June 12,2007

Sen. Grassley comments on new GAO report on long-term care insurance


TO: Reporters and EditorsFR: Jill Kozeny, 202/224-1308for Sen. Chuck GrassleyRE: GAO report on long-term care insuranceDA: Tuesday, June 12, 2007

Sen. Chuck Grassley, Ranking Member of the Committee on Finance, issued thecomment below about a report released today by the Government Accountability Office titledLong-Term Care Insurance: Partnership Programs Include Benefits That Protect Policyholdersand Are Unlikely to Result in Medicaid Savings, GAO-07-231. Sen. Grassley requested theGAO review along with Sen. Max Baucus and Sen. John Rockefeller IV.

The report examined long-term care partnership programs in California, Connecticut,Indiana and New York. The GAO analyzed benefits and premiums, demographics ofpolicyholders and the programs’ impact on Medicaid.

Sen. Grassley is a long-time advocate for enhancing retirement security with incentivesfor long-term care coverage and has exercised oversight of the long-term care insurance industryon behalf of policy holders. As Chairman of the Senate Special Committee during the late1990s, he first sponsored legislation to expand long-term care insurance opportunities forindividuals and held hearings on a range of retirement security issues. He undertook severalinitiatives to improve the quality of long-term care services. As Chairman of the FinanceCommittee for more than four years between 2000 and 2007, Sen. Grassley continued his effortsto promote awareness about long-term care insurance by working to create a long-term careinformation clearinghouse at the Department of Health and Human Services and to expand thepartnership program.

Sen. Grassley’s comment on today’s GAO report:

“The federal government and states, through the Medicaid program, are the primarypayors of long-term care services in this country. As our population ages and people live longer,the burden on Medicaid and taxpayers will grow unless we take steps to promote long-term careinsurance. This new report finds that policies available under long-term care partnershipprograms provide important protections to individuals. The expansion of the partnershipprogram will make those protections available to everyone. The report’s conclusion that thelong-term care partnership program won’t likely save Medicaid money has drawn some criticismfrom the very states currently involved in the project. A fundamental disagreement like that tellsme that we need to analyze the question further, and I’ll ask the Inspector General to do that.I’m committed to continuing my work to oversee implementation of the partnership expansionand scrutinize the long-term care insurance industry. People deserve and need meaningfullong-term care partnership policies, and compound annual inflation protection is particularlyimportant. Given its importance, I’ve written to the Centers for Medicare and Medicaid Servicesand to the National Association of Insurance Commissioners about compound inflationprotection. I’ve also put the long-term care insurance industry on notice that imposingroadblocks to paying legitimate claims is an unacceptable practice and enlisted the help of boththe Government Accountability Office and the National Association of InsuranceCommissioners to get a better handle on this industry.”

Here is the text of Sen. Grassley’s request to GAO made earlier this year on allegationsof overly burdensome obstacles that make it difficult to receive coverage for long-term insuranceclaims.

April 3, 2007The Honorable David WalkerComptroller GeneralU.S. Government Accountability Office441 G St, NWWashington, DC 20548

Dear Mr. Walker:A recent article in The New York Times highlights what appears to be a growing andsystemic problem with the long-term care insurance industry. [1] As you know, many of ournation’s seniors rely on the prospect of a long-term care insurance policy to provide an adequatesafety net for healthcare related expenses. However, it is reported that there are many overlyburdensome obstacles that make it difficult to receive coverage for insurance claims. Forinstance, the article notes that many long-term care policyholders are confronted with draconianpolicies that deny claims for minute administrative errors such as failing to submit unimportantpaperwork, filling out wrong forms after receiving them from the insurance company, and thecompany failing to recognize an approved facility.

Long-term care policies play an integral role in the fiscal integrity of federal healthprograms such as Medicaid. However, if insurance companies are making it more complicated torecoup claims, this may force seniors into an already financially burdened Medicaid program,thereby increasing program costs.

Additionally, I am concerned that these problems are not isolated to a small segment ofthe population; but rather that they are pervasive throughout the long-term care insuranceindustry.

