Long-term care refers to the medical resources, personal care and support services needed by people when they lose their physical and mental capacity for self-care because of a chronic illness or condition. [1]   The demand for long-term care services – whether in someone’s home, an assisted living facility or a nursing home – will increase significantly as the number of older people in Massachusetts grows. [2]  

 

People age 85 and older constitute the fastest growing portion of the population in the United States and are expected to increase from 4 million in the year 2000 to 19 million by 2050. [3]   People over the age of 85 are also the fastest growing segment of our state’s population. [4]   This group is most likely to need costly long-term care.  Massachusetts has a larger proportion of older residents than the nation as a whole.  Currently, 13.9 percent of the population, more than 850,000 individuals, is over the age of 65 in Massachusetts. [5]   By 2025, this population is expected to grow to roughly 18.1 percent of the state’s population, which will be more than 1.25 million people. [6]  

 

                                   
Figure 1. Source: www.census.gov/population/projections/state/stpjage.txt

 

 

While only one in three seniors ages 65 and over will require nursing home admission of three months or longer, many more will need some care at home or in other assisted settings. [7]   For nursing home patients, the stay for those with long-term debilitating diseases like Parkinson’s and Alzheimer’s can be very long, while the stay for others can be as short as 90 days. [8]   The average length of stay (from admission to exit interview) is 870 days (approximately 2.4 years). [9]   According to experts, most seniors prefer to remain in their homes or communities, to “age in place,” rather than being institutionalized. [10]

 

 

Long-term care services are expensive.  In the year 2000, the average cost for nursing homes in Massachusetts was $76,000 per year. [14]   In the next 30 years, these costs are expected to quadruple, bringing Massachusetts’ average nursing home costs to approximately $304,000 per year. [15] ^, [16]   The nursing home population is expected to double during this same time period. [17]   Massachusetts residents spent $3.5 billion in 1998 on nursing home care. [18]   The average cost for assisted living facilities is $36,000 per year in Massachusetts. [19]   By comparison, home care can be less expensive. [20]   However, long-term care costs can fluctuate dramatically based on the needs of the patient, which makes financial planning for this type of care difficult. [21]  

 

 

A Middle-Class Problem

 

Individuals who are either wealthy or poor are in a relatively good position to pay for their long-term care needs.  Some individuals are wealthy enough to pay for their long-term care costs out-of-pocket. [22]   In Massachusetts, individuals pay out-of-pocket for approximately 32 percent of the costs of long-term care. [23]  

 

Our country’s poorest seniors can rely on Medicaid, the government healthcare safety net for low-income Americans, to pay for long-term care costs. [24]   Medicaid covers about 40 percent of long-term care costs overall. [25]

 

However, most Massachusetts residents cannot afford to pay for years of long-term care out-of-pocket or qualify for Medicaid coverage.  Middle-class individuals are left with few options for covering expensive long-term care needs.  These individuals may be unaware that their current healthcare policies, Medicare (the government’s health insurance program for elders) or supplemental Medicare policies that individuals purchase on their own will not cover long-term care costs. [26] ^{, [27]}  

 

When faced with the dilemma of paying for long-term care needs, too often elderly middle-income individuals spend down their assets to become eligible for Medicaid. [28]   When residents make this choice, limited government resources are further stretched as the number of individuals on Medicaid grows.  Long-term care insurance is one option that is now available to middle-income individuals who can afford it.  

 

 

Long-Term Care Insurance

 

Long-term care insurance is an insurance plan that typically provides a daily, fixed dollar amount toward the costs of nursing home, assisted living or home health care costs for a number of years when policy owners can no longer live at home without assistance. [29]   This type of insurance was first offered by a small number of insurance companies in the mid-1980s. [30]   These policies provide individuals with an option to plan ahead by purchasing an insurance policy that covers their long-term care needs.  Since the premiums on these policies can be expensive, it is often middle-income to upper-income individuals who purchase them.  Individuals typically purchase their policies well before they need them (usually in their mid-50s to mid-60s) in order to take advantage of a lower, age-based premium. [31]   

 

Types of Plans

Long-term care insurance plans may be sold as individual policies or group policies. 

