Many long-term care (LTC) insurance carriers are facing an avalanche of lawsuits from disgruntled policyholders,1 some involving policies more than two decades old. Given the number of policies sold, increased life expectancies, and the inevitable aging of Baby Boomers, expect more to come.

A number of factors is likely causing this increase in LTC lawsuits. The popularity and sales of LTC policies has risen significantly since the 1980s. The first individual policies for LTC insurance were written in the early 1980s.2 But, as of 2000, about 4 million Americans held private LTC insurance — and this number generally grows each year.

Also, before the industry had well-established actuarial statistics upon which to base premiums, premiums varied significantly between insurers.3 Some carriers underestimated the extent and impact of increased life expectancies and some simply assumed these policies would lapse before it was time to pay claims. As a result, many sold underpriced policies, particularly in the 1980s and 1990s.4

Denying or slowing down claims is one way some insurance companies have addressed the cash flow and profitability challenges of increased payments. These tactics have led to an increase in the number of coverage denials and, in turn, an increase in the number of consumer complaints.5

What's Covered?

Although LTC policies issued recently are more likely to reflect current modes of handling aging, certain issues regarding what, precisely, is covered continue to plague many policies.

For example, LTC insurance has evolved from simply funding a skilled nursing home as a final residence to the present day, when it funds a continuum of care through the various stages of aging. These days, LTC insurance usually covers:

  • help in the home with daily activities;

  • visiting nurses;

  • adult day care;

  • assisted living services that are provided in a special residential setting; and

  • nursing home care.

The most common triggers for litigation against LTC insurers tend to be policy non-conformity, unexpected policy increases, failure to follow proper claims procedures, and denial of claims. In many cases, insurance carriers are denying claims for assisted living and other services, claiming these services are not covered under the policy's definition of a nursing home.

Often, the carriers have a point. Either the policyholders failed to read their contracts carefully or brokers or agents sold them contracts under false pretenses.

For example, the case of Milburn v. Life Investors Ins. Co.6 involved a policyholder who moved into an “assisted living facility,” because she required help to get out of bed, take her medication and walk. Zella Milburn made a claim under the nursing home benefit clause of her LTC policy. Based on the policy definition of “nursing home,” the insurer denied the claim. The court agreed with the carrier that the assisted living facility was outside the policy's scope; it was not licensed as a nursing facility, as required under the policy.

Beware, too, the scope of coverage under “in-home care” clauses. Depending upon the carrier, a policyholder may be required to hire her in-home staff through a particular “health care agency” and not a “home care agency.” A health care agency, like a nursing home or a nurse providing in-home care, utilizes licensed health care professionals, while a home care agency provides care through unlicensed professionals.7

These kinds of nuances often go unexplained in policies, so policyholders are surprised when claims are denied. That's why it's important to discuss and explain these issues to clients, making sure they understand what is covered before signing policies and seeking services.

Administrative policies enforced by some insurance carriers also are partially responsible for the rise in lawsuits against LTC insurers, according to a report in The New York Times.8 For example, the Times claims that Conseco, Inc. employees have said that Conseco does not permit them to talk with customers for longer than four minutes at a time. The Times report also alleges that the employees claim they are not allowed to contact fellow employees by phone to expedite resolution of claims.9

A growing number of lawsuits across the country gives credence to the view that policyholders confront unnecessary delays and overwhelming bureaucracies in attempts to claim policy benefits.

The Conseco, Inc. Story

Conseco saw LTC insurance as a way to boost revenue in the early 1990s, but company executives underestimated the life expectancy of policyholders and underpriced policies. After undercutting its competitors on LTC policies for years, the company found its payouts exceeded revenue and, in 2002, filed for bankruptcy.

Conseco, which emerged from bankruptcy five years ago, recently placed a portion of its LTC policies into an independent trust: Senior Health Insurance Co. of Pennsylvania. The move puts 140,000 owners of Conseco Senior Health Insurance Co. LTC policies at risk of either reduced benefits or higher premiums. Conseco claims that the transfer of the LTC policies to the trust will allow it to focus on its core businesses. The policies, the company said, were a drag on its earnings, because they were underpriced and needed steady capital infusions to meet the needs of the policyholders.