Therefore, I request that the Government Accountability Office conduct an inquiry intothe practices of the long-term care insurance industry. In doing so, please ensure that thefollowing matters are examined: an analysis of industry policies and practices concerning bothclaim approvals and denials including but not limited to a comparative analysis of approvalversus denial rates and the most common reasons for denying a claim; an analysis of whether ornot companies are adhering to Health Insurance Portability and Accountability Act (HIPPA)standards relating to consumer protection for long-term care insurance and whether or notcompanies are adhering to HIPPA guidelines relating to their administrative and marketingpractices; a review of whether state insurance enforcement agencies are properly and promptlyinvestigating reports of long-term care insurance claim denials and the results of such reviews;and an estimate/analysis of the potential implications to the Medicaid program due to improperdenial of long-term care insurance claims.

Thank you for your attention to this important matter.Sincerely,

Charles E. GrassleyUnited States SenatorRanking Member, Committee on Finance[1] Charles Duhigg, Aged, Frail and Denied Care by Their Insurers, N.Y. Times, March 26,2007

The New York TimesMarch 26, 2007 MondayLate Edition - FinalAged, Frail and Denied Care by Their InsurersBYLINE: By CHARLES DUHIGGSECTION: Section A; Column 3; National Desk; Pg. 1LENGTH: 3764 wordsDATELINE: CONRAD, Mont.

Mary Rose Derks was a 65-year-old widow in 1990, when she began preparing for the day shecould no longer care for herself. Every month, out of her grocery fund, she scrimped togetherabout $100 for an insurance policy that promised to pay eventually for a room in an assistedliving home.

On a May afternoon in 2002, after bouts of hypertension and diabetes had hospitalized herdozens of times, Mrs. Derks reluctantly agreed that it was time. She shed a few tears, watchedher family pack her favorite blankets and rode to Beehive Homes, five blocks from herdaughter's farm equipment dealership.At least, Mrs. Derks said at the time, she would not be a financial burden on her family.But when she filed a claim with her insurer, Conseco, it said she had waited too long. Then itsaid Beehive Homes was not an approved facility, despite its state license. Eventually, Consecoargued that Mrs. Derks was not sufficiently infirm, despite her early-stage dementia and the 37pills she takes each day.

After more than four years, Mrs. Derks, now 81, has yet to receive a penny from Conseco, whileher family has paid about $70,000. Her daughter has sent Conseco dozens of bulky envelopesand spent hours on the phone. Each time the answer is the same: Denied.Tens of thousands of elderly Americans have received life-prolonging care as a result of theirlong-term-care policies. With more than eight million customers, such insurance is one of themany products that companies are pitching to older Americans reaching retirement.Yet thousands of policyholders say they have received only excuses about why insurers will notpay. Interviews by The New York Times and confidential depositions indicate that somelong-term-care insurers have developed procedures that make it difficult -- if not impossible --for policyholders to get paid. A review of more than 400 of the thousands of grievances andlawsuits filed in recent years shows elderly policyholders confronting unnecessary delays andoverwhelming bureaucracies. In California alone, nearly one in every four long-term-care claimswas denied in 2005, according to the state.

''The bottom line is that insurance companies make money when they don't pay claims,'' saidMary Beth Senkewicz, who resigned last year as a senior executive at the National Associationof Insurance Commissioners. ''They'll do anything to avoid paying, because if they wait longenough, they know the policyholders will die.''

In 2003, a subsidiary of Conseco, Bankers Life and Casualty, sent an 85-year-old womansuffering from dementia the wrong form to fill out, according to a lawsuit, then denied her claimbecause of improper paperwork. Last year, according to another pending suit, the insurer PennTreaty American decided that a 92-year-old man had so improved that he should leave hisnursing home despite his forgetfulness, anxiety and doctor's orders to seek continued care.Another suit contended that a company owned by the John Hancock Insurance Company hadtried to rescind the coverage of a 72-year-old man when he was diagnosed with Alzheimer'sdisease four years after buying the policy.

In court filings, all three companies said the denials had been proper. They declined furthercomment on the cases, though Bankers Life and John Hancock eventually settled for unspecifiedamounts.

In general, insurers say criticisms of claims-handling are unfair because most policyholders arepaid promptly and some denials are necessary to root out fraud.

In a statement, Conseco said the company ''is committed to the highest standards for ethics,fairness and accountability, and strives to pay all claims in accordance with policy contracts.''Penn Treaty said in a statement, ''We strive to treat all policyholders fairly, and to deliver thebest, most efficient evaluation of their claim as possible.''

