian interpretation of Article 25(e) applied, maybe an LTCI carrier could deny Keller’s application based on the notion that she was already getting long-term care (LTC) services. Maybe a life insurer could have refused to issue her coverage based on the idea that the after effects of scarlet fever, the condition that apparently blinded her, could shorten her life. (Although, in reality, she did live to the age of 88.)

Insurance exists to spread the financial risk related to unhappy events that have not yet happened and are relatively unlikely to happen. Insurers do not want to “insure a burning house.”

Many patient advocates note that the people who already have serious health problems or serious problems with the activities of daily living (ADLs) are the people who need health and LTC finance programs the most.

Any acute-care health finance or LTC finance program in a developed country that leaves people with health problems, disabilities, or both to fend for themselves is not a particularly useful or serious program, the patient advocates say. 

For example: Christopher Roberton, a law professor at the University of Arizona and research associate with an affiliate of the Harvard law school recently published a blog entry in which he worries about the possibility that patients will refrain from getting Alzheimers brain scan tests because they fear the results will affect their eligibility for LTCI coverage.

“Since Medicaid remains the insurer of last resort especially in this area, the insurers’ cream-skimming imposes a huge burden on the state and federal governments, perhaps worse than the uncompensated care problem for regular health insurance,” Robertson says.

On the one hand: Sure, people who find out that Alzheimers is already eating away at their brains certainly need help with finding a way to prepare for the financial impact of having Alzheimers.

On the other hand: In the real world, if people who already know they have Alzheimers can buy private LTCI coverage on roughly the same basis as other people, and no one pumps in any subsidies or imposes any requirement that a large number of healthy individuals also buy coverage, every private LTCI program will soon end up covering only people who know they have Alzheimers or some or condition that is requiring or soon will require that they have LTCI coverage. Buying LTCI coverage from that pool would end up being a worse deal for those individuals than if they had all joined together to pay the premiums into a savings account. 

I don’t have the patience, or skills, to figure out the math, but my guess is that this would be one unusual group of people that would be better off pooling their money to buy lottery tickets, or alien invasion insurance.