According to the American Council of Life Insurers in Washington, a one-year stay in a nursing home costs an average of $75,000.
Even home care can be expensive, with visits by a home health aid costing more than $30,000 a year.
Thus a lifetime of saving for a comfortable retirement can be undone by an unexpected need for nursing-home care or even home care.
As a result, the purchase of long-term-care insurance has become a vital part of retirement planning for about 8 million Americans who want to make sure the cost of late-in-life medical care doesn’t reduce them to destitution.
The federal government and many state governments have adopted policies to encourage more people to buy LTC policies, not only to protect their retirement savings from being depleted but also to spare the government the burden of assisting those made destitute by nursing-home costs.
Insurance companies have been selling the concept of long-term care for many years, seeing it as a profitable new avenue, though not profitable enough to keep some from dropping the product.
Now questions have been raised about the practices of some companies that sell LTC policies. They have been accused of refusing to pay apparently legitimate claims, according to a recent story in The New York Times.
That story prompted two presidential candidates and another U.S. senator to call for investigations into the LTC insurance industry.
Isolated incidents?
Are the insurance companies, in fact, frequently or regularly refusing to pay legitimate claims or are the cases unearthed by the Times simply isolated incidents?
According to the preliminary results of a study that the Department of Health and Human Services is conducting, 97% of LTC insurance claims filed have been settled amicably, suggesting that insurance companies are meeting their obligations. The early results of this study seem to suggest that the story in the Times focused on the exceptions.
But these results haven’t been widely publicized yet, and unfortunately, the story undoubtedly has raised questions in the minds of those with LTC policies and among those who were planning to buy them.
The calls for an investigation may have been politically inspired, but they were correct. There should be an investigation of the performance of the companies selling LTC policies, and the Government Accountability Office is the correct arm of the government to conduct the investigation.
An investigation by a congressional committee or subcommittee would lead to the usual grandstanding by members of Congress, shedding more heat than light on the issue.
The study for the Department of Health and Human Services is almost complete, but it may not answer the specific issues raised in the Times’ story.
An investigation by the GAO would clear up the issue. If the insurance companies are meeting their obligations, except in rare instances, it would ease the doubts of consumers about their LTC policies and reassure them that the insurance companies from which they bought policies will pay for nursing-home or home nursing care should they need it.
If a significant number of insurance companies are refusing to pay off on the policies, based on loopholes in them, it will provoke government action to force the insurance companies to change their ways and provide the coverage for which the consumers have paid.
The life insurance industry should welcome such an investigation, because it would ease the doubts and make it easier to sell LTC policies or it would identify black-sheep companies that would hurt the industry’s image if they continued to operate in the same manner. Those companies can be forced to reform.
LTC insurance has become a vital protection for millions of aging Americans. It must not be allowed to linger under a cloud of suspicion.
