As the legislature once again starts plowing through the latest attempt at homeowners' insurance issues, many lawmakers and consumers have pushed other vital types of insurance concerns to the side–and do so at their own peril. While those homeowners' premiums and deductibles seem large now, they are nothing compared to cost that individuals face when it comes to aging and health care.

You might call long-term-care coverage the Rodney Dangerfield, or the ugly stepchild, of the insurance industry. It gets no respect. After all, since companies began marketing the first policies in the 1970s, there have been predictions of rapid growth to match the aging of America's population. But so far, such pontifications have remained a far-off fantasy and there's no sign long-term care insurance will turn into a Cinderella story any time soon.

“While this insurance product has been available on the market for some time, to date it does not appear to be broadly used, or widely accepted, as a vehicle through which consumers can meet their long-term-care needs,” concluded a recent study by the Florida Office of Insurance Regulation. Befitting the industry's lack of popularity, the report received little notice when released with no fanfare last summer.

Long-term-care insurance is meant to protect consumers from the huge costs of care in nursing homes, assisted-living facilities and home health aides. Although federal studies estimate that about 10 million people need long-term-care today, only nine percent of Americans have bought long-term-care insurance. In Florida, just five percent of the population over age 45 have long-term-care insurance, according to the 43-page OIR study. About 350,000 long-term-care policies are in force in Florida, a modest increase from 300,000 policies in 1998. Considering Florida has the nation's highest proportion of people over 65, the state has one of the lowest penetration rates of long-term-care.

Nationally, as in Florida, fewer and fewer insurers are offering long-term-care insurance. While there were once over 100 companies offering this insurance, today there are only a handful of players. Just seven companies have more than 20,000 enrolled long-term-care customers in Florida, the OIR report found. The largest is General Electric with 52,442 members in the state. Rounding out the list are John Hancock Life and Bankers Life and Casualty, UNUM Life Insurance Co., Conseco Senior Health, Penn Treaty Network, and Continental Casualty.

A No-Show Product?

For decades, many industry experts expected a surge in interest in long-term-care insurance to match the predictions of the aging of the population and the soaring cost of nursing homes, assisted-living facilities and home health care. The federal government and many states offer limited tax incentives to purchase the insurance, and sales have grown somewhat over the last decade. Despite this growth, sales continue to lag behind industry expectations.

In 2004, most, if not all, of the 4.2 percent growth in the long-term-care insurance market nationally has been attributed to enrollment in the new Federal Long-Term-Care Insurance Program. Yet, even though the federal government did a major education campaign to encourage participation, only five percent of active civilian federal employees enrolled during its first three years, similar to the trend of low participation rates observed in other group offers. This low take-up rate reflects the difficulty in selling these products.

Insurance companies and agents believe that consumers don't understand their need for coverage, or refuse to believe their own potential need for care. Many consumers incorrectly believe that Medicare will pay for their future long-term-care costs. An AARP study released in December bore this out. The AARP survey found that less than 10 percent could reasonably estimate the cost of nursing home care and most overestimate the amount that government programs such as Medicare will pay. More than half of the 1,456 Americans 45 and older believed Medicare covered assisted living and 59 percent believed Medicare covered long-term nursing home stays. In fact, Medicare only covers the first 100 days. “There is a need for better awareness,” said AARP National Board member Jennie Chin Hansen.

Those who delay making a decision to purchase private insurance may find themselves shut out of the market for coverage because people with preexisting medical conditions often are excluded from coverage by medical underwriting. Moreover, consumer advocates argue that current long-term-care policies, while considerably better than earlier products, are just too difficult to understand, with the number and complexity of the choices making it hard for consumers to obtain the right set of benefits at the right price. That's why the role of insurance agents, who often have a vested stake in which policy is chosen, serve such a central role.

Another issue is that some of those buying long-term-care insurance are not always happy with it. From 1999 to 2003, the rate of complaints over long-term care exceeded to growth in sales of policies, the OIR report said. There were 620 complaints filed with OIR in fiscal year 2005. Most of complaints relate to premium rate increases.

One company in Florida, the Alpha Co. hiked rates 130 percent from 2001 to 2005. Its average premium rose to $2,914 from $1,264. Not surprisingly, the number of policyholders fell by 70 percent to 4,361, the OIR report said.

