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Long Term Care Insurance Fraud (Potential for Abuse)

UPDATED: July 16, 2020

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The least you need to know...

  • Long term care insurance fraud and abuse is more common than other insurance fraud because of the vulnerable population served.
  • Make sure to read your policy rather than rely on the word of the agent or the summary provided.
  • You should have a period of time to review your policy and opt out without penalty. 

There are many benefits of long term care insurance. It may be essential for older people or those with certain conditions. Unfortunately, there can be a lot of abuse and fraud in long term care insurance policies.

Many purchasers of long term care insurance are in their later years. But when you wait until your later years to buy long term care insurance, you become more vulnerable to long term care insurance fraud and abuse. One reason is that you may become desperate once you realize how expensive healthcare and assistance in living can be in the final years of life.

Also, older people may be more susceptible to clever sales presentations as they become easily confused and have trouble distinguishing facts from a sales presentation. 

How can healthcare fraud and abuse be prevented? 

One way is to just be aware of some of the potential abuse and fraud in long term care insurance policies. If you think you or your family might have experienced fraud or other abuse in seeking long term care, you can begin your search for an experienced insurance or healthcare attorney by entering your ZIP code in our search tool.

Red Flags in Long Term Care Insurance Policies

What follows is a discussion of what you, as a potential purchaser of a long care insurance policy, should be aware of as you shop for a policy.

Inflation Protection Coverage

Inflation protection coverage is important to have on your policy. A policy with a fixed daily benefit may seem adequate at the time you purchase it, but over time, will become inadequate. Even though your benefit is fixed, the cost of your care will NOT stay fixed. It will increase, which means your fixed benefit will be less valuable over time.

If you assume an inflation rate of six percent per year, which is not unreasonable, the cost of nursing home care will double every 12 years. If your policy benefit does not keep up with inflation, you will pay more out of your own pocket for your care each year.

Insurance companies offer a number of solutions. The first is simple five percent per year inflation protection. That means, if your benefit is $100.00 per day, it will increase each year by $5.00 per day. The problem is that inflation increases at a compound rate. If inflation were to increase on an average of five percent per year, your protection should be five percent of your total daily benefit, not five percent of your original daily benefit.

A second alternative is five percent per year compound inflation protection. This works well unless the average rate of inflation is greater than five percent. In that case, you will fall behind even with this protection.

Some companies offer inflation protection based on increases in the Consumer Price Index. Though this is based on the actual rate of inflation, it, too, can fall short if the inflation rate for the cost of long term care is greater than for the cost of goods and services.

Some insurance companies offer the option of purchasing additional insurance without additional underwriting as protection against inflation. But this, too, has a drawback since the insurance company has adjusted for inflation and you buy the new insurance at higher premium rates. Your best choice is probably the five percent compound inflation protection, but whatever you choose, inflation protection will increase your costs for long term care insurance.

This may discourage you from purchasing this extra protection. An agent may sense your hesitation about paying that extra premium and try to sell you a policy without inflation protection so he can make the sale, and get the commission, but you should think carefully before purchasing a policy without inflation protection.

READ YOUR POLICY!

Immediately after you purchase a long term care insurance policy you should read the policy carefully. Many provisions in an insurance policy limit your rights to collect benefits. These limitations begin in the definitions section of the policy and can be found in many other areas as well. You should read the entire policy and make sure all of the provisions, including the definitions, make sense and, most importantly, are exactly what you thought you were buying.

If you want your expectations to be met when you submit a claim and to avoid being defrauded you must rely only on what you read in the policy itself and ignore what you may have read in promotional material or heard from an agent.

Read the policy. You will be provided with an outline of coverage. Don't rely on it. Rely only on the policy. If you do not understand what the policy says, do not purchase it until you fully understand what you are buying. You have a "free-look" period, usually 30 days, after you receive your policy during which you can return it for a full refund of your premium.

