Response to June 8, 2013 New York Times Article About LTCI Claims
If you saw this article, you may be questioning your decision to buy long-term care insurance. Or, if you have a policy, this article may have made you wonder if you should have bought it. The fact that I'm writing this response shows you how important it is to me that you don't have these doubts. Please let me lay your concerns to rest as I respond to a client's question about her CNA policy. The 6/8/13 article is at http://nyti.ms/108Exbh
Have there been "bad apples" in long-term care insurance? Of course, just like in most other industries. I just helped a daughter appeal her mother's claim that I felt had been denied unjustly, and the company honored the appeal and paid the claim. Is it the norm? NO. All of my clients over the years who have used long-term care insurance have had the claims paid with very little intervention from me.
A client with a CNA policy purchased in 1999 expressed concern after reading the section of this article that implied that CNA no longer honors the "alternate plan of care" benefit. (FYI, CNA no longer sells long-term care insurance but certainly is paying the claims.) Here is the section she questioned:
ALTERNATE PLAN OF CARE Some policies have provisions for what they call “alternate plans of care,” which experts said implied a certain degree of flexibility. “People read those and say, ‘Look, it says they will do this,’ ” said Ms. Burns. In reality, “they will consider something different, but the insurer makes the ultimate decision.”
Continental Casualty Company, a subsidiary of the CNA Financial Corporation, sold policies with a similar provision, which could potentially allow the insured to receive benefits for care, say, in the home instead of a nursing home, Mr. Kantor said. But since the CNA unit stopped selling the policies in 2003, he said they were making a habit of no longer honoring those provisions. “The insurance company is insistent that they have the right not to approve the plan,” said Mr. Kantor, who is representing a woman with Alzheimer’s disease whose request for an alternate plan was not even considered. “But it was not sold that way.”
A spokeswoman for CNA declined to comment on the specific case, but said “an alternate plan of care may be mutually agreed upon between CNA and the claimant. However, the alternate plan of care benefit was never intended to confer a general right to home health care that the optional rider provides.”
I know the history of the alternate plan of care benefit, how it came about and CNA's approach to it as well as other carriers' approach to it. I can also interpret the CNA company representative's remark so here is my response to her:
First, the alternate plan of care is a wonderful and important addition to any policy. But like many good things in life, it has been abused and sometimes misrepresented by well-meaning people who didn't understand it.
Alternate plan of care is intended to make a way contractually for a long-term care insurance carrier to pay outside the contract when it is cost-effective and makes sense medically for the patient. Mr. Kantor (the lawyer) quoted in this article is incorrect in his statement when he says this provision wasn't sold in a way that said the insurance company has the right to approve how this provision is used. The policy language is very clear that the insurance company, the doctor and the family must agree on how this provision is used.
A great way this provision has been used is to pay for new services that come along. A great example is that it has been used often to pay for care in an assisted living facility from a policy that was sold to pay only in a nursing home. Assisted living facilities didn't exist 20+ years ago so policies didn't have that coverage. Assisted living facilities (ALFs) are less expensive than nursing homes and patients generally are much happier in them because they don't look anything like a nursing home. Without alternate plan of care, however, an insurance carrier could deny assisted living facility claims because an ALF isn't mentioned as a covered service in the policy.
Another good way it is used is to allow the insurance company to pay for home modifications like widening doorways, installing a ramp and installing handrails in the shower to make it easier for someone to stay home if it looks like the person could stay home longer than a few months. One carrier utilized the alternate plan of care provision to buy a blind woman a seeing eye dog for $3,000 that allowed her to stay home while her daughter was working.
CNA was the first carrier to come out with this if my memory serves me right, and it was a great thing. Where it fell off the rails was when someone bought a CNA policy that paid only in a nursing home and didn't buy the optional home care benefit. Some people bought the nursing home only policy with the impression that the alternate plan of care benefit would provide them with home care benefits even though they didn't pay the extra premium for home care. That's what the spokeswoman for CNA is trying to explain in this article. She is saying the alternate plan of care provision was never intended to replace the optional home care rider. How could it when you think about it? Most people want to stay home so most people would try to utilize that provision to stay home, and the insurance carrier wouldn't be able to provide all that home care without receiving the required premium for home care benefits.
I just had one of my oldest clients pass away after receiving about $400,000 from his CNA long-term care insurance policy so I can tell you first-hand that CNA is paying claims.
The rest of the story is that she had me review her policy. She lives in a high-cost area in California so she started in 1999 with a $250 daily benefit and a four year benefit period with 5% simple inflation which means the benefits increase at 5% of the original amount each year until they double in 20 years. Her daily benefit has been growing at $12.50 each year so her benefit pool is now worth $425 x four years = $730,000. She and her husband bought the same policy so together they have $1.4 million in benefits. There is a 30 day elimination period so they are responsible for the first 30 days in charges. The New York Times article failed to mention that with many newer policies, the deductible is merely a one-time waiting period with no charges required.
She and her husband were 59 and 60 when they bought their policies in 1999, and their combined premium is $4,424 annually. They have now paid about $62,000 in premium for the $1.4 million in benefits. If one of them had a claim today and used the entire daily benefit of $425, they would get all of their premium back in less than five months (145 days). Plus the premium would stop for the one on claim.
Did they make a good decision? I certainly think so. The caveat here however is that premium and underwriting for a 60 year old back in 1999 is now more for a 50 year old, so please don't wait. Please get long-term care insurance as young as you can. Health care reform means we will be paying more for acute care than we have planned which leaves fewer dollars for long-term care, both on the private side as families try to pay for it and on the public side as state budgets try to pay for it.