I trust you’ll indulge me with a bit of a shaggy dog/consumer frustration story, in that many readers have dealt with similar issues, either personally or on behalf of aging relatives.
The case study involves long-term care insurance, otherwise known as nursing home care coverage. It’s one of those badly needed services that has become crapified on a widespread basis due to the combination of super-low interest rates squeezing all long-term investors, plus life expectancies becoming longer and potentially exceeding expectations when policies were written.
The overlapping reasons for seeing this area as a Naked Capitalism topic include:
1. Readers may be grappling with decisions regarding this product (long-term care policies) and would benefit from sharing experiences and intelligence
2. It illustrates some general problems:
– How older people can be manipulated/preyed upon
– The difficulty of making decisions with very little in the way of good information or reason to trust vendor assurances
Many years ago, my father signed my mother up for a long-term care policy with Genworth, which then was arguably the premier provider. He did not get a policy for himself. He was frustrated with his inability to get any information that would help him analyze as to whether this was a good decision or not (as in what proportion of men and women wound up needing nursing care, and information on the distribution of how long they received this service). He got her but not him a policy based on the assumption that she would live longer than he did and would therefore be more likely to need care. Not much of a basis for making that decision, needless to say. And the inability to get any data puts the insurers at an overwhelming informational advantage relative to customers.
Having written multi-thousand-dollar checks for many years to have this policy, my mother psychologically has an investment in it, even though these policies have no surrender value. So the money spent so far is more properly regarded as a sunk cost to keep the renewal option open.
The principal terms are:
100 day exclusion
60% coverage of nursing home care or assisted living care if the individual needs a high level of support (my mother merely being feeble and using a walker is not impaired enough to qualify even though she is on a waiting list to get into assisted living) in a qualified facility. It also covers in-home care by qualified providers.
Three years maximum of coverage
Genworth’s Financial Train Wreck
We will skip over the usual Naked Capitalism level of detailed reporting here. The very short version (of which my mother was not aware as she continued to write checks) is Genworth started hemorrhaging losses in 2015 due in large part to its long-term care business. It had written a large book of business in the form of long-term care policies in which sales reps had promised no or minimal price increases. It apparently held that line for many years. Shareholders sued the company alleging accounting and reporting abuses.
Genworth struck a deal to be acquired by China Oceanwide Holdings Group in October 2016. Needless to say, that already introduces considerable uncertainty. The closing has been delayed twice by the Committee on Foreign Investment in the United States over concerns about foreign states obtaining US consumer data. Reuters reported yesterday that the planned purchase date has been extended to April 1, 2018.
Moody’s downgraded Genworth in March of last year and kept it under review for a downgrade. It’s now barely above junk. From its ratings action:
Moody’s Investors Service has downgraded the insurance financial strength (IFS) ratings of Genworth Financial’s (Genworth) long-term care (LTC) subsidiaries, Genworth Life Insurance Company and Genworth Life Insurance Company of New York (GLIC and GLICNY, collectively, GLIC) to Ba3 from Ba2. These actions follow Genworth’s announcement of Q4 2016 results that included a reduction in long-term care margins. These ratings remain on review for downgrade.
The Ba3 senior unsecured debt rating of Genworth Holdings, Inc. (Holdings), an intermediate holding company owned by Genworth, the Baa2 insurance financial strength (IFS) rating of Genworth Life and Annuity Insurance Company (GLAIC), the Ba1 IFS rating of Genworth Mortgage Insurance Corporation (GMICO), and the A3 IFS rating of Genworth Financial Mortgage Pty. Limited are not part of this rating action. Please see the complete list of ratings below.
The rating downgrade and continued review for downgrade reflects GLIC reduced and the uncertainty related to future LTC margins, as reported in its year-end 2016 results, and the continued execution risk of the company’s plan to restructure and isolate its LTC operations from its remaining businesses. In addition, the profitability and margins of the LTC business are heavily supported by Genworth’s assumption of significant future rate increases. Despite the significant rate increases that the company has submitted and received, we remain concerned about the tail risk associated with the LTC business in GLIC.
Needless to say, this is a prescription for crapification, in the form of rate increases and even more concerted efforts to deny claims.
Web searches turn up only a few sites that give consumer reviews of Genworth, and the reviews are mainly not about claims-paying, which is my big concern. They are overwhelmingly by customers who bought the policies that promised few/no rate increases where in recent years, Genworth has made put through big rises policy renewal costs. However, if you look here and here, you will also see negative reviews about claim denials and lots of runaround that looks designed to delay claims submission and processing.
One form of run-around that concerned me was the lengths Genworth went to not to deal with family members with powers of attorney. A couple of complaints said they had repeatedly submitted valid powers, only to have Genworth claim they’d never received them. Shades of HAMP.
