Potential for Abuse and Fraud in a Long Term Care Insurance Policy
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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 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. Too, older people may be more susceptible to clever sales presentations as they become easily confused and have trouble distinguishing facts from presentation. You have the potential to be sold something that is not appropriate for you.
What follows is a discussion of what you, as 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 6 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 5 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 5 percent per year, your protection should be 5 percent of your total daily benefit, not 5 percent of your original daily benefit.
A second alternative is 5% per year compound inflation protection. This works well unless the average rate of inflation is greater than 5 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 5 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 hospitalizationin 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 conditionbefore 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 servicesto 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 ADL. Any vagueness in the wording of a policy should be challenged because an 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 knowledgably 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.