To avoid becoming a financial burden to her children and grandchildren, Vera Smith bought long-term care insurance. Like a growing number of Americans, the 87-year-old retiree saw it as a sensible way to cover care-giving costs not included in Medicare and conventional health insurance.
But almost two years ago, Smith's insurer stopped paying benefits, contending that she violated the policy's terms by moving in with her daughter after she became too frail to take care of herself. That forced Veray Smith, the daughter, to quit her supervisory job and sell her mother's South Los Angeles house so she could afford to stay home with her.
"I'm the full-time caregiver now. It's hard," said Veray, who along with her mother has sued the insurer for bad faith. The insurer, Penn Treaty Network America Insurance Corp., declined to comment.
Consumer advocates and insurance regulators say that lawsuits and complaints like the Smiths' are likely to mushroom in the coming years as more baby boomers and their ailing parents make claims on long-term care insurance.
Sales of such policies grew 65% from 2000 to 2004, but actual and projected payouts have already caused a shakeout that could leave some policyholders with huge bills worried that insurers can't or won't pay. Some insurers who underestimated their potential obligations have sharply hiked their premiums or abandoned the market.
Insurers have denied long-term care claims for a variety of reasons, lawyers say. They have, for example, rejected as inadequate documentation from seniors too sick or distracted to be diligent record keepers. Or they have rescinded policies, saying the individual didn't fully disclose a preexisting medical condition on his or her application.
In response to multiplying consumer complaints, some states are requiring more training for sales agents and limiting insurers' ability to raise premiums, along with other restrictions.
The growing popularity of long-term care insurance "puts pressure on us as regulators to ensure that policies live up to their promise to pay," said Sandy Praeger, the insurance commissioner of Kansas and vice president of the National Assn. of Insurance Commissioners.
Industry representatives say the popularity of these policies speaks to their value for consumers and public confidence that carriers will make good on their promises.
