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Long-Term-Care Policies No Panacea

If you're shopping for one, look at the options carefully. Some consumers are troubled by rates that climb to unaffordable levels as they age.

November 05, 2000|By KATHY M. KRISTOF | Times Staff Writer

Many Americans who bought long-term-care insurance as protection from the financial calamity of an extended late-life illness are finding to their chagrin that they may not be able to afford the insurance just when they need it most.

That's coming as a shock to people who were sold long-term-care policies when they were younger, on the expectation that they were locking in affordable premium payments.

Just ask Oliver and Margaret Cromwell of Palm Beach, Fla., octogenarians who bought long-term-care policies a decade ago. They canceled them three years ago when Margaret's premium soared to five times its original cost and Oliver's premium rocketed 700%.

"We put a lot of money into this thing and we got back nothing," said Oliver. "The fees just kept escalating every year. The last straw was when the premium rose 40% in just one year."

The Cromwells are far from alone.

There are no statistics showing what percentage of policyholders get premium hikes on their long-term-care insurance, which are policies that promise to pay for care in nursing homes as well as for home-health aides for those who become incapable of taking care of themselves.

However, more than 150,000 consumers have sued their insurers for hiking long-term-care premiums between 25% and 700%, said New Orleans attorney Allan Kanner, who represents litigants in a half-dozen class-action suits.

Though consumers say the policies are often sold with the assurance of steady premiums, insurers do not contractually promise anything of the sort. Nearly every policy contains a boilerplate disclaimer that says future premiums may rise.

However, consumers may discount that warning because the policy also says that premiums "may not rise due to your age or health"--a promise that many take to mean their premium payments won't go up as they age. But what insurers mean by this statement and what consumers think they mean are two different things.

"There is the concern regarding whether consumers, who may be told their rates cannot increase due to age or physical condition, understand that they are part of a class whose rates can increase," Kathleen Sebelius, vice president of the National Assn. of Insurance Commissioners and the Kansas insurance commissioner, said in recent congressional testimony.

Translation: The insurer promises not to raise the premium on just your individual policy, but it can raise the rates for the entire group of which you are a part, industry insiders say. And though the insurance company promises it doesn't consider the fact that you, the individual, are getting older and are more likely to file claims, they do care if your group as a whole ages and starts filing claims. (The nature of your "group" can vary, but it often includes all the people who bought similar policies.)

The end result is the same: Your rates--along with the rates of everyone in your group--can rise as you age, sometimes dramatically.

Examples of this aren't hard to find, according to Kanner. Consider the case of Nellie McIlroy, who is 95 and suffers from Alzheimer's disease. In 1987, she bought a long-term-care policy with an annual premium of $829.86. By 1997, her premium had soared to $6,638 a year. Already ill, she couldn't get other insurance, so her kids continue to pay the premium on her behalf. Ironically, she has never used the insurance. She lives with her son, Carl, in North Dakota.

Harold Hanson, 96, of Reeder, N.D., has a similar story. He bought a policy in 1987 for $1,498 a year. By 1996, the annual cost had rocketed to $6,158 annually. He dropped the policy at age 92 because he no longer could afford the premium.

Hanson, McIlroy and the Cromwells were all members of class-action suits that were settled before trial. The insurers that sold the policies agreed to give partial refunds and cut future premiums for these litigants, without admitting or denying guilt.

Dozens of additional class-action suits filed across the country make similar allegations. In fact, the problem of rising premiums on long-term-care policies has become serious enough that Sen. Charles E. Grassley (R- Iowa), chairman of the Special Committee on Aging, held hearings in mid-September to explore the causes and potential solutions.

The problem won't be easy to solve.

The reason is fairly complex, but boils down to this: Traditional insurance protects large numbers of people from a tiny risk that something horrible will happen--something so bad that no reasonable (or honest) person would consider triggering the policy just for the money. For instance, you won't try to die just to collect on your life insurance; you won't burn down your house to collect homeowner's coverage.

Then, too, with traditional products such as life and homeowner's insurance, the risk of loss is pretty easy to calculate.

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