Following are some of the limitations you should be aware of as you review your policy:

  • Requiring prior hospitalization: in order to qualify for nursing home and/or home care benefits. This can be an effective deterrent to paying a claim because most people who enter nursing homes are not hospitalized immediately prior to entering the nursing home.
  • Requiring an acute condition: before services will be covered. "Acute" refers to a specific medical condition with severe onset over a defined period of time, usually brief. A heart attack is an example of an acute condition requiring immediate medical attention. A significant number of nursing home residents have chronic, not acute, illnesses. Chronic illnesses are ongoing, long-lasting, and not likely to subside.
  • Limiting services: to those provided by registered nurses or licensed practical nurses. Many custodial and home care needs do not have to be performed by licensed nurses. These include cooking, cleaning, and general supervision at home or in a nursing home.
  • Requiring providers to be certified by Medicare: Hundreds of nursing home and home care providers are not Medicare-certified even though they are quite capable of providing necessary services. By limiting coverage to Medicare-certified agencies and institutions, insurance companies restrict your freedom to choose appropriate care providers.
  • Covering only "skilled care": "Skilled care" usually is defined as services provided by a doctor or a nurse. Most of this type of care is covered by Medicare and most Medicare supplement insurance. A long term care policy with this limiting provision is nearly worthless.
  • Requiring the inability to perform at least three Activities of Daily Living to be eligible for benefits: A significant number of people need assistance with only one or two ADLs. A policy that requires 3 or more ADLs substantially reduces the insurance company's liability.
  • Vaguely defining the inability to perform an AD: Any vagueness in the wording of a policy should be challenged because the insurance company will try to interpret the ambiguity to its advantage, even though the courts usually interpret an ambiguous provision in favor of the insured, not the insurance company but it is far better to save yourself the trouble of a lawsuit and simply avoid an insurance policy with vague wording.
  • Having insurance company controlled doctors determine the health needs of the insured: All companies reserve the right to demand that the insured be examined by a company physician who can overrule your doctor. Though there is nothing you can do about it, this restrictive provision gives insurance companies motivated by a desire to keep costs down and maximize profits the right to decide about your health care.

Being aware of these restrictions will help you read your policy knowledgeably and with purpose. You may be able to find a better policy than the one you are reading, and you do have the "free look" period to decide whether you want to keep it.

Frequently Asked Questions: Abuse and Fraud in Long Term Care Insurance

Many long term care insurance companies don't commit fraud or abuse. Unfortunately, there are some exceptions. For example, a recent class-action lawsuit against Genworth for long term care misrepresentation resulted in a penalty of over $200 million. 

GE long term care insurance has problems as well. The company claims that the issues arise from inaccurate predictions, but others allege accounting fraud.

How do fraud and abuse affect health care?

The cost of fraud in health care in general and in insurance specifically is difficult to overstate. The costs of fraud add to the overall costs passed on to taxpayers and policyholders, raising prices for everyone in the system. According to the National Health Care Anti-Fraud Association, annual health care fraud could be as much as 300 billion dollars.

What can be done to limit crimes by health care professionals?

Although most health care professionals, like most people in general, are not interested in committing fraud or crimes, there are exceptions. The FBI's Health Care Fraud division has tips on how to protect against and report suspected health care fraud. The most helpful thing that individuals can do is to be vigilant about billing and to promptly report anything suspicious.

Bringing It All Together

Whether you're looking at long term care insurance for parents, grandparents, or for yourself or your children; it's important to be aware of the potential for fraud and abuse. Most of the news stories concern fraud by medical providers on insurers, but insurers can also defraud customers.

To avoid abuse or fraud when buying a long term care insurance policy, make sure to ask lots of questions. Make sure you have a window in which to opt out of the policy (usually a 30 day period in most policies). Finally, do not rely on the summary provided. You can and should read the policy in full and make sure you understand it.

If you need professional help ensuring the policy is fair or need to find an attorney to help you fight long term insurance fraud or abuse, put your ZIP code into our search tool below to find an experienced insurance attorney.

References:

  1. https://www.investmentnews.com/genworth-to-pay-219m-to-settle-securities-lawsuit-related-to-long-term-care-insurance-66712
  2. https://www.nhcaa.org/resources/health-care-anti-fraud-resources/the-challenge-of-health-care-fraud.aspx
  3. https://www.fbi.gov/investigate/white-collar-crime/health-care-fraud

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