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Michael Hiltzik: Is long-term-care insurance the next consumer black hole?

April 6, 2010 |  3:46 pm

Some forms of insurance are simple to comprehend, in principle. Your house burns down, your homeowners policy covers the loss, net of deductible and coverage limits. You get sick, your health plan pays the doctor, net of deductibles, co-pays, and the faceless "cost controllers" at health-plan central. You die in an accident, and your wife is eligible for double indemnity, assuming she's Barbara Stanwyck and she's hatched a plot with Fred MacMurray.

As my Wednesday column observes, long-term-care insurance doesn't work like that. You start paying premiums when you're, say, 40 or 50, and if you keep up the payments it should cover some of your assisted living or nursing-home care when you're 85. But how much per day? For how many years? Is there a maximum lifetime payout? A 30- or 90-day "exclusion period" during which you receive care but don't collect payments? Is there anything keeping your insurer from jacking up your premiums to unaffordable levels? And if you stop paying, do you lose everything you've already paid in?

LTC insurance is still a fairly young business, so there's reason to fear that the few cases we've seen of customers left stranded by failed insurers or denied benefits they thought were covered constitute the tip of the iceberg. The good news is that many state insurance regulators have been proactive by tightening their oversight before more problems emerge. The bad news is that there's still a lot of potential for consumer problems.

The National Assn. of Insurance Commissioners devotes a sizable portion of its website to LTC insurance issues. The California Insurance Department is among the leaders in regulatory oversight. The federal CLASS program, quietly added to the healthcare reform bill, may be a landmark step in helping Americans deal with the costs of long-term care.

The column starts below.

The saddest lesson of recent years for the American middle class is that those who "do the right thing" are first in line to get hammered.

You devote a lifetime to a single employer, only to get laid off with a cheese-paring severance package. You finance your own retirement by religiously funding your 401(k), and Wall Street lays an egg on your head.

Here's a lesson baby boomers are just beginning to learn: You pay for long-term-care insurance for years, even decades, and then your insurance company changes the rules.

Consider the experience of Marvin and Joan Klotz of Los Angeles, retired employees of the state university system, who purchased a long-term-care policy for Joan from CalPERS in 1997, when she was 61.

Read the whole column.

-- Michael Hiltzik