Barack Obama

Obama Calls for Investigation of Long-Term Care

Thursday, March 29, 2007

FOR IMMEDIATE RELEASE
Contact: Ben LaBolt

Requests GAO investigation following reports of a high number of rejected claims

WASHINGTON, DC -- U.S. Senator Barack Obama today wrote a letter to the head of the Government Accountability Office calling for an investigation into long-term care following a report in the New York Times of a high number of claims being denied, and practices that make it “difficult – if not impossible – for policyholders to get paid.”

A copy of the letter is below:

The Honorable David M. Walker
Comptroller General
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548

Dear Mr. Walker:

A March 26, 2007, article in the New York Times investigated the practices of several long-term care insurers and reported a number of troubling findings about practices that “make it difficult – if not impossible – for policyholders to get paid.” According to the article, nearly 1 in every 4 long-term care claims in California was denied in 2005.

Nearly 9 million long-term care policies had been sold as of 2002, the most recent year for which data were available, with about 80 percent purchased through the individual market and the remaining 20 percent purchased through the group market. These products provide elderly Americans with coverage for care in their homes, assisted living facilities, and nursing homes. This range of services is critical for the health and financial well-being of seniors, 70 percent of whom will require long-term care at some point in their lives.

Long-term care is a problem of national significance. As the baby boomers age, policymakers are struggling to design a long-term care system that meets the needs of Americans with disabilities. While progress has been made, the long-term care system is heavily biased towards institutional care, and the quality of care is often poor. Moreover, nursing home and home care are very expensive, and Medicare coverage for both is limited. As a result, catastrophic out-of-pocket expenses for nursing home and home care by American’s older people are routine, forcing many to rely on Medicaid to finance the care they need.

The federal government has taken steps to promote the use of long-term care insurance. The Long-Term Care Partnership Program, a public-private partnership between states and private insurance companies, is one such example. The Federal Long Term Care Insurance Program, sponsored by the Office of Personnel Management for federal employees, is a second example. In addition, the Health Insurance Portability and Accountability Act has profoundly shaped the long-term care market by establishing standards regarding the characteristics of policies whose premiums can count towards the tax deduction available for health care costs that exceed 7.5 percent of income.

I have a number of serious concerns about the long-term care insurance market and its ability to fulfill its promise to its policyholders. First, I am concerned about the possible arbitrary denial of insurance benefits to seniors at their time of need. Second, I am concerned that some insurers may be enticing individuals to buy policies by offering low premiums, and then sharply increasing premiums if lapse rates are not as high as assumed in the premium calculations. Third, a substantial percentage of policies do not offer inflation adjustments, resulting in a significant erosion of purchasing power in later years. Even worse, some companies offer “inflation coverage” which allows policyholders to purchase additional coverage at a later date, but at the price charged older purchasers. Premiums increase dramatically by age, and individuals who elect to buy coverage later may not realize that such coverage will be extremely expensive, which may be financially infeasible.

Given the role of the federal government in long-term care financing, I request that GAO investigate these allegations and the adequacy of state and federal regulation. Specifically, I request that GAO review the practices of these insurers in order to assess the following:

• Rate of denial of claims, and as feasible, the extent to which denials were justifiable;
• Types of policies purchased, including the percentage of policies that do adjust and do not adjust for inflation and those that allow for purchase of additional coverage at a later date;




• Estimated loss of purchasing power for those individuals that have policies without inflation adjustment provisions;




• Frequency and amount of premium increases in already purchased policies, average lapse rates of policyholders, and the correlation between premium increases and lapse rates;




• Extent to which long-term care policies are marketed to individuals that would likely qualify for Medicaid or may not have substantial assets to protect; and




• What, if any, additional federal regulation is needed.

Thank you.

Sincerely,

Barack Obama
United States Senator