[This article was originally published on December 27, 2002. The links were updated on July 12, 2018.]
A recent Pennsylvania court decision shows why early long-term care insurance policies had a bad reputation and why it's important to check your policy's terms, particularly if the policy was issued more than a decade ago.
In 1989 American Travellers Life Insurance Company (now known as Conseco Senior Health Insurance Company), issued a long-term care insurance policy to Jean F. Yoder. The policy was guaranteed renewable, which meant that the insurer could not cancel it as long as Ms. Yoder paid the premiums, which she did diligently for nine years. Then, in 1998, Ms. Yoder entered a nursing home. But when she sought coverage under the policy, the insurer refused it. The insurer cited a clause in the insurance contract that required a three-day hospital stay within a month before entry to a nursing home. Unfortunately, Ms. Yoder had not needed a hospital stay and had gone straight from home to the nursing home.
Ms. Yoder sued the insurer. She pointed to a law enacted by the Pennsylvania legislature in 1992 that banned this type of requirement from long-term care insurance policies sold in the state. Even though the law was enacted three years after she had bought her policy and even though the law covered only policies issued after enactment, Ms. Yoder argued she in effect had a new contract with the insurance company when she renewed her policy each year. Therefore, she asserted that the prior hospital stay requirement could not apply to her after 1992.
The Pennsylvania Superior Court disagreed with Ms. Yoder (who died before the ruling). The court ruled that if the state legislature had wanted its law to apply to existing policies that were renewed each year, it would have explicitly said so. The court also said that each policy renewal could not be viewed as a new contract because the insurer did not make a new offer every year. Yoder v. American Travellers Life Insurance Co. (Pa. Super. Ct., No. 575 EDA 2002, Dec. 20, 2002). To download the full text of the decision in PDF format, click here.
A three-day hospitalization requirement was common in long-term care insurance policies up until about 1989. Insurers were following the model of Medicare, which still has the requirement. Most states have banned this provision from long-term care policies, and few if any insurers now include it, according to Marilee Driscoll, author of The Complete Idiot's Guide to Long-Term Care Planning.
But the provision can be a time bomb for those who bought policies a decade or more ago. If you have such a policy, it may be impossible to change it, particularly if you are now in poor health. But Ms. Driscoll says that a few companies will allow policyholders to trade up to a better contract (at a higher premium, of course) without asking medical questions. So, it''s worth checking with your insurer.
In any case, if your policy has a three-day hospital stay exclusion, alert your elder law attorney as soon as possible.