On the same day last winter when President Reagan called for protections for the elderly against catastrophic health-care costs, an insurance salesman rapped on the door of a 68-year-old Fort Washington widow.
The salesman had no appointment. He knew her address from a direct-mail coupon she had sent a few weeks earlier to the American Integrity Insurance Co. in Philadelphia requesting information . And the coupon had informed the agent she was yet another of the growing number of older Americans tormented by the prospect of medical costs not covered by Medicare.
For the next 45 minutes, he polished a sales pitch on her about elderly folks who lose their life's savings and home equity when sickness strikes. She knew the horror stories already. Her older sister in Minnesota had exhausted her assets on nursing-home care for her husband, and friends all seemed to know someone facing similar crises.
Confused by the coverage, she asked the salesman to leave some materials so she could think it over. He refused. "He said I had to sign up and pay then and there," the woman recalls. "Otherwise, I'd have to wait a year to buy the same policy. He didn't say why. That was just the deal."
For almost a decade, Congress, state insurance commissions and senior citizens advocacy groups have tried to keep an eye on insurance companies and agents trying to cash in on older Americans' fear of the financial ruin caused by medical expenses that slip through the ever-widening cracks in Medicare coverage.
In 1978, the House Select Committee on Aging investigated the problem. It reported that the nation's senior citizens were paying $1 billion a year for "medigap" insurance that falsely claimed to cover 62 percent of the costs not covered by Medicare, the federal health insurance program for people over 65. A typical case uncovered then by investigators: An Illinois widow bought 39 accident and health insurance policies to protect her savings -- paying $31,578 in premiums in three years and receiving $5,781 in benefits.
Have Medigap abuses been checked since then? Depends on whom you talk to. Insurance industry representatives like to mention a U.S. General Accounting Office study last October. It concluded that the 1980 federal law providing states with guidelines on controlling exploitive practices by health insurance sellers had increased protection for older Americans.
But last summer, while trying to push a catastrophic health insurance bill through Congress, Rep. James Florio (D-N.J.) said that "mostly out of fear," about 70 percent of all senior citizens own Medigap policies. "In hopes of plugging medicare gaps," said Florio, "some seniors own five to 10 policies." And testimony before the House Select Committee on Aging at that time told a familiar story: An 80-year-old Minnesota woman had been pressured into buying 14 separate insurance policies with overlapping coverage. Said longtime champion of older Americans Rep. Claude Pepper (D-Fla.): "Abuses in the sale of insurance to the elderly have increased."
Mercedes Bern calls the medigap abuses "Medi-scare." The manager of Medicare information for United Seniors Health Cooperative (USHC), a nonprofit consumer group in Washington, says that while many of the outright medigap swindles of a decade ago have been stopped, the biggest problem today is excess -- aggressive advertising and high-pressured salesmen scaring the older American into buying too much insurance, often at too high a price.
"Where people often get caught is not knowing when to quit buying insurance," says Bern. Congressional estimates indicate that of the $13 billion spent each year on health care costs, more than a quarter of it is wasted on duplicate coverage. "Once you have a comprehensive medigap," cautions Bern, "once you fill those holes in Medicare and cover those risks, you don't go out and buy more of the same coverage."
Duplicate coverage is the "most dastardly of the medigap scams," says Joel Leon, assistant professor of social work specializing in gerontology at Washington University in St. Louis. "They only cover the same things that Medicare covers. So people are really only buying insurance that they already have. But the reason those are so dastardly is because they seem to be the most reasonable. They are not excessively expensive and they seem to make sense. So people pay premiums on protection for which they are already covered and the company won't pay on anyway."
Leon, who is researching legal issues and consumer fraud related to the elderly for a book, warns even today medigap abuses take on a variety of disguises. "The traditional medigap scams are still around," he says. "But people are now more tuned into long-term health care needs because of awareness of Alzheimer's disease and other chronic degenerative illnesses. That opens up a whole new opportunity to sell people insurance that really doesn't provide long-term coverage and capitalizes on their fear of being left unprotected."
A typical example: An insurance policy that provides additional coverage for more than 150 days in a hospital during the same benefit period. "Only one-tenth of one percent of Medicare beneficiaries would ever benefit from such coverage," says Bern. "The average hospital stay for a beneficiary is less than seven days. I'm not saying people aren't sick that long. But chances are their condition is not going to qualify for the acute care that is covered. But that is the first thing you see on TV: 'If you are in the hospital for more than 150 days ... ' "
Similarly, the so-called "income indemnity" clauses of insurance policies take advantage of the same statistical odds. The sales pitch often advertised in junk mailings, on television and in magazines, is that serious illness of any family member, but especially the breadwinner, can quickly deplete a nest egg. So for, say, a dollar a day, policy holders insure that for every day spent in the hospital, they will receive $50 cash paid directly to them. But because the average hospital stay is less than seven days, a year's premium usually costs more than its indemnity.
