My colleague Ryan Chittum called attention this week to the maneuver by Conseco Senior Health Insurance Co. to rid itself of unprofitable long-term care policies—and the willingness of state regulators to let the company off the hook. Pennsylvania insurance regulators allowed Conseco to dump its unprofitable policies into a trust in order to pay claims, but it appears that the trust may not have enough capital to do that. And, in the end, policyholders may find their rates going up or their benefits going down. Sweet deal for the carrier; bad news for consumers who had counted on their long-term care policies to pay for costly nursing home stays.

It’s easy to dismiss such actions as just another corporate bailout, albeit one on a smaller scale than either Citibank or AIG. But what happened to Conseco was predictable two decades ago, when the insurance industry tried to sell the American public on private long-term care policies as a way to pay for nursing home care and later home care. They were touted as a “solution” to the growing problem of how to finance the care that the country’s aging population would eventually need. The industry promoted these policies as a better alternative than social insurance like Medicare, and persuaded Congress to offer tax breaks for buying them.

But you might say these policies were just as dangerous to consumers as some of the mortgage instruments which came crashing down on them this year. They have always been a bit of a gamble, and were laced with problems from the get-go. As a spokesperson for the Pennsylvania Insurance Department told me yesterday, most of these policies were not properly priced.

No kidding. That was a point I made in stories over the years for Consumer Reports. When LTC policies first surfaced, every insurer and its uncle was selling the stuff. Using sleazy sales tactics, they couldn’t get them into the hands of consumers fast enough. But companies that got into the business sometimes quickly got out of it, and their policies were transferred to other companies. When Consumer Reports rated policies in 1991, it found that 25 percent of the companies whose policies were rated just three years earlier were no longer in business. CR advised:

There’s no way to judge whether an insurance company trying to sell you a long-term care policy is in the business for the long haul or a quick buck. Aside from avoiding companies that are already in trouble, there’s little shoppers can do to assure themselves that the company they pick today will be at their side tomorrow.
When CR rated policies again in 1997, more companies were gone. Conseco grew by buying up policies from other companies—policies that Consumer Reports said were underpriced and likely to see rate increases down the road, as policyholders went to nursing homes and needed the insurance to cover the bills. As those “blocks of business,” as they are called in the insurance biz, deteriorated, Conseco got in trouble and began to wiggle out of paying claims. Since people who bought policies fifteen and twenty years ago are just now beginning to use them, we don’t know much about how other carriers are paying claims either. So the gamble goes on.

The lessons for the public and the press go far beyond the Conseco mess and the question of whether the trust that Pennsylvania regulators cobbled together will hold up. Long-term care insurance demonstrates the limits of regulation—a strategy health reform advocates are banking on as they support proposals that could deliver 40 million new customers into insurance companies’ hands. As insurance products go, LTC policies are pretty tightly regulated—and still consumers have been hurt by deceptive sales practices and, now, the ultimate deception: whether the policy will pay when you need it. Can regulation really clean up a private health insurance market? And just how are Americans supposed to pay for long-term care? People with certain health conditions can’t buy any LTC policy. But apparently the industry believes there are enough of them who can to allow it to make a tidy profit.

Trudy Lieberman is a fellow at the Center for Advancing Health and a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR’s healthcare desk, which is part of our United States Project on the coverage of politics and policy. Follow her on Twitter @Trudy_Lieberman.