AALTCI Launching Long-Term Care Insurance Claims Resource Center

According to a recent survey from The American Association for Long-Term Care Insurance (AALTCI), the nation’s long-term care insurance companies paid out more than $12 billion in claims benefits in 2021. That represents a $700 million increase over 2020, and a $2 billion increase since 2018.

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Many Long-Term Care Insurance Claims Begin Later in Life, New AALTCI Data Shows

It comes as no surprise that as Americans live longer, long-term care and long-term care insurance needs are increasing.

The American Association for Long-Term Care Insurance (AALTCI) recently released data  surveying the landscape of who needs long-term care insurance (LTCi), when they need it and how their claims end in different care settings.  AALTCI published its findings in its “2022 Long-Term Care Insurance Information” survey.*

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Senior Living 2021 Claims Benchmarking Study

Senior Living owners and operators have seen­­—and will likely continue to see—growing liability costs as the COVID-19 pandemic persists, a new survey from Willis Towers Watson shows. The study aimed to estimate loss costs, defined as loss cost per unit of exposure, over a 10-year period to measure how the frequency and severity of claims brought against long-term care (LTC) facilities’ owners and operators has changed over time.

The survey included 38 senior living owners and operators. Those owners and operators reported more than 14,000 claims and almost $2 billion in incurred losses from 2009 to 2019. The survey also found that the number of claims against LTC operators for more than $1 million rose over the course of the 10-year period. Similarly, the average cost of claims is higher since 2016 than from 2009 to 2016. Prior to 2016, the value of an average claim rose by 4% annually. Between 2016 and 2019, claim value grew at a rate of 11.56% per year.  States with tort reform generally saw less severe claims, and thus lower loss costs, whereas states without senior living tort reform generally saw higher, increasing costs.

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Overpayments in LTCi

Overpayments in the long-term care insurance industry become more prevalent with each passing year, in concert with the increase of claims paid. Each year, insurers pay out hundreds of thousands of dollars on LTCi policies that are not owed. This not only results in financial loss, but also leads to over-inflated reserves. The problem persists because it is increasingly difficult for companies making the payments to obtain timely information and to identify issues. Many recipients of overpayments spend what they have been paid and have little else to recoup, while others have since died, and their estates/heirs/next of kin can be impossible to locate or deal with.  If companies do not recognize this quickly, the recoupment process can be more complex.

Overpayments occur for a variety of reasons. The most common is simple mistake, miscalculation or clerical error. More complicated scenarios occur when evidence shows that an insured who has been receiving benefits should not have, for a variety of reasons. This latter occurrence, which may or may not include implications of wrongdoing or fraud, creates a complicating factor that may require a remedy at law if the recipient(s) is unwilling to re-pay the company when asked. We have recently seen a trend in overpayments where insureds have passed away, and their spouse/next of kin (or even caregiver) will request/receive benefits not owed.

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Future of Dementia

There is a possibility that the structural and financial costs of caring for elderly Americans will become the issue that overwhelms all others in importance in the coming decades.  Among the myriad issues and problems facing the United States at present, many politicians and policymakers have focused on issues that appear more immediate. As they do, however, the United States grows older and more infirm, all while birth rates fell to 1.73 births per female in 2018 and net immigration has fallen to the lowest levels this decade. Given the aging baby boomer generation, the current scenario has all of the makings of a serious demographic crisis. Among an aging population, dementia has become a very prevalent, very difficult, and very expensive illness that many confront, and so far little progress has been made on a cure.  Indeed, The Economist, in its August 27, 2020 edition, published a special report on dementia that included the following statistics:

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Responding and Managing the Impact of COVID-19

Assured Allies and Faegre Drinker have partnered to develop a playbook for the long-term care insurance industry. Responding and Managing the Impact of COVID-19 offers insights, guidance and ideas to manage the short- and medium-term impacts of the COVID-19 global pandemic and provides potential avenues for long-term care insurers to explore in the post-COVID-19 world that could change long-term care insurance forever.

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Tax-Qualified Language: Litigation Risks Stemming from Common Policy Language

Many long-term-care (LTC) insurance policies in the market are “Tax-Qualified,” or “TQ,” meaning that they meet the federal standards for favorable tax treatment specified by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (or were grandfathered in to that definition). This is an attractive option for most insureds because under TQ policies, certain LTC insurance benefits qualify for favorable federal income tax treatment — if the policy pays only benefits that reimburse the insured for qualified LTC costs, the insured will not owe federal income tax on those benefits. Likewise, premiums are tax-deductible up to a maximum limit that increases with age. These benefits are not provided by policies that are “Non-Tax-Qualified,” or “NTQ.”

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