Other complaints were related to consumers seeking a refund due to problems with agents. “A consistent theme among these complaints appears to be instances of 'twisting' — encouraging a person to cancel an existing long-term-care product and purchase another,” the OIR report said.

One More Premium

Even if more people become aware of the need for insurance, health policy expert Dennis Shea of Penn State University said the cost would still be an obstacle, particularly for people saving for children's college tuition or their own retirement.

The bottom line: Most experts expect a modest increase in people buying long-term-care insurance. But without a major public subsidy, major growth will remain a dream. “Will it ever be a major source of financing for long-term care? I don't think so,” said Josh Wiener, senior fellow with RTI International, a policy think tank in Washington D.C. “It's too expensive and with too many dynamics working against it.”

Still, the federal government and states such as Florida continue to push long-term-care insurance. The reason, of course, is to protect the state-federal Medicaid programs which have run into financial problems as it's become the de facto long-term-care insurance program in the United States. The main problem with this setup is consumers typically have to impoverish themselves to qualify for Medicaid, which today covers about 80 percent of all nursing home coverage. An AARP report published in April pointed out that Medicaid requires people needing care to have less than $2,000 in assets and to have monthly incomes under about $1,800 for an individual in Florida.

In February 2006, President Bush signed legislation that allowed states to develop a partnership between the Medicaid and private insurance market to create products that allow consumers to buy long-term-care insurance in exchange for shielding assets in determining Medicaid eligibility. Some states such as California and Connecticut subsequently set up programs that let people buying $100,000 of long-term-care insurance to protect $100,000 in assets in qualifying for Medicaid.

In effect, the federal effort lets people buy private long-term-care coverage to supplement potential coverage under Medicaid. For the government, the program has eliminated the need for most of the consumers to apply for Medicaid, thus saving Medicaid costs.

The OIR believes Florida should be able to take advantage of the new law. Florida last year became one of 20 states to pass a law to make this type of arrangement legal. The new plans are expected to be on the market later this year.

To protect policyholders from large rate increases, the legislation also forbids insurance companies from charging new customers different rates than existing policyholders for the same coverage. This should curtail the practice of luring potential customers with below-cost premiums and then passing the costs on to existing policyholders. Other new guidelines deal with canceling policies. Insurers had been able to challenge coverage under a policy on the grounds of fraudulent information found on applications many years after the policy had been approved. That left elderly policyholders without insurance or struggling to prove the information on their application. Now, insurers have only two years to contest information on a policy.

The OIR Takes Charge

“If there are any questions about the information contained in an application, the insurers will investigate before issuing the policy, and up to two years after issuance,” the OIR said of the new law. “This ensures that the senior will be mentally competent, and his or her agent and any medical providers will be available to answer questions about the application and medical records.”

Over the past few years, some insurers had asked for annual rate increases of more than 200 percent on policyholders older than 80. “This legislation provides rate relief to our seniors so they can continue to receive the care they need,” Insurance Commissioner Kevin McCarty said. If there are rate increases, McCarty said, seniors will have options to reduce benefits or cancel their policy, but at least walk away with a paid-up policy equal to the amount of premiums already paid.

Another issue for agents to consider in selling plans is that, while long-term care is generally associated with people over 65, about a third of those receiving long-term care are younger. At UnumProvident, which holds nearly 80 percent of the group long-term-care insurance policies in the United States, more than half of claims last year were for people under 65.

“Add in the fact that more young people are suffering from conditions like obesity and diabetes, and this leads us to expect incidence rates to continue to rise for this age group,” said John Noble, the insurer's director of long-term-care products.

Most long-term-care coverage is sold on an individual basis. In Florida, just five percent is sold as group insurance. This could change down the road. Former Governor Jeb Bush had directed the state Department of Management Services to consider offering long-term care as a supplemental benefit to state workers. If Governor Charlie Crist follows through, Florida would join 25 other states that offer long-term care as a voluntary group benefit to its government employees. But of course, these days Crist has his hands full with the state's property insurance crisis. And for now, long-term care will have to wait a little longer for its Prince Charming.

Special Reports /

Long-Term-Care Insurance: A Long-Term Issue

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