 

·         Individual Policies: Consumers typically purchase individual long-term care insurance policies through an agent or by direct mail or phone solicitations.  These policies are guaranteed renewable, which means that policyholders have the right to renew the policy each year. [32]   The insurance company may not change the coverage or refuse to renew it unless policyholders fail to pay their premiums.  Massachusetts regulates individual policies through the Division of Insurance (DOI).  However, these regulations were relaxed significantly in January 2000 and now provide less protection for consumers. [33]  

 

·           Group Policies:  In 1996, group policies accounted for more than half of the policies sold in the Commonwealth. [34]   Unlike individual policies, group policies are not required to meet any minimum standards and insurers do not have to submit policy information for approval on these plans to the DOI in Massachusetts. [35]   Employers (e.g., the federal government), organizations (e.g., AARP) or specialty associations (e.g., the Massachusetts Medical Society) may offer group plans to their employees or members. These policies typically provide quality products because an educated member of the agency or association is charged with assessing, selecting and monitoring the product on behalf of its members. [36]   However, not all group policies are sold this way.  Insurers also establish groups for marketing purposes where a purchaser will nominally join a “group” at the time the policy is purchased.  Some consumer advocates report that group policies have been sold to individuals who are unaware that these policies are not required to meet any minimum standards. [37]  

 

Lapse Rates

The policy lapse rate reflects the number of individuals who stopped payment on their policies, switched policies, exhausted their payments, or died before using their policy. [38]   The lapse rate is a good indicator for determining whether or not policyholders are able to sustain the coverage they originally purchased.  The most current information available dates back to 1996 when the policy lapse rates for individual policies in Massachusetts was 23.3 percent. [39]   The group policy lapse rate for Massachusetts policies in 1996 was 25.7 percent. [40]   This means that approximately one-fourth of all individual and group long-term care insurance policyholders let their policies lapse.

 

 

 

Policy Features

Like all insurance plans, long-term care insurance policies differ greatly in what they offer the consumer and how much they cost.  Some of the ways in which coverage can differ include: 

 

·         Type of Coverage: Policies differ in the type of coverage they provide.  Some offer “nursing home only” care, while other plans cover assisted living facilities and in-home care.  As more elders choose to stay at home or enter assisted living facilities, “nursing home only” coverage becomes significantly less valuable.

 

·         Amount of Coverage: The amount of coverage may also differ from policy to policy.  Some plans offer lifetime benefits, others provide two to five years of coverage and others offer significantly shorter periods of coverage.  Plans also differ in the amount of daily or monthly benefit allowed by the plan (e.g., some plans may provide $100 for nursing home care per day, while others may provide $300 per day).

 

·         Start of Coverage: “Benefit triggers” are used to determine if and when benefits are payable to the policyholder.  These triggers, called Activities of Daily Living (ADLs), include needing assistance with eating, dressing, bathing, toileting, moving from bed to table to bath, etc. [43] Depending on the terms of the policy, help with two or more ADLs may be needed before a claim can be filed. [44]  

 

·         Elimination Period: Once a claim is filed, policyholders may not receive benefits immediately.  Policyholders must wait for the “elimination period” to end before they receive any funds.  The elimination period is similar to a deductible for automobile or homeowners insurance policies in that the policyholder pays some costs out-of-pocket before the insurer begins paying.  Elimination periods can vary significantly in length.  For example, some plans have a 90-day elimination period.  This means the insurer will not provide any coverage for long-term care services for the first 90 days after a policyholder has filed a claim.  Other policies have a 365-day elimination period, which means the policyholder must wait for an entire year before they receive payments from their insurer.  The policyholder is responsible for any costs incurred during the elimination period. 

 

·         Inflation Coverage: Some plans have a cost-of-living adjustment while others do not adjust for inflation.  Without inflation coverage, the value of a policy decreases over time.  If a consumer purchased a policy without inflation protection that pays $125 a day for nursing home care, it would have covered close to 60 percent of nursing home costs in 2000, yet it will only cover 15 percent of estimated costs in the year 2030. [45]

 

 

 

Increasing Sales of Long-Term Care Insurance Policies

 

The pace of sales of long-term care insurance policies has increased significantly in the last few years.  Nationally, the number of long-term care insurance policies sold has grown at an average rate of about 21 percent annually between 1987 and 1998, with more than 5.8 million policies sold as of June 30, 1998. [47]   Massachusetts saw an annual increase of 18 percent in the number of long-term care policies sold from 1994 to 1996, with 18,467 individual and 22,868 group policies sold as of December 1996. [48]

 

National Sales Figures of Long-Term Care Insurance Policies

Figure 2.  Source:  http://www.ltcg.com/ltcindustry.asp

 

 

The number of policyholders in the nation and in Massachusetts still remains a tiny fraction of the market despite the increases in the aging population. [49]   Nationally, 2.5 percent of long-term care costs are financed by long-term care insurance. [50]   In Massachusetts, 4 percent of long-term care costs are financed with these policies. [51]   As of December 1996, 41,335 people in the Commonwealth were long-term care policyholders. [52]   This represents a 51 percent increase in the number of policies held since 1994. [53]   In 1996, the most current information available, the average annual premium for individual and group policies in the Commonwealth was $1,785 and $808, respectively. [54]   

 

Long-term care insurers typically blame lack of market penetration on the cost of their products, the ignorance of the public and competition with Medicaid. [55]   While it is unclear whether long-term care insurance will ever play a major role in financing long-term care in the United States, federal and state officials have recognized the governmental savings that can result from increasing utilization rates of these policies. [56] ^, [57]  

 

 

Historic Pricing Problems with Long-Term Care Insurance

 

Some insurance companies have been known to engage in inappropriate pricing practices that lead to significant problems for policyholders trying to file claims. 

