When Consumer Protection Isn’t There: Part II: Epidemic of Lapsed Policies?

This is a follow-up to an earlier blog and recounts the findings against another long-term care insurance company that had a comparable complaint.  The Company was fined and given a cease and desist order.  Read the whole story below.  And what you can do to protect yourself or a loved one. 

In an earlier O’ConnorReport I wrote about ‘Mary’ and her lapsed long-term care policy because of an unintentional error. I talked with Alan Michael Singer, a staff attorney in the Washington State Insurance Commissioner’s Office (OIC) about the case, who told me the facts reminded him of a similar-sounding case that involved a different long-term care insurer, Ability Insurance Company.  Ability had over 17,000 policies lapse in five years.

What follows are excerpts from the OIC’s order entered on the matter, which you can read on OIC’s website: http://www.insurance.wa.gov/laws-rules/administrative-hearings/judicial-proceedings/documents/11-0088-Amended-Final-Order.pdf.

The Case Against Ability

In the OIC’s Ability case, Ability’s insured – through her daughter – sought reinstatement after the insured unintentionally failed to pay her premium. Moreover, at the time this happened she suffered from cognitive impairment and loss of functional capacity. It was the first time she failed to pay her premium on time. She had paid premiums on time on her policy for ten years. Ability had sent a letter to the insured’s daughter to tell her the policy premium had not been paid, but they sent it to an old address.  It was not forwarded to the daughter’s current address, so the daughter never received the letter in the mail. Since the daughter had in prior years had extensive communication with the company about an earlier claim for the expenses for her mother’s caregiver, Ability knew she was the insured’s designee and had been given home, work, and cellular telephone numbers.

But Ability did not attempt to contact the daughter or the insured by telephone when the premium remained unpaid. When the daughter later asked why the company had not contacted her by telephone, Ability replied that they were not certain they still retained the records that had the telephone numbers because the insurance companies had made changes during that time. The daughter asked the company to reinstate the policy, and sent them the unpaid premium, but the company refused to reinstate the policy and returned the payment.

After Ability denied reinstatement and the family complained, the OIC became involved. OIC eventually decided the company had violated the Insurance Code and sought to impose a $10,000 fine (the maximum allowed under the Insurance Code), to suspend for six months the company’s Certificate of Authority (its license to be an insurer in Washington), and to order the company to cease and desist from continuing to violate the Insurance Code.

The company disputed these actions and demanded a hearing. After many filed documents and many hours of hearings, the hearing officer found the OIC’s actions “reasonable” and concluded that Ability had wrongfully handled its activities, and had in fact done so “intentionally in bad faith.” The hearing officer concluded that the company was required to allow reinstatement, and that Ability violated the Insurance Code by denying the request for reinstatement.

Before the hearing officer rendered her conclusions in the case, Ability had been asked to provide the OIC with reinstatement statistics on all Ability policies that had lapsed, both nationally and in Washington over a 5-year period.  Ability, through its Senior Vice President, Donald Lawler, stated that Ability could produce such a report, and a little over a month later the company’s lawyer wrote to the company that over 17,000 policies had lapsed nation-wide.

But Ability’s lawyer also wrote that that because the company does not independently track or tag reinstatements, and because Ability’s IT person unfortunately abruptly quit just before the letter was written, and because Ability lacks the manpower, it could not produce the report Mr. Lawler said it could produce. The hearing officer found this “not credible” and noted that “it is quite possible […] that there are far more requests being denied by Ability than are justified under applicable laws.”

Over 17,000 lapsed policies in five years – that is a staggering number. And that is just one company. And it is unlikely that more than a fraction are brought to the attention of state insurance regulators, or that the regulators can even take action.

At the February 11th hearing in the Washington State Senate’s Health Care Committee on SB 5447 to protect consumers from unintended lapses, testifying against the bill and representing the insurance industry, their representative made the following point:  Insurance companies don’t want to lose their insureds. They want to keep them.  That may be the case with auto or home owners, but I doubt there is the same desire on the part of long-term care insurance companies.

Ability is one company, but the company in the case I wrote about earlier is another company:  Genworth. In that case, Esther (her real name) paid nearly $40,000 in premiums since 1992.  In today’s health care marketplace , that $40,000 would last five to eight months if she needed 24 hour care for something like Alzheimer’s disease.  Her policy guaranteed her a lifetime benefit. But costs are growing. My mother’s care, I know, was $5,000 a month  eight years ago. It is simply too hard to believe a long-term care insurer – or any other insurer for that matter – would really want to keep insureds whose policies could later prove so expensive for the insurer.

As bill sponsor Washington State Senator Ed Murray said, “Sometimes health care doesn’t act like the marketplace. In the marketplace when you miss payments, they go after you. The company knew where she moved because they had evaluated and approved the facility as eligible for coverage under her policy. This is wrong.”

When Esther noticed her error while reviewing her 2011 taxes, she immediately contacted Genworth to make payment in full for her missed premiums. She was simply told her policy had lapsed.  Genworth said she never responded to their premium billings or cancellation notice.  Esther never received them because the post office forwarding time expired.  Genworth never tried to find her, even though they had her address from their evaluation and approval of her retirement community.

OIC is currently still looking at Esther’s case. However, it is far from clear that the OIC will be able to do anything to help her. Right now, unless Esther’s reason for lapse was due to cognitive impairment or loss of functional capacity as described in the Ability case, there is not a law or regulation to protect people like Esther. She has no cognitive or functional impairment and has never filed a claim.

Fragile Long-term Care Market? 

There has been considerable consolidation and changes in the long-term care insurance market. Genworth was the third company to own Esther’s policy. Ability was the second or third company to hold the other woman’s policy.  Long-term care insurance companies are also revising their benefits.  Many no longer sell lifetime coverage and/or they limit coverage to certain types of long-term care facilities because of growing health care costs.

Given the staggeringly large number of  the 17,000+ lapses noted in the OIC’s Ability case alone, families should make sure their affairs are in order if they have long-term care insurance policies. In Washington, state insurance regulations require insurers to communicate with the insured – but not the insured’s designee – no less than once every two years to give them a chance to update who their designees are. But as the Ability and Genworth cases show, more needs to be done.

“There should be clear communication between the company and the policy holder and the designees so that each is clear what their respective responsibilities are and that both the policy holder and the designee understand and agree with who is listed as a designee. The law should at least provide that much, and regardless of whether someone has some cognitive impairment or some loss of functional capacity,” argues Singer.

Right now, Washington law simply does not provide these kinds of common sense, fair protections that people like Esther and the woman in the Ability case should have. So it is important that you do all you can to prevent this from happening to you or to one of your loved ones.

What You Can Do to Protect Yourself

Long-term care policy holders should make sure there is another trusted name designated on their policy and they should make sure the insurance companies know their current address. They should make sure their designee knows what they have to do and agree to help protect them from unintended lapse. Banks can set up automatic payments. Seniors should have a list of all their bills and their payment due date:  monthly, semi-annually, annually and share the information with family members.

You should also write to your representative to share your feelings about this issue. If insurers truly want to keep insureds and play fair, as they told your representatives already, you should remind your representatives to hold them to their word. It is time for Washington and other state laws to fill the gaps that can cause such widespread, drastic, and unfair results.

The need to protect our frail elders is essential. But right now until we have some stronger consumer protections, the best protection is having all your ducks in a row.

Kathleen O’Connor, February 22, 2013 ©

About Kathleen

Kathleen O’Connor: 30+ year health care consumer advocate, non-profit executive and author. For more information about Kathleen, please see "About" on the main content bar above.
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