Policies that promise to cover nursing home costs but, in fact, only cover skilled nursing services and not custodial care, is another abuse, according to a Maryland Insurance Division official who investigates consumer complaints. "The reality of it is that the vast majority of the people in nursing homes are getting custodial care."
Fear of nursing home costs also motivates many senior citizens to buy that coverage who, at least statistically, don't need it. "A lot of people who are in their sixties are scared into buying insurance because they are lumped in with people who are 85," says Bern. "But you find only 2 percent of people between 65 and 75 in nursing homes. People in their sixties are pretty darn healthy, but they're being frightened into buying policies." But because Medicare picks up less than 2 percent of the country's nursing home bill, the fear is difficult to dispel. Preexisting condition clauses spell potential disaster for the elderly consumer, too. According to a UPI report last week, Rep. Pepper refused a $600,000 offer to appear in a TV ad promoting medigap insurance. When staffers on Pepper's House Subcommittee on Health and Long Term Care carefully examined the policy offered by the company that made the offer, they found a clause that excluded claims from any policyholder who had visited a doctor within 12 months of buying the policy.
But, probably the most common "trap," according to the Maryland Insurance Division official, is the hard sell. "A salesman comes in and they listen to his pitch and they buy it without any thought whether they actually need it," he says. "A lot of people will contact us and they'll say, 'I know I shouldn't have bought it. I only said yes to get rid of the guy.' They write a check for $900 or something just to get rid of the guy ... "
And because fear creates a market of vulnerability, overpricing is also common. What the American Integrity Insurance agent didn't tell the Maryland woman while pressuring her to buy a policy was that the coverage he offered, though a comparatively good product, was more than twice the price of some other top-of-the-line medigap policies.
"American Integrity is not a bad policy," says Bern, who ran its coverage and cost through a computerized United Seniors "Medigap Check-up" comparing it to a highly regarded policy available through the American Association of Retired Persons. To sort out the coverages offered by the more than 120 medigap companies selling in this area, United Seniors recently made the check-up service available to its members and to the public for a small fee. "But our comparison shows American Integrity is an expensive policy."
Charles Ludwig, vice president and general counsel of American Integrity Insurance Co., says its medigap premiums are expensive because "our loss ratios are a little higher than most other companies. We've been giving out considerable values. We pay on claims."
Ludwig also suggests the Maryland widow may have misinterpreted the agent's buy-now-or-never ultimatum: "Sometimes in these kinds of meetings, each is stating a perception which is true to them but not necessarily what occurred." While the company, he says, provides its agents with a standard of courtesy, "We do not specify to agents how they are to solicit." But Ludwig confirms that, contrary to what the Maryland woman says the agent told her, the medigap policy is always available.
Two summers ago, The Maryland Insurance Division received a "rash of complaints" about agents selling the American Integrity medigap policies. The state's insurance watchdog department conducted a random "market conduct survey" of 34 people who had purchased policies from that company. The findings suggested both high-pressure salesmanship and lingering confusion among consumers:
During a three-month period, American Integrity Insurance Co. issued 1,118 medigap policies in Maryland. Of those, 82 percent were sold to people between ages 60 and 79.
Of the respondents, 20 percent admitted they hadn't bothered to read a description of their insurance coverage and 5 percent said they had looked it over "superficially."
When asked what kind of plan they bought from American Integrity, 26 percent said a Medicare supplement, 29 percent answered hospital coverage, almost 15 percent didn't know what plan they bought, 3 percent said a nursing home plan and 20 percent didn't answer. More than half admitted they either didn't know or weren't clear on the policy's benefits, or didn't answer the question.
Asked what the agent told them the policy would cover, 35 percent said nursing home bills, 1 percent said nursing home supplement, 14 percent said hospitalization, 35 percent didn't remember and another 14 percent didn't answer.
Twenty-nine percent said their reason for buying the policy was to supplement Medicare, 14 percent said they "feared old age and didn't want to be a burden on their families," 11 percent wanted nursing home coverage, another 11 percent said they wanted "more coverage," 5 percent needed to replace canceled insurance, 5 percent were afraid of extended illness and wanted as much insurance as possible, and another 5 percent thought the insurance agent was from the federal government.
Why the continuing fear and confusion over medigap policies? Experts generally agree it results from a convergence of several social trends that are intensified by the increasing population of elderly in America.
"Health costs to older people are three to four times what they are to other people, so there is a real concern, a fear or a panic at meeting those costs," says Leon. Because government has shifted more health costs to individuals through co-payments and deductibles, Medicare now pays less than half of the total health bill for people 65 years old or over.
Mark Meiners, a senior research manager for the National Center for Health Services Research, in Rockville, believes the heart of the problem isn't abuses by medigap insurers. "In spite of our best efforts, we are faced with the situation that Medicare is both difficult to understand and becoming a moving target in terms of what it covers," he says. "And then we have these medigap policies designed to fill in what Medicare doesn't cover. There are a lot of insurers offering a large variety of options, which makes it even more confusing.
"The biggest problem is that insurance, in general, for all of us is a tough thing to understand."