 

“Low-balling” occurs when policies are sold to all applicants, both healthy and unhealthy alike, at a very low price.  These pricing practices often lead to a significant increase in market share for the insurer.  When the unhealthy policyholders start to file claims, the insurer pleads that it has to pay out more money in claims than its actuaries initially forecast.  To compensate for this actuarial error, the insurer increases the premiums on a whole policy class. [58]   A class is determined by any single variable that is used by the insurance company to group people. [59]

 

Premium increases often force some policy owners to let their policies lapse.  Insurers can actually benefit from higher lapse rates because the number of policyholders filing claims decreases.  Consumers who are forced to let their policies lapse usually do not get back the premium payments that they already contributed to their policy.  Since these individuals do not get their premium payments back and will not be filing claims, this money then can be used to fund claims submitted by policyholders who maintained their policies over time.  This situation improves the insurer’s bottom line. [60]  

 

 

Policyholders can also face problems when it comes time to file a claim.  Most long-term care insurance providers require applicants to provide specific medical information and authorization to obtain medical and hospital records.  In theory, an underwriter would review this information, which can take several weeks or more, and the insurer would then either decline to issue the policy or issue it with an appropriate premium rate that reflects the insurer's risk.  According to some industry employees, underwriters do not actually review the medical records of many applicants. [66]

 

“Post-claims underwriting” is the technical term for an insurer's failure to do its risk assessment homework and set a premium that will support the policy before issuing it.  More specifically, an insurer accepts insurance applications without review of the applicants’ health or medical records, issues the policies and collects the same annual premium from the healthy and unhealthy applicants alike.  Years later, after the policyholders submit claims, the insurance company finally reviews the consumers’ medical records and denies coverage by finding a disqualifying medical condition.  It is essentially an attempt to rescind policies after claims have been made, rather than eliminating high-risk applicants in the underwriting process by refusal or by quoting a premium that reflects the actual risk. 

 

Policyholders are hurt by this practice because they have paid their premiums for a number of years, essentially diverting long-term care funds into an unusable policy.  Even if the insurance company refunds the premiums, the consumer has already filed a claim, is in need of long-term care services and is, in all likelihood, no longer eligible to buy a replacement policy. 

 

The current DOI long-term care insurance regulations have a section entitled “Prohibition Against Post Claims Underwriting.” [67]   This section of the regulations requires insurers to ask clear and unambiguous questions on the application regarding an individual’s health status and mandates that the consumer answer all questions truthfully.  However, the regulation does not require that this information be reviewed by the insurer.  It is unclear whether this provision prevents the type of possible abuses that can occur from post-claims underwriting.   

 

 

 

Currently, forty-six states have laws that regulate long-term care insurance.  Many of these laws are based on a model developed by the National Association of Insurance Commissioners (NAIC).  Massachusetts is one of the four states that has failed to pass such a law.  However, long-term care insurance is not entirely unregulated by the Commonwealth.  DOI, the state agency charged with regulating insurance products, currently regulates individual long-term care insurance policies.  DOI takes the position that it has the authority to regulate individual long-term care insurance policies as “sickness and accident” insurance under the broad state law that pertains to individual insurance policies. [78]    

 

The lack of a specific Massachusetts law that pertains directly to long-term care insurance is troubling for several reasons.  It is questionable whether the broad state law for individual insurance policies actually applies to long-term care insurance.  DOI’s interpretation of this law has never been challenged and, therefore, has never been decided by the courts.  As a result, DOI’s authority, or lack of authority, to regulate long-term care policies remains an open-ended question.  In addition, laws that set minimum policy standards and provide consumer protections are much more immune to changes by the administration or political influence.  Without such a law, a state agency can elect whether or not to develop, change or enforce regulations. [79]   Although this flexibility is useful and necessary in some situations, it can create significant inconsistencies from one administration to the next.  Finally, group long-term care insurance policies are not required to meet any minimum standards and are essentially unregulated. [80]   DOI takes the position that it does not have the statutory authority to regulate group long-term care insurance policies. [81] This leaves thousands of Massachusetts consumers vulnerable to unregulated group long-term care insurance products.  

