The Broken Promise of Long-Term Care Insurance: History, Pitfalls, and Policyholder Rights Intro

Long-Term Care Insurance (LTCI) was marketed as a prudent financial planning tool that would provide security and dignity in one's later years. However, as many policyholders have discovered, the reality has often fallen short of this promise. At the Law Offices of Sean K. Collins, we have uncovered through extensive litigation and discovery that the LTCI industry faces systemic issues that put policyholders at risk.

This blog post examines the troubled history of long-term care insurance, the financial crisis facing the industry, and the concerning tactics being employed that leave many policyholders without the coverage they've spent decades paying for.

The Evolution of Long-Term Care Insurance

Origins and Early Growth (1980s-1990s)

Long-term care insurance emerged in the 1980s as a private-market solution to a growing concern: how would Americans pay for extended care needs as the population aged? Medicare only covers limited skilled nursing care, and Medicaid requires spending down assets to poverty levels before eligibility. LTCI was designed to fill this gap.

During the 1980s and 1990s, insurance companies aggressively marketed these policies to middle-class Americans concerned about maintaining independence and avoiding becoming a burden on their families. These policies were positioned as the responsible choice for people who wanted to protect their assets and ensure quality care in their later years.

Insurance companies competed for market share during this period, often offering increasingly attractive benefits while keeping premiums aggressively low to entice buyers. The industry expanded rapidly, with over 100 companies offering LTCI products by the mid to late 1990s.

The Faulty Foundation (1990s-2000s)

What consumers didn't realize—and what companies either failed to recognize or willfully chose to ignore—was that these policies were built on fundamentally flawed assumptions that would ultimately undermine the entire industry.

The primary flaw was that insurance companies dramatically overestimated how many policyholders would voluntarily drop their policies before making claims. So while the industry pushed the importance of their products during the sales process, they were surprised their policyholders actually wanted to keep coverage in force over the long run! Their models often projected annual lapse rates of 5-7% but the actual experience has been closer to 1% or less annually, meaning far more policyholders maintained their coverage than expected.

So while carriers often try to shift blame to low interest rates on their investments, improving mortality, the rising costs associated with the care itself or other red herrings, the real number one driver is that they assumed far more people would eventually give up their coverage than actually did. People actually wanted to keep the product sold to them, and that was not good for the industry.

By the early 2000s, the consequences of these miscalculations began to surface as insurers faced mounting losses on their LTCI business lines.

Industry Contraction (2000s-Present)

The industry response to these financial pressures has been dramatic and far-reaching. Nearly all of the major insurers stopped selling new LTCI policies altogether. The number of insurance companies offering LTCI dropped precipitously from over 100 to just a handful today.

In order to deal with the anticipated losses, the industry implemented substantial premium increases on their existing policyholders, often shocking policyholders with hikes of 50%, 75%, or even exceeding 100% in a single year. These increases have continued in waves, with many policyholders seeing their premiums triple or quadrulple over relatively short periods after paying into their coverage for decades without a claim.

The industry contraction coincided with growing policyholder dissatisfaction and, ultimately, litigation. Class action lawsuits emerged across the country as policyholders fought against broken promises and unfair practices.

Concerning Industry Tactics

Facing these immense financial pressures, insurance companies have developed concerning practices that our litigation has exposed. These tactics generally fall into two categories: those designed to encourage policy lapses before claims are filed, and those aimed at obstructing claims when policyholders need care.

Driving Policy Lapses

The LTCI industry's business model has increasingly shifted toward encouraging policy lapses. When a policyholder abandons their policy after years or decades of premium payments but before filing claims, the insurer retains all premiums paid while eliminating most or all of their obligation to cover future care.

One of the most common approaches involves implementing extreme rate increases. While some premium adjustments may be financially necessary, the magnitude and frequency of increases seen in recent years suggest a strategy designed to push policyholders out. Some policyholders have faced premium hikes of 50%, 75%, or even over 100% in a single year—increases that many people on fixed retirement incomes simply cannot afford.

Many companies have also implemented complex and changing billing practices that can confuse elderly policyholders. Changes in billing cycles, confusing statements, and minimal grace periods for payment can lead to accidental non-payment and policy termination. Once a policy lapses due to non-payment, reinstatement is often difficult or impossible, especially for older policyholders who may have experienced cognitive decline.

Insurance companies frequently offer reduced benefit options that maintain current premiums in exchange for dramatically reduced benefits. While presented as accommodations to help policyholders maintain some coverage, these modifications often strip policies of their core value while keeping premium revenue flowing.

Some companies have begun offering buyout offers—one-time payments in exchange for surrendering the policy. Our analysis of these offers typically shows they represent a small fraction of the potential benefit value. However, they may appear attractive to policyholders who don't fully understand what they're giving up, particularly when faced with continually rising premiums.

Claim Obstruction

For policyholders who maintain their coverage and eventually need care, our investigations have uncovered numerous barriers to claim approval.

Many policies contain vague language regarding what constitutes covered care.

The claim process often involves burdensome paperwork requirements that can exhaust already vulnerable claimants and their families. Multiple forms, detailed care logs, frequent physician certifications, and other documentation create obstacles that can delay or prevent benefits from being paid.

Policies frequently contain restrictive definitions of qualified caregivers or facilities. Some require care to be provided only by licensed facilities or caregivers with specific certifications, limiting options in areas where certain types of facilities may not be available.

A shockingly common tactic on the part of insurers is to claim that certain of their policies do not cover assisted living facility or memory care facility stays. Insureds with Alzheimer’s disease residing in locked memory care units being told that their policies only skilled nursing facilities is incredibly common under older policy forms.

Many insurers implement frequent reassessment requirements, necessitating continuous recertification of need, often when policyholders are least able to navigate complex processes. These reassessments can lead to benefit termination if the policyholder's condition temporarily improves or if documentation is incomplete. Egregious tactics such as surprise assessments by telephone or in-person seem to be the new trend insurers are relying on.

Finally, delayed processing of claims and communications is common, extending claim decisions beyond reasonable timeframes when policyholders urgently need care. These delays force many families to pay out of pocket for care for months on end while waiting for claim approval, with no guarantee those expenses will be reimbursed.

Protecting Your Rights as a Policyholder

If you or a loved one has a long term care insurance policy, there are proactive steps you can take to protect your rights:

Legal Remedies and Class Actions

The Law Offices of Sean K Collins has been at the forefront of LTCI litigation, challenging industry practices through individual cases and class actions. These legal actions have addressed several common issues:

Bad faith claim denials occur when companies systematically reject valid claims without reasonable investigation or justification.

Improper rate increases that violate policy terms or state regulations can be challenged. Some policies contain specific language limiting when and how much premiums can increase.

Deceptive sales practices, where policies were sold with marketing materials promising "level premiums" that later saw massive increases could violate certain state laws.

Conclusion

Long term care insurance represents a unique category within the insurance industry—one where policyholders often pay premiums for decades, only to find their coverage threatened or denied when they're most vulnerable. The systemic issues identified through extensive litigation demonstrate that these are not isolated incidents but rather industry-wide practices that demand scrutiny and reform.

If you're facing challenges with your long-term care insurance policy, whether through extreme rate increases, forced lapses, claim denials, or other issues, you may have legal recourse. The Law Offices of Sean K Collins is committed to holding insurance companies accountable and fighting for the benefits policyholders have rightfully earned through years of premium payments.

Contact us for a consultation about your long-term care insurance concerns and to learn about your options for protection.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Each policy and situation is unique; please consult with an attorney about your specific circumstances.