"It's one thing if you sign up for insurance coverage knowing that your rates might drastically increase," Grassley said. "It's another thing if you didn't know and you were left out in the cold. That's a bad practice in any sales industry. It's especially bad when people are using their limited incomes to take responsibility for financial obligations during their old age."
Grassley's comments came after a hearing, "Long-term Care Insurance: Protecting Consumers from Hidden Rate Hikes," at which experts testified about some insurance policies that didn't live up to the purchasers' expectations.
Grassley said the pricing practices occurred via certain insurance companies and did not appear to be industry wide. However, he said, he was disturbed by testimony regarding more than 2,000 North Dakotans who bought long-term care policies from Acceleration Life Insurance Company a few years ago. They received large, unanticipated increases in their premiums until they had to drop their policies with nothing to show for them.
Grassley described a typical policyholder, Harold Hanson, of Reeder, N.D. Now 96, the former rancher lives alone and still cooks for himself. In 1987, he bought an insurance policy with a premium of $1,498 a year. By 1996, the premium was $6,158.
Concerned about the rising costs, Hanson wrote letters, trying to put a stop to the steep increases, Grassley said. Unsuccessful, he couldn't afford the policy and dropped it, losing what he'd paid in premiums. Ultimately, he and other policyholders sued. Their case was expanded to cover others similarly affected elsewhere, including Iowa. The case was settled; more than 9,000 people received settlement checks. Half of them were family farmers.
The General Accounting Office, citing an industry group, reported that only 55 percent to 65 percent of all long-term care insurance policies sold as of June 1998 remain in effect. Consumers may be dropping the policies in part because of rate increases, the GAO said.
Grassley said his consumer interest stems from his sponsorship of a major bill to give a federal tax incentive to those who buy long-term care insurance. Grassley is the principal sponsor of the Long-Term Care and Retirement Security Act of 2000, S. 2225.
He said he plans to amend the bill to require that long-term care insurance plans billed as federally qualified plans include a provision that protects consumers from unexpected and extreme rate hikes.
Grassley said the provision is important for protecting consumers and preserving the integrity of long-term care insurance products. He said it is also a necessary element in a federal tax bill. Without this protection, the federal government runs the risk of allowing for favorable tax treatment without assurances that the consumer can pay the premiums for the life of the policy, Grassley said. If consumers are priced out of policies, the government runs the risk of paying twice if those same consumers turn to Medicaid for help with long-term care costs.
Grassley said since the legislative session will end in October, he plans to amend his bill as quickly as possible and hope for legislative success on the entire package this year.
"A federal tax break amounts to a government seal of approval," Grassley said. "A long-term care insurance policy should be worthy of that seal."