                     

 

National Association of Insurance Commissioners Model Standards

 

The National Association of Insurance Commissioners (NAIC) is a non-profit organization made up of insurance regulators from the 50 states, the District of Columbia and the four United States territories. [82]   “The mission of the NAIC is to assist state insurance regulators, individually and collectively, in protecting the public interest, promoting competitive markets and facilitating the fair and equitable treatment of insurance consumers.” [83]   NAIC also promotes the “reliability, solvency and financial solidity of insurance institutions and supports and improves state regulations on insurance.” [84]   

 

For fifteen years, NAIC worked in conjunction with regulators, legislators, insurance industry representatives, and consumers to create a comprehensive uniform model law (referred to as the NAIC Act) and related regulations for long-term care insurance. [85]   The act and regulations, which are continually updated and amended, do the following:

 

·         define minimum benefits for policies offering home health and community health benefits;

·         outline guidelines for policies with minimum benefit requirements;

·         establish reporting requirements for insurers detailing lapse rates, number of replacement policies sold, records on agents, etc.;

·         regulate insurance marketing practices and advertising guidelines;

·         develop and distributes suitability standards for all policies sold in each state; and

·         require insurers to offer at least one plan with built-in inflation coverage. [86]

 

The insurance industry has long supported nationwide adoption of the NAIC model act and regulations. [87]   Many consumer advocates also support the adoption of the NAIC model as a framework for standards, with the actual standards going above and beyond what is offered in the model.  Al Norman, the Executive Director of Mass Home Care Association and a former consumer representative to NAIC, states: “The NAIC model law and regulations should be the starting point for the long-term care insurance products sold in the Commonwealth.  We should be building from that base upward.” [88]

 

 

 

Using the NAIC Act and Regulations at the State Level

 

While state laws and regulations vary significantly, virtually every state in the country has adopted components of the NAIC model law or regulations.  Massachusetts has adopted some of these provisions by regulation.  For example:

 

·         The NAIC model regulations set out provisions for insurers that protect consumers against unintentional policy lapses.  Some of these provisions include providing a notice before the lapse or termination of a policy and reinstating policies that may have been improperly terminated.  According to the NAIC, 29 states have either passed legislation or created regulations that include this language from the NAIC model. [90]

 

·         The NAIC model regulations set minimum standards for any home health care services that are provided in a policy.  The model regulations state that long-term care insurance policies that offer a home health care component are prohibited from excluding care provided by a home health aide, requiring care from a skilled nurse or therapist, and limiting benefits to services provided by Medicare-certified agencies.  The model regulations also address issues related to home health care costs.  The NAIC affirms that all but five states have incorporated at least some or all of its model language in statute or state regulations. [91]  

 

·         The NAIC model act and regulations both contain sections on nonforfeiture, a provision that allows policyholders who lapse on their policy to get some benefits in return for the premiums they paid.  The model act requires insurers to offer this benefit to all policyholders and gives the state Commissioner the authority to regulate these benefits.  The regulations then set more specific standards regarding nonforfeiture.  Eighteen states follow the NAIC model act and require insurers to offer a nonforfeiture benefit. [92]   Eleven states use the nonforfeiture language from the model regulations. [93]

 

It is apparent that the NAIC’s model act and regulations are used by most states seeking to regulate long-term care insurance policies.  Each state utilizes different components, while also using additional language and provisions that are not in the model.  The NAIC and many states continue to revise their laws and regulations.

 

 

Consumer Protections in Other States

 

The Senate Post Audit and Oversight Bureau interviewed representatives from 46 state regulatory agencies that oversee insurance products (typically called the Department or Division of Insurance). [94]   Some of the findings include:

 

·         43 states regulate individual and group policies,

 

·         14 states require that suitability standards or guidelines be created and provided to consumers,

 

·         7 states prohibit the sale of policies that only cover nursing home care,

 

·         7 states require that some comparison data be provided to consumers, and

 

·         3 states require that insurance companies send policyholders a yearly statement outlining their policy.

 

 

 

 

 

Regulations

 

DOI is the agency in Massachusetts charged with regulating the long-term care insurance industry. [97]   Although more than 50 percent of policies sold in Massachusetts are group policies, these policies are not required to meet any minimum standards. [98] ^, [99] According to DOI, it has never imposed minimum standards on group policies in Massachusetts due to a lack of statutory authority. [100]   Consumers who purchase a group plan through their employer, a professional association or organization have a designated advocate representing their group to ensure they are purchasing a quality product.  Consumers without an organizational advocate representing them may be at greater risk by purchasing group policies since these policies do not have to meet any minimum standards.