Our Negative Experience
My mother handles a lot of her finances herself, like her taxes and her routine bill payment, and had been paying the Genworth renewals as part of that. So I hadn’t even known she had a policy with Genworth in particular until early 2016.
She had broken her elbow and was unable to bathe herself or drive and was getting rehab. Due to her age, she was expected to be in a cast for at least three months and might need an operation to pin her elbow bones (don’t ask me why this was not done at the outset if it was under consideration at all).
My mother has even lower tolerance for frustration than I do, so one time when I was visiting, she had me call Genworth to see how to set up payment for home coverage if she wound up having to have the minor operation and hence was still having home health care aides come in for a few hours a day.
I must have called four or five times before I reached anyone. Genworth does not allow customers to initiate the claims process by e-mail or in writing, already a bad sign. I would be put on hold, then disconnected after 20 minutes.
I finally managed to reach a rep. I had to have my mother authorize that I could speak to the rep. After some back and forth, the rep acted as if it would be more efficient to have a nurse evaluate my mother and possibly set her up with caregivers. But then she claimed she couldn’t reach anyone to set up an appointment and would have someone call my mother to do that.
My mother never got a call. This is plain and simple bad faith.
So Why Are We Acting As If Genworth Should Not Be Dumped Immediately?
At the top, the post raised the issue of the difficulty of making decisions with inadequate information. You might be thinking, “How does that apply here? Insurance company under financial stress, which is a prescription for consumer fraud in the form of denial of valid claims. And you’ve already got evidence of that via your own experience and overwhelmingly bad reviews. Plus the pending rescue by the Chinese looks like a no-win situation. If it doesn’t get done, Genwroth is likely to be in even more hot water. And if the Chinese take over, they may cut service levels even more aggressively.”
Remember that I don’t have control of this aspect of my mother’s finances. She had decided not to renew the Genworth policy in August. She thought that the fact that Genworth mailed her to offer her to reinstate her terminated policy and then extended the reinstatement deadline indicted they were desperate, which told her she’d made a good decision.
But then she got a call from her insurance agent yesterday telling her what a big mistake she was making. That got her sufficiently agitated that she had me call the agent, who we’ll call A.
A gave me a spiel about how much value my mother had in the policy, of $7200 a month, and how it would pay $254 a day “and that goes a long way in Alabama.” She thought my mother must not be renewing for financial reasons and she’d rather have her reduce coverage than walk away from it.
This is misleading. First, value in a policy in insurance is a term of art. It means surrender value. That use of language plays on the fact that people like my mother have spent high five to six figures in premiums over time and are cognizant of those cumulative costs. But the only value to her is claims payment and there are plenty of red flags about that.
Second, as you may recall from the terms summary, Genworth pays only 60%. It’s not as if, as the agent implied, that if my mother got into assisted living at a price of $175 a day (the run rate at one local facility), the policy would cover it all.
I told her about the bad experience I’d had, that reviews were uniformly negative and specifically said that relatives got a run around on even getting Genworth to respect valid powers of attorney and demanded multiple submissions. I said I wasn’t willing to deal with a company where I could anticipate spending $10,000 of nastygrams to their general counsel to get them to start paying claims when my mother got past the exclusion period.
She said she’d never had any problems with her clients, that Genworth was the best long-term care company and that her clients had told her Genworth had done exactly what it had said it would do. I noticed the lack of the usual addition of specific examples (although my mother later told me the agent claimed she had customers in the facility my mother is considering). I reiterated that the reviews of Genworth had plenty of bad stories and no good ones. She said, “They must be from New York.” I said, “No they are from all over the US.” She insisted that she’d seen nothing of the kind.
I wasn’t inclined to waste further time talk to her about the elephant in the room of the lousy financials, even though I probably should have as a matter of sport.
But as a tax attorney buddy said when I recounted the call, people like A are very good at preying on older people. “She probably has a script from the company and sticks to it.” Even though I called my mother and explained long form why what A had said wasn’t convincing and shouldn’t change her original decision, the conversation with A had succeeded in making her worry that she might be giving up a good deal on her and felt torn.
And my mother is a smart woman, not at all cognitively impaired, and can be plenty stubborn. Imagine how well this sort of thing works on other people who are not financially savvy or are easily led. And in fairness, my mother is in a no-win position. It’s not pleasant to admit that you’ve poured a lot of money down the drain, nor to be in the position of worrying even more than before that you might run out of your money by winding up for years in a nursing home and not having an insurance policy to alleviate the cost. Yet the agent is probably correct that Genworth is the best, which means the best of a bad lot, so that seniors that want to mitigate this risk have no good options.