LONG TERM CARE: Rising Premiums Raise Alarm Bells

      Facing unanticipated shortfalls in reserves, the long term care insurance industry's two biggest companies have raised premium rates on elderly beneficiaries' policies, despite marketing materials promising no rate increases due to age or illness, the Wall Street Journal reports. Conseco and Penn Treaty, which together sell about one-third of all new long term care policies, provide elderly Americans with at-home care and extended nursing home stays that are not covered by Medicare. The two companies launched aggressive marketing campaigns that targeted less healthy seniors and offered premium rates at significantly lower prices than other companies. Moreover, they assured policyholders that "price increases seem highly unlikely." One brochure from American Travellers, a company that was purchased by Conseco in 1996, read, "Rates will never change," in bold type, followed by "on your individual policy unless they are changed for all policies in your state," which was printed in standard type. While their promises have remained technically accurate, their premium rates have increased by as much as 40%. "It's a complete deceit for seniors to spend hard earned money to buy these products, trusting the companies to be there when they need them, and then find out later that they cannot afford to keep the benefits in place," Bonnie Burns, an advisor to seniors on insurance for a California program, said.

Denial of Intent
      Both companies deny they intentionally underpriced their products to gain market share, insisting that actuarial underestimates of the cost of insuring sicker, elderly patients are to blame for the repeated premium hikes. They also cite faulty assumptions that a portion of the policyholders would drop out early. But they have benefited from a loophole in insurance regulations, allowing them to raise rates for everyone holding the same policy in a state. Regulators have "routinely approved" the company's new products, "even though they often were far cheaper than others." Richard Robleto, a Florida official who oversees the review of long term care insurance rates, said, "We kind of get boxed in ... when a company's assumptions don't work out. In the long run, continued coverage is better than having the company grow insolvent." Despite their continued premium rate increases, the companies introduced new products aimed at even riskier seniors and offered non-medical amenities to seniors even before they grew ill. In late 1996, Penn Treaty unveiled its Personal Freedom policy, a combined nursing home/at-home care policy which paid for "extras" such as grocery shopping for only $138 annually. Two years later, claims were running 50% higher than original forecasts, according to the company's 1998 filings to state insurance departments. Penn Treaty was forced to strike a deal that transferred $90 million of premiums and claims liability to another insurer, bringing $25 million to its capital surplus. Both companies continue to shore up their reserves and claim that their policy offerings are "more conservative now." But a task force of the National Association of Insurance Commissioners is attempting to reform the pricing structure of the long term care insurance industry and is considering proposals such as a requirement that insurers allocate almost all proceeds from rate increases to pay its benefits. Another proposal requires insurance agents to inform policyholders of the company's history of rate increases. These proposed rules, however, would only affect future policies, leaving current beneficiaries facing the possibility of additional rate increases in the future. Seniors who have already contributed significant amounts to their policies may feel "locked in," unable to find alternative insurance and forced to pay higher rates (Davis, 6/22).