Are Insurers Ripping Off Long Term Care Clients? An HHS Study

Growing older brings you new experience and joys, but also a great deal of potential risks. Becoming dependent on long term care is one of them. We cannot secure our health, but we have insurance to help us with the financial needs associated with ageing. While life insurance mainly serves your family, critical illness and long term care insurance is supposed to cover your own expenses. Critical illness usually pays you a lump sum once you are diagnosed with a serious illness, while long term care insurance pays you a monthly sum that can help you to acquire day care or to pay for an assisted living facility.  Most Long Term Care providers do not offer premium guarantees beyond the first few policy years.  RBC Insurance use to cap the premium increase by 50% but they recently discontinued new sales on their Long Term Care policy.

Some carriers allow the insured to quick pay their Long Term Care policy. Meaning the insured pays a higher premium initially but they can stop paying premiums and still be covered after a limited number of years.

Compared to accident insurance, chances for long term care are significantly higher. HHS estimates that 60% of those above 65 will need assistance with living for a certain period of their life. This can sow the seeds of doubt into many minds: will not the insurance company try to deny my claim? Since LSM cares about your claim troubles, we will try to answer this question.

There is no similar study for Canada. However, we can use a recent study by the U.S. Department of Health and Human Services (HHS). This report summarizes findings of the US federal government’s audit on the handling of long term care claims by major insurers. It examines a 22-month period in 2008 and 2009 on a weighted sample of 1237 cases reviewed.

The results are surprisingly clearly against the suspicion of potential mass rip-offs done by insurance companies. Seventy per cent of the claims in the sample were approved, while 30% were denied by Insurance adjudicators. In the same time, independent study reviewers approved only 65% of the claims, leaving 5% as ‘unclear.’ There was a 3% disagreement on ‘Approved’ decisions, while only a 1% disagreement on ‘Denied’ decisions. In other words, only 1% of the cases initially denied by the insurance company would have been approved by the clinical auditors.

This means that insurers tend to decide unclear claims slightly in favour of their clients. While this contradicts circulating anecdotal evidence of denied claims, it has a rational basis. The long term care insurance client base is still not very strongly developed – in Canada, the economic crisis brought a sharp drop in new policy sales. Long term care policies need to win the consumer’s confidence. As clients become more confident and consumer legal protection more sophisticated, the space for unfair manoeuvres shrinks.

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