Long-term-care claims denials, rate hikes probed.

U.S. long-term-care insurers are being hit by lawsuits filed by elderly policyholders contending their valid claims are being denied and that they are getting hammered with hefty premium increases. On the regulatory front, a committee of the National Association of Insurance Commissioners will meet to determine whether these products are properly being marketed to consumers.

"If I had to point a finger, I'd say it was an industry that jumped too fast," said Washington state Insurance Commissioner Mike Kreidler, chairman of the NAIC's market conduct/consumer protection committee. In devel oping long-term-cam insurance, it spent "too little time" thinking about how the product would be structured and marketed.

However, long-term-care insurers can point to their track record. The industry pays long-term-cam benefits to "tens of thousands" of Americans, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. Earned premium was $9.5 billion industry-wide in 2006, with insurers paying out $3.3 billion in claims, he said.

Some plaintiffs' attorneys maintain denial of legitimate claims is widespread among companies big and small. For seniors who can't feed, bathe or dress themselves or who have Alzheimer's, the claims process is "difficult, confusing and burdensome," said Frank Darras, managing partner with the California-based Shernoff, Bidart & Darras.

"It is a tried-and-true claim strategy that old people don't fight hard, and sick, old people don't last very long," maintained Darras, who says he has the biggest long-term-care and disability practice in the United States.

Darras, who takes up to 25 new long-term-care suits a month, files suits in federal courts seeking emotional distress damages and punitive damages.

Insurers use several strategies to deny claims for policyholders needing nursing home, custodial or in-home care, Darras said. Among them is the "send-it-again" strategy where carriers tell policyholders to resubmit claims because carriers say they didn't receive them the first time.

Slome said it's misleading to think policyholders unable to contact insurers are left alone. "In fact, the opposite is true," he said. In situations when no family members are available, the insurer will be contacted by a neighbor, family friend or the agent who sold the policy, Slome said. The insurer will then contract with local, independent professionals to perform face-to-face assessments and access doctors' orders to determine the care that's needed.

Nevertheless, Darras says much like disability insurance of several years ago, long-term cam was oversold, under-priced, with too many features and benefits, and actuaries hoped for increased lapse rates but didn't get them.

James Ryan, president of Lenox Long Term Care, an industry broker, called Darras' statements "a great parallel." The industry is now experiencing what happened in the disability market about 20 years ago, he said.

Some long-term-care policies perhaps were "over-hyped" as to what would be provided but weren't oversold, said Jim Summers, chair of the long-term-care advisory committee for the National Association of Health Underwriters.

And, long-term-care carriers didn't make the mistake disability carriers made, said Ryan. Long-term-care insurers "gave themselves an out" by being able to raise rates, while disability insurers didn't have that option, he said.

There are "serious questions" about how long-term-care insurers market to consumers, Kreidler said, noting their practices may also have led to unfair premium rate increases. State regulators have been working on the issues for quite some time, he said. The matters will be discussed at the NAIC's June meeting, Kreidler said.

Individual Long-Term-Care
Sales, 2006

More than 4 million policies were
in force in 2006.

Issued               Lives        Premiums

Qualified *        292,175    $600,126,304
Nonqualified         4,634      $7,576,710
Total              296,809    $607,703,014
In Force       4.5 million   $7.72 billion

* Tax deductible

Source: LIMRA International