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In the past decade or so, more than 130 insurance companies have come up with some type of long-term care product. Initially many financial planners and other professionals viewed these policies with mistrust. One book, How to Protect Your Life Savings From Catastrophic Illness and Nursing Homes by Harley Gordon, Attorney At Law, actually stated: "Smelling profits to be made from worried seniors, the insurance industry has been designing scores of long-term care policies and hustling their agents to sell them."8

In fairness to the author, he did also say that nursing home policies do make sense for some people. Mr. Gordon stated that a nursing home policy can buy a consumer time allowing them to fund their confinement while transferring assets elsewhere. Even so, the main thrust seemed to be protecting assets while shifting the cost to some other entity. We know what that other entity is, of course: the taxpayers (through government funded programs). The various states have been tightening the laws that allowed a person to transfer assets to family members, with the goal of transferring payment of their health care to the federal and state governments. There is now a “look-back” period that relates to asset transfer.

This author was not the only person who viewed long-term care in terms of transferring assets. Unfortunately there is the mentality that someone else (the government primarily) should pay for our health care. This attitude has changed some as Americans recognize that "government sponsored" actually means "taxpayer sponsored." When an elderly American attempts to hide their assets, he or she is really saying that their grandchildren owe them financial support through taxation. Obviously grandparents do not want their grandchildren’s financial support; they simply must realize that transferring assets will accomplish that. Most elderly Americans have always paid their own way; prided themselves on doing so. They want to continue doing so to the end of their lives, but that will take some type of financial planning for long-term care needs.

It was not until the 1990’s that insurers finally had a handle on underwriting long-term care policies. No one had any experience in underwriting this type of coverage and the type of benefit statistics required took years to accumulate (since benefits were not generally paid out for many years after policy issue). Understandably, those designing the early policies had little knowledge of what benefits were needed. Their primary focus, however, was to make a profit. No insurer designs any product that they expect to lose money. It took time to feel comfortable designing, underwriting, and marketing long-term care products.

There were few agents educated in the needs or products of long-term care in the 1970s and 1980s. The products were new and there were few, if any, brokers offering training on them. The primary problem was simply ignorance. Even the companies issuing these

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policies were struggling with policy language because it was so new. Certainly, the agents in the field reflected this. Consumers were routinely given misleading or downright wrong information regarding the coverage they were buying. Unfortunately, the consumer never learned of the errors until claims arose.

Cost was not always an indicator of quality, although the more expensive ones certainly tended to offer the most benefits. Since the regulations of each state must be followed there were variances in products. That sometimes added additional confusion. A consumer who bought a policy because of the wonderful benefits a relative received in another state was often disappointed when their policy did not perform the same way. Because insurance companies were fearful of losses in the early policies, they tended to write in wording that allowed them to disallow claims if they became excessive. In this way, the company might initially pay certain types of claims that were later disallowed. It was this and other related practices that prompted many states to define precisely certain terms and payment conditions in their regulations.

In many ways, the history of long-term care products can be traced through publications, such as Consumer Reports magazine. In May of 1988 they published "Who Can Afford a Nursing Home?" In this article, they pointed out that the majority of policies were expensive for the average buyer, difficult to understand, and severely limited in the coverage offered. They were right. The policies in 1988 had many restrictions on the very types of care needed most: custodial care.

In October 1989, Consumer Reports printed an article titled "Paying for a Nursing Home." This article pointed out something that was eventually identified by the states as a consumer problem: post-claims underwriting. The insurer considered it a method that allowed them to quickly issue the policy without underwriting (based solely on the application medical answers). When a claim was submitted, the insurer underwrote the policy. Unfortunately, this meant the claim could be denied if the insured failed the company’s underwriting standards. The insurer liked this method of underwriting for several reasons, but primarily because it saved them money. If the consumer turned down the policy upon delivery, the insurance company was not out the cost of underwriting. As Consumer Reports magazine pointed out, however, many consumers ended up with a nasty surprise when they submitted a claim. It also delayed payment on the first claim since underwriting had to take place prior to payment.

Since many agents did not fully understand LTC policies, they may or may not have been aware of the consequences of post-claims underwriting. For the most part, if they did know, it was not explained to consumers. Consumers thought they had an issued policy. What they really had was a contractual promise to underwrite the policy when a claim was filed and possibly pay them. Those who turned in claims, only to find out they could be denied, turned to the state insurance departments for help. Since post-claims

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underwriting was legal, there was no help available. Even consumers who disclosed absolutely everything they were aware of could be trapped by this practice if the agent failed to write down everything on the application or if medical conditions were not fully recognized, therefore reported, by the consumer. If the agent ignored underwriting guidelines, applications were written on obviously unacceptable applicants. Eventually, states banned post-claims underwriting.

In a perfect world, consumers would fully disclose every known medical condition and scrutinize the application for accuracy. In a perfect world, agents actively seek to record each known medical condition. Alas, we are seldom perfect. Therefore, it is important that insurers be required to fully underwrite every policy prior to issue. Only obvious fraud would cause a policy to be rescinded (voided).

In June of 1991, Consumer Reports magazine again reviewed nursing home policies. They seemed to have expected policies to be greatly improved, but in their opinion, this was not the case. The authors felt that insurance companies simply got better at adding gatekeepers; those restrictive clauses that allow companies to "close the gate" on benefit payments.

The magazine also presented another problem: untrained or dishonest agents. It probably doesn’t matter which an agent is (untrained or dishonest) since an untrained agent is just as dangerous as a dishonest one. Whichever it happened to be, many consumers found that the policies they purchased would not pay the benefits they had been promised. Policy restrictions were almost never explained.

Rate increases have also plagued many of the long-term care policies. As insurance companies found their costs going up, they applied for and received rate increases from the states. Few policies allowed the consumers to receive any of their premiums back if the policy was dropped. Refunds were seldom possible even if the consumer died before the end of their premium term. This was true even if they had never applied for or received benefits. The rationale was simple: in automobile policies you do not get a refund if no accident occurs. Why should a person who never filed a long-term care claim receive a refund?

Of course, there is one major difference: long-term care policies are not likely to pay benefits for up to 20 years or more after the date of purchase. If premiums continually rise, pricing the policy beyond the consumer’s means, is this a “bait and switch” tactic? Are the insurers luring the consumer in with low rates at early ages when claims are unlikely and then simply raising the rates beyond their means by the time they approach use of the policy? It would be impossible to ever prove the insurers were intentionally doing so, and probably unlikely as well. It is more plausible that they failed to realize how the policies would perform and pay benefits over time. Even so, since the recent tendency to price long-term consumers out of their policies has become obvious,

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consumer advocates are hoping the states will step forward with some type of insurer restraints or solution to the problem.

There were approval problems at state levels early on. The early policies had no regulated format. States were initially overwhelmed by the quantity of companies and policies coming across their desks for approval. Additionally, those who approved policies at state level had little knowledge or background in the area being insured. As a result of these problems, the first policies out had little state intervention.