 

In 1989, soon after long-term care insurance products began appearing in the Massachusetts market, DOI created regulations for individual long-term care policies sold in the Commonwealth.  Absent a direct enabling law, DOI derived its authority to set regulations indirectly from Mass. Gen. Laws ch. 175, § 108 governing “sickness and accident” policies. [101]   These regulations were revised and new regulations took effect in January 2000. [102]   A revision in the regulations was needed since the market and product had significantly changed since 1989. [103]   According to DOI, the new regulations were designed to give the consumer more flexibility when choosing a policy. [104]   However, a Boston Globe article from 1999 reported, "Proponents and critics agree that the new rules are designed to deregulate the long-term care insurance market and permit what insurers call 'flexibility' in benefit design and pricing.” [105]  

 

The insurance industry supported the changes in the regulations. [106]   The industry had identified policy cost as a primary reason that sales in Massachusetts were low and argued for a free hand to redesign their products. [107] ^, [108]   These regulations allowed companies to have the leeway they claimed to need to be innovative in developing lower-cost, lower-benefit policies that would encourage more Massachusetts elders to purchase policies. [109]  

 

This revision process provided an opportunity for DOI to develop new regulations to encourage the sale of quality products while maintaining consumer protections; DOI missed this opportunity.  Unfortunately, these revisions shortchanged consumers purchasing individual policies in two primary ways:

 

• The maximum allowable elimination period or “deductible” increased from 100 days to 365 days.  As a result, Massachusetts policyholders may need to pay out-of-pocket for an entire year once they have filed a claim. 

 

• Policies no longer need to include a home health care component.  Even though trends show that elders would rather age in place and receive care in their home or an assisted living facility, the Commonwealth now allows policies to be sold that only provide services in nursing homes.  When individuals purchase insurance, they are unable to determine whether 20 years later their loved ones will be available to provide care for them.  Home health care coverage becomes essential for anyone wishing to remain in their home as they grow older and need assistance with their daily living activities. [110]

 

Currently, long-term care insurance policies are only appropriate for a relatively small segment of the population who can afford quality policies. [111]   Creating a lower quality and less expensive policy lures consumers into purchasing inappropriate products that may not meet their long-term care needs.

 

 

 

Legislative Efforts

 

The Massachusetts Legislature has failed to pass a law aimed at creating standards for long-term care insurance policies sold in the Commonwealth.  Several bills filed in the 2001-2002 legislative session deal with long-term care insurance.  These bills seek to employ a variety of strategies to improve the quality, affordability and delivery of long-term care insurance by doing the following:

 

·         rewarding those who purchase long-term care insurance by preventing the state from enforcing Medicaid liens for reimbursement for long-term care costs paid by MassHealth (Medicaid); [115]

 

·         providing income tax credits for individuals who purchase long-term care insurance policies that provide certain minimum benefits; [116]

 

·         making long-term care insurance policies available to state employees through the Group Insurance Commission; [117] and

 

·         preventing the state from considering an individual’s assets when determining eligibility for MassHealth (Medicaid) payment of nursing home cost, if the individual has purchased a long-term care insurance policy that provides certain minimum benefits. [118]

 

As of April 2002, the legislature had not voted on any of these bills.

 

Throughout the 1990s, a comprehensive long-term care insurance bill was introduced in the Senate by Senator Mark Montigny (D-New Bedford).  This legislation, which was never adopted, mandated more than 25 consumer protections including that:

 

·         all policies cover care at home as well as in an institution;

 

·         insurers provide written notice to consumers in the event that a claim was denied or a policy is about to lapse; 

 

·         rate increase restrictions be imposed on all policies sold in Massachusetts;

 

·         an independent appeal process be created through the Division of Insurance;

 

·         all long-term care insurance agents be trained and certified before selling policies; and

 

·         suitability standards be created for all policies sold in the Commonwealth. [119]

 

In an effort for the Commonwealth to prepare for the long-term care needs of the state’s growing elderly population, the FY 02 budget created a task force that is charged with studying long-term care in Massachusetts.  This task force, initiated by Senator Harriet Chandler (D-Worcester), will study long-term care insurance, the quality and availability of long-term care services, and a host of other issues. 

 

Lack of Standards

 

Long-term care insurance policies have not been standardized and are often complicated and poorly understood by purchasers and insurance agents. [120] ^, [121]   The policies vary widely in their benefits, often making the choices for consumers confusing and overwhelming.  While it is important that the market is able to work its course and determine the prices and benefits that consumers want in long-term care insurance policies, safeguards must be in place to protect consumers.

 

The Massachusetts Legislature has failed to pass a law that would provide strong and consistent consumer protections.  Massachusetts revised its long-term care regulations in 2000 to give the insurance industry the flexibility it requested in order to develop new policies.  However, DOI needs to be sure that consumers are also given a quality product.  This balance can only occur if stronger standards for long-term care policies are in place. 

 

Massachusetts lacks several important long-term care insurance consumer protections including the following:

 

Group policies sold in the Commonwealth are not required to meet any minimum standards. [122]   While group policies that are purchased through an employer, association or organization typically provide quality coverage for their members, many group policies do not. [123]   Individuals who purchase these policies may be unaware that they are purchasing a group policy. [124]  

 

 

 

Despite elders preference to age at home and the lower costs associated with in-home care, long-term care insurance regulations in Massachusetts no longer require a home health care component. [126]   This could force many elderly policyholders to either not use their policy or receive care in a nursing home when they would rather stay in their own home.

