Evolution of long-term care: underwriters have become the key to risk management as LTC insurance coverage has expanded and industry experience has developed.

Long-term-care insurance was first presented to the American consumer almost 30 years ago. While originally only covering the cost of skilled nursing home care, most policies sold today also cover the costs of home-care services as well as assisted-living facilities. LTC insurance today is meant to help cover the need for personal care services, as well as the need for facility. placement when an individual can no longer perform activities of daily living or has developed a form of dementia such as Alzheimer's disease. Activities of daily living include bathing, dressing, toileting, transferring, ambulation and feeding. It is estimated that 6 million Americans have insurance coverage for long-term care.

Just as long-term-care insurance products have evolved over the past two decades, so has the product's underwriting. Initial underwriting guidelines were based on the morbidity and mortality experience from disability and life products and focused on the risk of entering into a skilled nursing facility due to functional incapacity resulting from an injury or sickness, the so-called medical necessity trigger. In addition to an application that contained few medical questions, a brief physician's statement of the applicant's health was sometimes obtained for review.

As insurer experience evolved, it became apparent that more information was needed. Applications became more detailed and medical records were substituted for summarized information. By the latter part of the 1980s, application questions began to focus more on instrumental activities of daily living such as housework, meal preparation, transportation, money management, telephone use and the use of medical equipment. Companies also expanded their underwriting manuals.

The 1990s saw major changes in LTC products with the addition of home-care coverage and later, the inclusion of assisted-living facilities. Concordant with product coverage enhancements, policy language also shifted from the medical necessity trigger to specific activities of daily living or cognitive loss triggers. Insurers developed phone interview and in-home assessment underwriting tools that specifically addressed these risk issues.

By the early to mid 1990s, LTC insurers began to react to the product's emerging experience. Though strokes, fractures, musculoskeletal disorders, cardiovascular disease and cancer were frequent underlying diseases that led to a claim, it was cognitive impairment or dementia (including Alzheimer's disease) that resulted in the most frequent and costly claims experience. Cognitive screening tests became underwriting requirements, especially at older ages.

Today, the risk evaluation of LTC applicants continues to become more sophisticated. Applications now typically contain disqualifying questions that focus on existing loss of activities of daily living, the use of medical equipment and uninsurable conditions. This is followed by a series of medical questions that could warrant further investigation. Medical records and phone or in-home interviews with cognitive testing are now commonplace.

Looking forward, perhaps the two greatest risk issues facing LTC insurers are anti-selection and cognitive impairment. A number of screening tests are now available to the American public outside the realm of their physician. Individuals can test themselves for diabetes and high blood pressure, and they can independently seek screening tests for cardiovascular disease and osteoporosis. The ability of applicants to know more about their health than the insurer increases the risk for anti-selection. LTC insurers are looking to such databases as the Medical Information Bureau and prescription drug third-party administrators to help mitigate these risks.

Detecting dementia at its earliest stages remains an ongoing challenge to the industry. It is now known that there is a period of cognitive impairment, detectable only by cognitive testing, that precedes clinical dementia by an average of seven years. Being able to detect this so-called mild cognitive impairment stage is the subject of ongoing research. More sophisticated screening tests with higher sensitivity are on the horizon.

With an aging and increasingly overweight population, the incidence of diabetes, arthritis and osteoporosis is likely to increase. The prevalence of Alzheimer's disease is expected to almost double over the next 25 years unless a treatment breakthrough is discovered. Seeking more information at the time of underwriting, though costly, is direction many carriers have charted, and rightly so. Prudent underwriting risk management can only translate into improved industry experience.

Contributor Dr. Bruce Margolis is risk management leader for the long-term-care business of Genworth Financial. He can be reached at [e-mail].