But policyholders have lodged thousands of complaints against the major long-term-careinsurers. A disproportionate number have focused on Conseco, its affiliate, Bankers Life, andPenn Treaty. In 2005, Conseco received more than one complaint regarding long-term-careinsurance for every 383 such policyholders, according to data from the insurance commissioners'association. Penn Treaty received one complaint for every 1,207 long-term-care policyholders.(The complaints touch on a variety of topics, including claims handling, price increases andadvertising methods.)

By comparison, Genworth Financial, the largest long-term-care insurer, received only onecomplaint for every 12,434 policies.

Conseco is among the nation's largest insurers, collecting premiums worth more than $4.2 billionin 2006, of which long-term-care policies contributed 21 percent. Penn Treaty focuses primarilyon long-term-care products and collected premiums of about $320 million in 2004, the last yearthe company filed an audited annual report.

In depositions and interviews, current and former employees at Conseco, Bankers Life and PennTreaty described business practices that denied or delayed policyholders' claims for seeminglytrivial reasons. Employees said they had been prohibited from making phone calls topolicyholders and that claims had been abandoned without informing policyholders. Suchtactics, advocates for the elderly say, are becoming common throughout the industry.''These companies have essentially turned their bureaucracies into profit centers,'' said Glenn R.Kantor, a California lawyer who has represented policyholders.

Yet these concerns have been ignored by state regulators, advocates say, and have goneunnoticed by federal lawmakers who recently passed incentives intended to promote purchasesof long-term-care policies, in the hopes of forestalling a Medicare funding crisis.Conseco and Bankers Life ''made it so hard to make a claim that people either died or gave up,''said Betty J. Hobel, a former Bankers Life agent in Cedar Rapids, Iowa.

''When someone is 70 or 80 years old,'' she said, ''how many times are they going to try beforethey just give up?''A Race to Sell Policies

When Mrs. Derks bought her long-term-care policy from a door-to-door salesman in 1990, shewas unaware that she represented the insurance industry's newest gold mine.Her husband had died eight years earlier of a stroke, leaving her to run a barley farm in northernMontana, where she lived with her three children and her aging mother. As she watched her ownparent decline, Mrs. Derks became preoccupied with sparing her children the expense of herfinal years.

''She was terrified that she would bankrupt us or get sent to a public nursing home,'' said Ken E.Wheeler, her son-in-law.

At the time, long-term-care policies, which can cover the costs of assisted-living facilities,nursing homes and at-home care, were becoming one of the insurance industry's fastest-growingproducts. Companies like Conseco, Bankers Life and Penn Treaty were aggressively signing upclients who were not in the best health at rates far below their competitors' in order to win morebusiness, former agents said. From 1991 to 1999, long-term-care sales helped drive total revenuegains of roughly 500 percent each at Penn Treaty and Conseco, including its affiliate BankersLife.

Cracks in the business, however, soon started to appear. Insurance executives began warningthey had underestimated how long policyholders would live after entering nursing homes. Thecosts of treating Alzheimer's, Parkinson's and diabetes ballooned.As insurers began realizing their miscalculations, they persuaded insurance commissioners inCalifornia, Pennsylvania, Florida and other states to approve price increases of as much as 40percent a year.

By 2002, Conseco's long-term-care payouts exceeded revenue. Those and other disappointingresults prompted the company to file for bankruptcy, from which it emerged 10 months later.That same year, Mrs. Derks entered Beehive Homes, a cheery, 12-bed center one block from thePrairie View elementary school. In the previous four years, she had been hospitalized more thantwo dozen times. She had once lain unconscious in her living room for a day and a half. Herphysician ordered her into an assisted-living center.

Initially, Conseco told Mrs. Derks's daughter, Jackie Wheeler, that her claim would go throughsmoothly, Mrs. Wheeler said. The family began paying Beehive Homes's $1,900 monthly fee.But three months after submitting her claim, Mrs. Derks received a letter from Conseco sayingshe had waited too long, and her earliest costs would not be reimbursed. Two months later, shereceived another letter denying her entire claim because she had not submitted proof of illness.Yet a copy of Mrs. Derks's policy, sent to the Wheelers by Conseco in 2004 and reviewed byThe Times, mentions no requirement for proof of illness. The policy requires only that theconfinement be ordered by a physician, and it allows for a notice of claim to be sent ''as soon asreasonably possible.''