 

Consumers are required to make certain decisions about their policy at the time of purchase that cannot be changed at a later date.  Automobile, homeowners or other insurance policies typically allow consumers to revisit their policies each year and make adjustments.  Consumers who purchase long-term care insurance policies are not always given this same option.  Important elements of coverage that consumers may want to review and make modifications to (with appropriate changes in premium costs) include the following:

 

·         Elimination period: The elimination period or “deductible” is the amount of time between the first claim and payment. [127]   Consumers choose their elimination period at the start of their policy.  The shorter the elimination period, the higher the premiums and the lower the amount that the policyholder has to pay out-of-pocket for care before the insurer starts to pay. 

 

·         Amount of coverage: Consumers determine the amount of coverage at the time of purchase.  Individuals may face a change in their economic situation over time or insurers may raise the premium on their class of policy.  As a result, policyholders may want to increase or reduce their coverage to adjust the cost of their premium.  While insurers may allow a policyholder to make these adjustments, there is no requirement that they do so.

 

·         Inflation coverage: Consumers choose whether or not they want inflation protection at the time they purchase their long-term care insurance policy.    Without inflation coverage, the value of a policy decreases over time.  Policyholders who do not purchase this protection are often left with insufficient benefits when they need their policy.  For example, an individual may purchase a policy that provides $125 per day to help defray long-term care costs but does not have inflation coverage.  Twenty years later that $125 per day allotment will not have the same purchasing power.

 

·         Nonforfeiture protection: Nonforfeiture protection allows policyholders to get some benefits in return for the premiums they already paid into the policy if they let their policies lapse. [128]   Many individuals purchase policies that seem appropriate for them.  However over time, their financial situation changes and they realize they are not able to make such large payments each year or the premiums on their entire class of policies increase.  As a result, they are forced to let their policies lapse, and they do not receive any benefits in exchange for the premiums they paid. 

 

There is no third-party appeal process in the Commonwealth.  Massachusetts does not have an independent agency to which consumers can address their complaints about long-term care insurance policies and insurers.  This lack of an appeal process leaves consumers without a third-party outlet for expressing their concerns or advocating for claims they believe should not have been denied. 

 

Currently, policyholders with complaints may work through an internal process with their insurance provider.  This process may involve speaking with a customer service representative or submitting additional documentation.  Consumers have expressed their frustration with this process since it is time consuming and can take many months to resolve. [129]

 

Consumers can also file a complaint with DOI or the Office of the Massachusetts Attorney General.  DOI has a Consumer Service department that “responds to inquiries and assists consumers in resolving complaints against insurers, agents, brokers, and other licensees. In addition to providing consumers with general insurance information, DOI also advises consumers of their options under their policies, state laws and regulations.” [130]   The Attorney General’s office also has a similar process.  While both of these offices have an internal procedure for trying to address these complaints through mediation, neither offers a true appeal process for consumers where the decision of the insurer can be overturned.

Lack of Safeguards Against Deceptive Marketing Practices

 

Since long-term care insurance is relatively new, it is often difficult for consumers to be well versed in the intricacies of this product.  Uneducated consumers are most at risk for falling prey to deceptive marketing practices. 

 

 

Consumers are often misled by the promise that their policies will have so-called “level premiums.”  Purportedly, the term “level premium” is not supposed to be used in the sale of long-term care insurance policies. [134]   However, the term continues to be used by insurers, agents and consumers.  Consumers also are told that their individual premiums cannot be increased based on age or illness, yet insurers can and do raise rates for “classes” of policyholders.  A class is a term that is used to describe a group of policyholders.  This group may consist of individuals who have the same policy form number, live in the same state, are the same age, or purchased a policy during a particular time frame. [135]   Even if an insurer does not raise an individual policyholder’s premiums but increases the premiums of a class that includes this individual, he or she will be subjected to a rate increase.

 

 

Companies are not required to develop financial suitability standards for the policies they sell in Massachusetts.  Suitability standards are guidelines that help consumers determine whether or not they should purchase a long-term care insurance policy.  These standards provide a framework for consumers by helping them determine whether their financial portfolios qualify them as good candidates for specific long-term care insurance policies.  For example, these guidelines can help consumers determine if their income comfortably covers the premiums, if the assets that they want to protect are more valuable than the cost of the premiums, or if they are eligible for Medicaid and will have their long-term care needs covered by this government program. 

 

By providing suitability standards to consumers before they purchase long-term care insurance policies, consumers have an additional resource to help them gauge whether they are making an appropriate purchase.

 

Premium increases are not capped in Massachusetts.  DOI must grant approval to any insurer wishing to increase premiums for a class of policies sold in the Commonwealth.  There is no maximum cap for these increases.  For example, rates may not increase at all over the life of the policy or rates may increase by 30 percent each year for several years.  Some policyholders in other states have seen their premiums increase three-fold. [138]   There is currently no guarantee to a consumer that their rates will not increase more than a certain percentage of their original premium rate.  As a result, consumers could be subjected to significant rate increases over the life of their policy. 

