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

You might call long-term-care coverage the Rodney Dangerfield,or the ugly stepchild, of the insurance industry. It gets norespect. After all, since companies began marketing the firstpolicies in the 1970s, there have been predictions of rapid growthto match the aging of America's population. But so far, suchpontifications have remained a far-off fantasy and there's no signlong-term care insurance will turn into a Cinderella story any timesoon.

“While this insurance product has been available on the marketfor some time, to date it does not appear to be broadly used, orwidely accepted, as a vehicle through which consumers can meettheir long-term-care needs,” concluded a recent study by theFlorida Office of Insurance Regulation. Befitting the industry'slack of popularity, the report received little notice when releasedwith no fanfare last summer.

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

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

A No-Show Product?

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

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

Insurance companies and agents believe that consumers don'tunderstand their need for coverage, or refuse to believe their ownpotential need for care. Many consumers incorrectly believe thatMedicare will pay for their future long-term-care costs. An AARPstudy released in December bore this out. The AARP survey foundthat less than 10 percent could reasonably estimate the cost ofnursing home care and most overestimate the amount that governmentprograms such as Medicare will pay. More than half of the 1,456Americans 45 and older believed Medicare covered assisted livingand 59 percent believed Medicare covered long-term nursing homestays. In fact, Medicare only covers the first 100 days. “There isa need for better awareness,” said AARP National Board memberJennie Chin Hansen.

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

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

One company in Florida, the Alpha Co. hiked rates 130 percentfrom 2001 to 2005. Its average premium rose to $2,914 from $1,264.Not surprisingly, the number of policyholders fell by 70 percent to4,361, the OIR report said.

Other complaints were related to consumers seeking a refund dueto problems with agents. “A consistent theme among these complaintsappears to be instances of 'twisting' — encouraging a person tocancel 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 thecost would still be an obstacle, particularly for people saving forchildren's college tuition or their own retirement.

The bottom line: Most experts expect a modest increase in peoplebuying long-term-care insurance. But without a major publicsubsidy, major growth will remain a dream. “Will it ever be a majorsource of financing for long-term care? I don't think so,” saidJosh Wiener, senior fellow with RTI International, a policy thinktank in Washington D.C. “It's too expensive and with too manydynamics working against it.”

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

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

In effect, the federal effort lets people buy privatelong-term-care coverage to supplement potential coverage underMedicaid. For the government, the program has eliminated the needfor most of the consumers to apply for Medicaid, thus savingMedicaid costs.

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

To protect policyholders from large rate increases, thelegislation also forbids insurance companies from charging newcustomers different rates than existing policyholders for the samecoverage. This should curtail the practice of luring potentialcustomers with below-cost premiums and then passing the costs on toexisting policyholders. Other new guidelines deal with cancelingpolicies. Insurers had been able to challenge coverage under apolicy on the grounds of fraudulent information found onapplications many years after the policy had been approved. Thatleft elderly policyholders without insurance or struggling to provethe information on their application. Now, insurers have only twoyears to contest information on a policy.

The OIR Takes Charge

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

Over the past few years, some insurers had asked for annual rateincreases of more than 200 percent on policyholders older than 80.“This legislation provides rate relief to our seniors so they cancontinue to receive the care they need,” Insurance CommissionerKevin McCarty said. If there are rate increases, McCarty said,seniors will have options to reduce benefits or cancel theirpolicy, but at least walk away with a paid-up policy equal to theamount 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. AtUnumProvident, which holds nearly 80 percent of the grouplong-term-care insurance policies in the United States, more thanhalf of claims last year were for people under 65.

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

Most long-term-care coverage is sold on an individual basis. InFlorida, just five percent is sold as group insurance. This couldchange down the road. Former Governor Jeb Bush had directed thestate Department of Management Services to consider offeringlong-term care as a supplemental benefit to state workers. IfGovernor Charlie Crist follows through, Florida would join 25 otherstates that offer long-term care as a voluntary group benefit toits government employees. But of course, these days Crist has hishands full with the state's property insurance crisis. And for now,long-term care will have to wait a little longer for its PrinceCharming.