Consumers seeking to buy long-term care insurance face inexplicably large variations and a multitude of complexities regarding when and how payments are made, according to a study by the Florida-based Weiss Ratings, Inc.
Weiss gathered over 25,000 premium quotes offered by 35 long-term care insurers and found huge differences in premiums on policies that offer essentially the same benefits. For example, a 70-year-old in Alabama purchasing a comprehensive policy with a four-year benefit period, 60-day elimination period, $100 daily benefit, and inflation protection will pay $2,794 a year with Conseco Health Insurance Company (Arizona) but $3,081 a year with Bankers Life & Casualty Company (Illinois).
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A very similar policy purchased in Arizona but with a lifetime benefit period and a 20-day elimination period would cost $4,624 from John Hancock Mutual Life (Massachusetts) but $5,520 from IDS Life Insurance Company (Minnesota).
“Some of the price variation may be due to subtle differences in the policies,” said Weiss Ratings’ Chairman Martin D. Weiss. “However, it’s very difficult for the consumer to understand these differences — let alone figure out what they’re worth.”
Long-term care insurers cannot agree on a standard method for satisfying the “elimination period,” the initial time period when the policyholder has to pay for medical expenses out-of-pocket. In some policies, a consumer who receives care on two days out of a week will have satisfied only two days of the elimination period. In other policies, the consumer will have satisfied seven days and be that much closer to receiving benefits.
Insurers are also unable to agree on a standard payout method. Some end payments after a predetermined number of years, pocketing any surpluses of paid-in premiums. Other let the policyholder continue to receive benefits until all of the paid-in funds are exhausted.
The Weiss study found that, despite the fact that 118 insurers have long-term care policies in force, the total premium collected in 2000 was only $4.4 billion. This is small compared to $14 billion in Medicare supplement policies, where standard benefits are mandated by Congress. Moreover, among the 118 carriers, just 11 companies dominate over 81 percent of the market, collecting more than, $3.6 billion in premiums.
“The insurance industry is shooting itself in the foot by making long-term care insurance much more complicated than it need be,” said Weiss. “As a result, the number of Americans buying policies is surprisingly small given the large aging population that will be needing long-term care in this decade. Companies leading in the long-term care sector have an opportunity to design policies that will become standards for the industry.”
Weiss added; “There are many parallels between the current long-term care scenario and Medigap before Congressional standardization of policies in 1992.”