Lack of Information for Consumers

 

 

When buying a car, consumers can refer to the National Highway Traffic Safety Administration’s crash test report to determine which car ranks highest on safety standards. [140]   When deciding which nursing home to place a loved one in, consumers can refer to the Massachusetts Department of Public Health nursing home survey. [141]   While some limited information is available to consumers who want to purchase long-term care insurance, consumers do not have access to solid comparison data for different companies and policies. 

 

Web sites that have information on long-term care insurance policies tend to provide a rather brief overview of policy features.  Other web sites offer estimated quotes for long-term care insurance policies and referrals to agents who sell this product. [142]   

 

DOI collected some data in its 1996 survey of long-term care insurance providers in the Commonwealth.  DOI is expected to release the results from its follow-up survey in the summer of 2002. [143]   While useful, there has been a significant time lapse between these surveys and, therefore, updated information has not been available.

 

Neither of these sources collects comprehensive data on individual and group policies that could empower consumers to sufficiently compare company histories and track records before purchasing a policy.  Data that would be helpful to consumers for both individual and group policies include:

 

·        a brief description of policies; 

 

·        premium rate increases;

 

·        lapse rates of policies;

 

·        claims denial rates;

 

·        amount paid in claims as a percentage of total premium dollars collected; and

 

·        sample premiums for each policy at ages 50, 65 and 75. 

 

Premium increase and policy lapse rate information listed for each insurer is currently not available publicly to consumers.  Companies are not required to report these data to the DOI.  Consumers cannot compare policy lapse rates, claims denial rates or premium increases among insurers.  Consumers find it difficult if not impossible to comparison-shop and are often forced to buy blind. [144]

 

 

Finding:  Massachusetts is one of only four states that has failed to pass legislation aimed at protecting consumers who purchase long-term care insurance policies.  In addition, state regulations have been relaxed.  Because there is no legislation and lax regulations, Massachusetts consumers purchasing long-term care insurance policies are left without sufficient protection particularly in the following areas:

 

a.      Massachusetts does not have any legislation or regulation imposing minimum standards on group long-term care insurance policies.  In addition, DOI does not have the statutory authority to review and approve initial premium rates and rate increases by insurers offering group policies in the Commonwealth.  In a 1996 DOI survey, more than half of all policies sold in Massachusetts were group policies. 

 

b.      Insurers are now selling long-term care policies to some consumers in Massachusetts that are “nursing home only” policies, even though most policyholders will never need extended nursing home care.  These policies do not provide any coverage for in-home long-term care needs – care most seniors are far more likely to need. 

 

c.      Typically, consumers are forced to make permanent decisions on the features of their policy at the time of purchase.  Insurers are not required to send a yearly statement reminding policyholders what coverage they have nor are they required to let them reassess their coverage options each year. 

 

d.      Policyholders lack an appropriate forum for acknowledging and officially appealing claims denials or other problems with their policies.  DOI and the Attorney General’s office both have a system in place to address and mediate complaints by consumers regarding their long-term care insurance policies.  However, these systems fall short of providing an independent, third-party appeal process for individuals wishing to challenge a denied claim or benefit by their long-term care insurance provider.

 

Recommendation:  Massachusetts should pass legislation creating strong standards to protect consumers in the long-term care insurance marketplace.  These standards should include the following:

 

a.      Group policy minimum standards and disclosure: Group policies should be required by law to meet minimum standards.  DOI should have statutory authority to mandate additional standards, review initial premium rates and approve proposed premium increases for group policies sold in the Commonwealth. 

 

b.      Multiple care settings: Individuals should have a choice of receiving care at home or in a nursing home.  All policies sold in the Commonwealth that cover nursing home care should have a home care benefit.

 

c.      Annual review of policy: Policyholders should receive a yearly statement clearly outlining their coverage.  Policyholders should be allowed to revisit their policies on an annual basis to make certain changes.  At a minimum, the consumer should be able to:

·        change their elimination period (i.e., their “deductible”);

·        modify the amount of coverage;

·        add or remove nonforfeiture coverage (a benefit that requires insurers to provide some coverage for policyholders who paid premiums for a set number of years and then let their policies lapse); and

·        add or remove inflation protection coverage.

 

d.      Third-party appeal process: Policyholders should have access to an independent third-party appeal process as a way to address problems with their long-term care insurers.  This process should ensure that policyholders’ complaints are reviewed and addressed in a timely and fair manner, and it should allow for the overturning of unfair decisions by insurers. 

 

 

Finding:  Consumers can be subjected to deceptive marketing strategies when trying to purchase long-term care insurance. 