Mrs. Derks's daughter called Conseco and explained that her mother could not recall the date orpeople's names and had started multiple fires by forgetting to turn off the stove. She sent lettersstating that her mother needed assistance to dress, eat, go to the bathroom and inject insulin.''This is medically necessary!!!'' reads a form signed by Mrs. Derks's physician in 2004. ''Thishas been filled out three times! This person needs assistance!''

Seven months later, Conseco sent another letter, this time denying Mrs. Derks's claim becauseher policy ''requires a staffed registered nurse 24 hours per day.'' Her policy does not mentionsuch a requirement.

Conseco also sent letters denying Mrs. Derks's claim because her policy had an ''assisted livingfacility rider,'' and because Mrs. Derks ''does not have an assisted living facility rider.'' In all, thefamily received more than a dozen letters from the company. Many contradict one another, andfrequently cite requirements that are nowhere mentioned in Mrs. Derks's policy.

''There was always a new step in the runaround,'' Mrs. Wheeler said. ''It felt like everything wasdesigned to make me just go away.''

Over two years, Mrs. Wheeler estimated, she called the company about 100 times. Twice amonth, she sent envelopes stuffed with medical records. Some afternoons, she spent hoursmaking calls. After one conversation, Mrs. Wheeler slammed down the phone and started to cry.Then she drove to Beehive Homes, where her mother was surrounded by faded photos of herchildhood and boxes of adult diapers.

''I wouldn't tell her about the problems we were having with Conseco, because I knew it wouldcause her so much worry,'' Mrs. Wheeler said.

Eventually, the Wheelers sold part of their John Deere dealership to raise money to pay for hermother's care. In October 2006, they sued.

Conseco, asked by a reporter about the company's handling of the Derks claim, declined toanswer, citing the pending litigation. In court documents, the company denied Mrs. Derks'sallegations without specifying why her claim was denied.

''We did everything they asked,'' Mrs. Wheeler said. ''And this company just treats us likedirt.''Tales of Bureaucracy

Inside the large Conseco headquarters in Carmel, Ind., scores of employees receive the flood ofdocuments and calls that arrive each day. At times, according to depositions and interviews, thatdeluge became so overwhelming that documents were lost, calls went unreturned and mistakesoccurred.

Some employees describe vast mailrooms where documents appear and disappear. Onecall-center representative said he was afforded an average of only four minutes to handle eachpolicyholder's call, no matter how complicated the questions. Employees said they wereinstructed not to say when the company was behind in processing paperwork, even when thebacklog extended to 45 days. Workers were prohibited from contacting each other by phone,although such calls might have quickly resolved obstacles, according to depositions.Conseco, asked in detail about the company's policies, declined to respond.

Bureaucratic obstacles were pervasive, according to interviews with 10 former Consecoemployees and depositions of more than a dozen others. Robert W. Ragle, a former Bankers Lifebranch manager, once contacted the claims department on behalf of a client, and ''they justlaughed us off the phone,'' he said. ''Their mentality is to keep every dollar they can.'' Mr. Raglewas dismissed by Bankers Life in 2002. He sued for wrongful termination and settled out ofcourt.

In lawsuits, complaints and interviews, policyholders contend that Conseco, Bankers Life orPenn Treaty denied claims because policyholders failed to submit unimportant paperwork;because daily nursing notes did not detail minute procedures; because policyholders filled outthe wrong forms after receiving them from the insurance companies; and because facilities weredeemed inappropriate even though they were licensed by state regulators.In depositions conducted on behalf of angry policyholders, Conseco employees describedbureaucratic obstacles that prevented payment of claims. Those depositions were sealed insettlement agreements but were obtained by The Times.

In a 2006 deposition, a Bankers Life and Conseco claims adjuster, Teresa Carbonel, testified thatshe denied claims because of missing records but was prohibited from calling nursing homes orphysicians to request the documents. She also testified that when a claim was denied, she wasforbidden to phone a policyholder, but instead used a time-consuming mailing system.Ms. Carbonel's testimony, recorded during lawsuit on behalf of a 94-year-old policyholder,Rhodes K. Scherer, also disclosed that if policyholders did not mail requested documents within21 days, Conseco might abandon their claim, sometimes without informing them.