The trust reportedly will pay claims from the funds it received from Conseco, including $175 million in capital, The Wall Street Journal recently reported.10 A.M. Best Co., the insurance-rating firm, said that the trust may need to raise premium rates and reduce benefits and has no access to additional capital.11 If the trust became insolvent, some policyholders may have to rely on the Pennsylvania state guaranty association to pay claims up to the limit set by state laws.

The Future

Several states have reacted to the increase in lawsuits against LTC insurance carriers by taking the insurers' side: They've passed tort reform laws aimed at limiting liability claims or losses and at getting care providers their insurance payments more expeditiously. Pennsylvania, for example, has barred individuals from suing for damages that a health insurer already has paid. Florida shortened the statute of limitations for initiating a lawsuit against an LTC facility to two years.

Perhaps these pro-insurance company measures will deter litigation against LTC carriers in the future — but maybe not.

The best way for LTC insurers to minimize the risk of lawsuits is to do the right thing: pay claims on a timely basis. Insurers need to document everything involved with a policy or claim. And insurers must be sure there has been no discrimination, either overt or unintentional, against claimants who are members of protected classes, such as racial minorities or people with disabilities.

Many insurers have begun to offer more flexible terms in their LTC policies and are gearing these products toward a younger market. Many have introduced “life stage” LTC insurance policies that enable policyholders to lock in their health insurability for decades into the future and purchase a more limited level of protection with the option of purchasing additional coverage in the future.

It appears the industry's strategy of reaching out to younger people is working. In 2000, the average LTC policy was written for a 67-year-old, but in 2007, 83 percent of all new individual applicants were under the age of 65, with an average policyholder age of 58.12 As a result, products are becoming more affordable, according to a recent study by the American Association for Long-Term Care Insurance.13

Despite the steep cost of policies, in 2007, 400,000 new policies were issued and some 180,000 Americans with LTC insurance policies were paid $3.5 billion in benefits, according to AARP, a non-profit membership organization for people 50-years-old and over.

Despite the boom in business, insurers still face the specter of future lawsuits, especially on policies written years ago. If a carrier doesn't take specific actions to limit legal liability, it will wind up giving back in legal fees and damage awards all its profit from writing LTC policies.

Endnotes

  1. The New York Times reports that thousands of grievances and complaints have been filed and that in California alone, one out of four long-term care insurance claims are denied. See Charles Duhigg, “Aged, Frail and Denied by Their Insurers,” The New York Times, March 26, 2007, www.nytimes.com/2007/03/26/business/26care.html?_r=1&=&pagewanted=all.

  2. Jordan Pfuntner and Elizabeth Dietz, “Long-term Care Insurance Gains Prominence,” U.S. Dept. of Labor, Bureau of Labor and Statistics, www.bls.gov/opub/cwc/cm20040123ar01p1.htm#1 (Jan. 28, 2004).

  3. Ibid., www.bls.gov/opub/cwc/cm20040123ar01p1.htm#1.

  4. See Duhigg, supra note 1.

  5. Fran Lysiak, “Long-Term-Care Insurers Under Fire Over Alleged Claims Denials, Rate Hikes,” Bestwire, April 17, 2007, www.lexis.com/research.

  6. Milburn v. Life Investors Ins. Co., 511 F.3d 1285, 1287 (10th Cir. 2008).

  7. www.nlm.nih.gov/medlineplus/homecareservices.html.

  8. See Duhigg, supra note 1.

  9. Ibid.

  10. M.P. McQueen, “Insurer Casts Off Long-Term Policies,” The Wall Street Journal, Dec. 3, 2008, http://online.wsj.com/articleSB122826822305174269.html.

  11. Ibid.

  12. Mr. Long-Term Care, LTC Basics,www.mrltc.com/long-term-care-basica.html.

  13. American Association for Long-Term Care Insurance, 2008 Long-Term Care Price Index Announced, June 10, 2008, www.aaltci.org/subpages/media_room/story-pages/media060908.html.

Beth Slagle and Richard T. Victoria are partners specializing in insurance and business law at Meyer, Unkovic, Scott LLP in Pittsburgh