 

a.      The term “level premium” is misleading to consumers who purchase long-term care insurance policies.  While information about possible rate increases is disclosed on the policy, it is not required to be disclosed in such a way that consumers are likely to understand it.  As a result, individuals are often told that their policies will have “level premiums” that will not increase due to age or illness, leaving many with the impression that their premiums will never increase.  However, insurance companies can and do raise premiums. 

 

b.      There are times when insurance companies make actuarial mistakes and are forced to increase premiums in order to cover claims.  However, there is no regulation limiting how much the premium can be increased.

 

c.      Consumers may receive little or inappropriate guidance in determining whether a policy is appropriate for them.  DOI currently offers consumers a policy illustration, a form that outlines the coverage of a policy.  This form falls short of helping consumers determine whether their income and assets make them suitable purchasers for a particular policy.

 

Recommendation: Massachusetts should develop protections against deceptive marketing practices in the long-term care insurance industry by instituting the following:

 

a.      Disclosure of possible rate increases:  All policies sold in the Commonwealth should clearly state in large, bold letters at the top of the front page of the policy in a clear, non-technical manner that rates can increase regardless of whether the insurer or agent guarantees a “level premium.”

 

b.      Establishing guidelines for appropriate premium increases: Insurers and consumers should have the same expectation regarding how much premiums may increase.  DOI should establish a premium cap that prevents rates from increasing more than a designated percentage over the life of a policy.   By establishing a premium cap, insurers have the flexibility to increase premiums up to a certain limit and consumers understand at the time of purchase the maximum amount their premium could increase. 

 

c.      Suitability standards: Suitability standards are guidelines issued by an insurer that help consumers determine whether a long-term care insurance policy is appropriate for them.  Insurers should develop suitability guidelines for all policies sold in the Commonwealth based on a format approved by DOI.

 

 

Finding:  Consumers are unable to access important information about long-term care insurers and the policies they sell.  This makes comparison-shopping very difficult and forces consumers to make uneducated and uninformed choices about which company to use and which policy to buy.  In addition, DOI has virtually no information about group policies sold in Massachusetts.

 

Recommendation:  Consumers interested in purchasing long-term care insurance policies must be provided with full information on insurers and their policies in order to make informed decisions.  All long-term care insurance providers should submit to DOI on a yearly basis comparative national and state-level information about policies sold in Massachusetts. This information should include at least the following:

·        a brief description of policies; 

·        premium rate increases;

·        lapse rates of policies,

·        claims denial rates;

·        amount paid in claims as a percentage of total premium dollars collected; and

·        sample premiums for each policy at ages 50, 65 and 75. 

 

This information should be collected on all insurers that sell long-term care insurance in Massachusetts.  Companies should provide five years worth of national and state-level data, or data since inception, for every long-term care insurance policy sold in Massachusetts.  This information should clearly differentiate individual policies from group policies and be written in common language with a standard format that a novice insurance purchaser could understand. 

 

The data should be included as an insert in DOI’s Your Options for Financing Long-Term Care: A Massachusetts Guide that is currently provided to every consumer by insurance agents at their first meeting and should be made available on the DOI web page.  In addition, the suitability standards developed by insurance companies should be on the DOI web page and provided to all consumers prior to purchasing a long-term care insurance policy.  By making this information available to consumers, the market will be allowed to work as it should – consumers can pick a policy with the company they believe has the best record of service and meets their needs. 

 

Activities of daily living:  Everyday functions and activities individuals usually do without help and may include bathing, continence, dressing, eating, toileting and transferring. [145]

 

Benefit triggers: Term used by insurance companies to describe when the policy will begin to pay benefits. [146]

 

Daily benefit: The amount of insurance benefit in dollars per day that a person chooses to buy for covered expenses. [147]

 

Elimination period: A type of deductible.  It is the length of time an individual must pay for covered services before the insurance company will begin to make payments. [148]

 

Guaranteed renewable: Policy feature guaranteeing the insured’s right to continue a policy.  The company cannot change the coverage or refuse to renew the coverage for reasons other than nonpayment of premiums (including health conditions and/or marital or employment status); however, the company can revise the rate subject to the approval of the Commission of Insurance. [149]

 

Inflation protection: A policy option that provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services.  Applicants usually have the choice of automatic increases or periodic special offers to increase plan benefits. [150]

 

Lapse: Termination of a policy when a renewal premium is not paid. [151]

 

Long-term care: A variety of services aimed at helping people with chronic conditions compensate for limitations in their ability to function independently.  It is for people with a prolonged physical illness, disability or cognitive disorder (such as Alzheimer’s disease). [152]

 

Nonforfeiture benefits: A policy feature that provides a specified paid-up benefit or returns at least part of the premiums to a consumer who cancels his policy or lets it lapse. [153]

 

Suitability standards: Guidelines issued by an insurer that help consumers determine whether a long-term care insurance policy is appropriate for them.