In the case of Mr. Scherer, who was institutionalized after a bathroom fall, it was difficult toobtain a response, Ms. Carbonel said, because the company's requests were mailed to his homeaddress, rather than the nursing center where the company had been notified that he had moved.Ms. Carbonel, who is no longer with the company, did not return calls. Conseco declined tocomment on her testimony.

In another deposition, Conseco's then-senior manager for long-term- care claims, Jose S. Torres,testified that Conseco would sometimes withhold payments until it received documents notrequired by customers' policies. In Mr. Scherer's case, Mr. Torres said, the company refused topay his nursing home costs unless he sent copies of the home's license, payment invoices andmedical records, even though those documents had no bearing on approving his claim.Mr. Scherer's claim ''was handled not in the best way, but it was handled according to theprocesses and procedures placed at the time,'' Mr. Torres testified. ''Mistakes are going to bemade, you know.''

Other executives testified that when Conseco appeared to have lost important documents in Mr.Scherer's claim, no investigation was initiated. Shawn Michael Schechter, a Conseco claimssupervisor who left the company in 2005 on positive terms, according to the deposition, testifiedthat the handling of Mr. Scherer's claim violated the principle of good faith, which requiresinsurance companies to treat customers fairly.

''The claim adjuster could have made that very easy and not have put the burden back onto thepolicyholder,'' he testified.

Mr. Torres did not return calls. Mr. Schechter declined to answer questions.Mr. Scherer died in 2004 without receiving benefits from Conseco. His estate settled with thecompany in February for an undisclosed amount, according to a lawyer representing the estate.Conseco declined to discuss its complaint history or individual cases, citing confidentialityagreements. In its statement, the company said that in 2006, Conseco paid nearly $2.3 billion on9.8 million claims in all types of insurance sold by the company.

The company added: ''Conseco, through training, education and process improvements in all ofits insurance companies, is continuously focused on enhancing service and resolving anyproblems expeditiously. The Conseco Insurance Group's overall insurance departmentcomplaints decreased 20 percent from 2005 to 2006.''

Depositions of executives at Penn Treaty also point to questionable practices. In a 2005 lawsuit,a Penn Treaty senior vice president, Stephen Robert LaPierre, testified that the company rejectedone claim without informing the policyholder why, asked for information that was not requiredto process a claim, gave incomplete information about a claim's status and said the company wasdelaying payment because of an investigation while failing to take steps that might have resolvedthe inquiry.

Mr. LaPierre declined to discuss his testimony. Penn Treaty settled the lawsuit by paying thepolicyholder an unspecified amount, the policyholder's lawyer said.

Penn Treaty said in a statement that evaluating a company by measuring its complaints wasflawed, and that since 2003, the company has denied an average of less than 1.7 percent of the upto 8,000 claims it received every year because of reasons related to policyholder eligibility.''From time to time, Penn Treaty is compelled to investigate fraud or questionable billingactivities,'' the company added.Few Regulatory InquiriesFew of the cases or complaints filed against Conseco, Bankers Life, Penn Treaty or otherinsurers have received much attention, in part because many lawsuits filed againstlong-term-care insurers have been settled with the requirement that depositions, documents andsettlement terms be kept confidential. Frequently, say policyholders' lawyers, the companieshave been willing to pay millions of dollars in exchange for confidentiality.Furthermore, despite the complaints against long-term-care insurers, few states have conductedmeaningful investigations.

Ron Gallagher, a deputy commissioner with the Pennsylvania Insurance Department, said, ''Idon't know that we have a real problem with improper claim denials.''Yet data from the National Association of Insurance Commissioners show that from 2003 to2005, Pennsylvania received more complaints regarding Conseco, Bankers Life and Penn Treatythan any other state. Mr. Gallagher said he might begin a new review of those companies.Other states with large numbers of long-term-care complaints, including California, Missouri,Maryland, Indiana and Washington have not begun investigations, or have reviewed only smallnumbers of policies.

As a result, other seniors may end up like Mrs. Derks.While she was waiting for her lawsuit to proceed, Medicaid began contributing to Ms. Derks'scare. Taxpayers now pay Beehive Homes about $32 daily for her care.''Long-term-care insurance is supposed to result in less pressure on Medicaid, not more,'' saidMs. Senkewicz, the former executive at the insurance commissioners' association.For Mrs. Derks's family, things have already broken down.

''How many other people are out there who don't have a family to fight for them and have justgiven up?'' asked Jackie Wheeler. ''This company should be ashamed.''