All fraud examiners must know about this impending assault on both the global health care sector and the public’s financial reserves. 

FACT: People are living longer and are dying much slower. In frontier North America, one out of every 10 people lived to age 65. Today, 80 percent of U.S. citizens will live past age 65. In 1990, 54,000 U.S. citizens were older than 100. That number doubled in 2000.¹ As of late 2002, more than 12 million U.S. citizens were receiving some form of long-term care, of which 40 percent were working age adults. In Canada, it was estimated in 2001 that 3.92 million were 65 or older – two-thirds more than in 1981.²

FACT: Statistics show that the insurance industry may not be prepared for what is sure to be the next wave of health care fraud – private long-term care insurance fraud. According to a Conning & Company study of insurance fraud in the United States, health care insurers detect a paltry 1 percent of fraud, compared to a 20 percent fraud detection rate in the property and casualty industry.³

As a result of growing need for long-term care and worldwide and higher life expectancy (See Figure 1), long-term care (LTC) insurance providers are seeing an explosion of interest in private LTC insurance products. Those of us responsible for protecting our insurance entities from fraud know all too well what increasing LTC insurance interest and sales may mean in both the short and long term: increasing incidents of LTC fraud schemes including fraud by (1) the individual insured (or family member or representative), (2) by the insurance agent/broker, and (3) by the medical or service provider. But all fraud examiners must know about this impending assault on the global health care section and the public’s financial reserves.

Here we will review the basics of private long-term care insurance, the three primary areas of LTC insurance fraud, and the indicators (or red flags) of LTC fraud.

LTC Insurance Began in 1970s

Long-term care is medical and related support services for individuals who have lost partial or complete ability to perform specific activities of daily living (ADLs) due to an illness or disability or who require continual or substantial assistance due to a cognitive impairment. ADLs are considered to be the basic functions and activities that are performed by a person on a daily basis without assistance. The six ADLs found in most LTC policies are: eating, dressing, bathing, toileting, transferring (moving from bed to wheelchair, etc.), and continence.

The earliest U.S. long-term care product, offered during the 1970s, provided for nursing home care only and was designed to be used with Medicare. Only two of the original 10 LTC carriers still offer LTC products today.⁴ At present, LTC insurance is actively marketed and sold by many companies who offer a full range of benefits, including nursing home care, home health care, adult day-care services, and respite services.

Long-term care may consist of skilled nursing care (provided by medically skilled individuals for serious illness or incapacitation, usually for 24-hour care), intermediate nursing care (for more stable conditions requiring supervision by a nurse), or custodial care (services that could be provided safely and responsibly by a non-medically skilled person, such as family members, friends or hired aides).

The “triggers” or “gatekeepers” are the standards for the point when a person becomes eligible for LTC insurance policy benefits. In general, LTC insurance policy benefits are triggered by a physician certification and/or the insured’s inability to perform a specific number of ADLs, or the requirement of continual or substantial supervision due to a cognitive impairment.

At the point of application, a prospective insured selects the LTC insurance policy that suits his or her individual needs, preferably after an extensive period of research and product comparison. The prospect selects the daily benefit rate, the length of the elimination period (the number of days an insured must pay benefits before the long-term care insurer begins paying benefits – the longer the elimination period, the cheaper the policy) and the benefit period (the amount of time an insurance company will make payments to the individual to pay for care after the elimination period has been satisfied).

For example: If Bob purchases an LTC insurance policy with a five-year benefit period, a $120 daily benefit rate, and a 90-day elimination period, Bob will be entitled to at least $219,000 in LTC coverage during the five-year period. However, Bob will have to pay out-of-pocket for the first 90 days of care, before policy benefits are made available. An inflation protection rider would increase the $219,000 in coverage. The rider helps the insured keep his or her policy current with the rising cost of care. In the last six years, the LTC inflation rate has been 2 percent higher than the overall U.S. inflation rate. The U.S. House Select Committee on Aging has stated, “Without inflation protection, LTC policies are not a wise purchase.” (See Figure 2.)

Fraud by the Insured, Family Member, or Personal Representative

Consider this hypothetical scenario.

“Joe” is a 50-year-old laborer with a history of good health. However, he begins to forget things he once knew by heart: his ATM pin code, his wedding date, and his daughter’s phone number at college. Joe has trouble concentrating at work, loses 15 pounds without explanation, and finds himself veering to the right while walking to the cafeteria at lunchtime. As the months pass, Joe finds that he has difficulty finding the right words to say during conversations, and has difficulty understanding some of what is being said to him. He continues to lose weight, and is even losing his sense of smell. Joe visits a few doctors who bat around the possibilities. After numerous doctor visits and extensive testing, a neurologist tells Joe point blank that he has Alzheimer’s disease. Joe has a wife, young children, a healthy mortgage and a not-so-healthy life insurance policy. What is Joe going to do to protect his assets and his family’s future? 

In this unfortunate but hardly uncommon scenario, the insured may opt to cloak his derogatory medical diagnosis and attempt to secure a long-term care insurance policy, hoping that his symptoms will remain sufficiently dormant long enough to avoid filing a claim for benefits prior to the expiration of the policy’s stated contestability period. This is where the greatest amount of LTC fraud caused by the insured can be found – concealment of a prior or ongoing medical condition that would disqualify the applicant from consideration or would make the coverage options cost-prohibitive.

As is true with many LTC insured fraud cases, the opportunity for fraud is not limited to the insured. The insured’s spouse, adult child, power of attorney for health care, or elected personal representative may knowingly submit a fraudulent claim for benefits on Joe’s behalf and/or provide misleading or false information to the LTC insurer’s claims department or investigators during the claims evaluation process.

LTC Fraud by Insured Indicators

1. The first claim comes in within six months of insurance effective date and a pre-existing condition applies. The pre-existing condition might be one or more of the following: mental disease, dementia, nervous disorders, history of addiction to drugs or alcohol, injuries and illness caused by war, accidents of suspicious nature, government-covered treatment, or self-inflicted injuries.
2. The primary diagnosis includes a cognitive impairment (ex. Alzheimer’s, dementia/senility, alcoholic dementia or encephalopathy, Parkinson’s, etc.).
3. The primary diagnosis suggests the insured suffers from long-standing medical condition (such as cirrhosis of the liver, compression fractures of the spine, Parkinson’s, respiratory failure, AIDS, etc.).
4. A claim is submitted within two years of effective date during the contestable period or shortly thereafter (for those claims which were required to have been underwritten).
5. “Trigger” benefits (ADLs) are misrepresented or the diagnosis does not fit criteria for LTC coverage (such as mental illness or substance abuse).
6. Significant changes are made to medical information after first claim is denied through a purported “second opinion.”
7. The insured or family member and/or provider on insured’s behalf makes actual or implied threats.
8. The insured or proxy immediately and persistently demands payment.
9. The insured’s physician is a relative.
10. The insured’s date of birth appears to be wrong.
11. There are alterations to medical forms and documents and the signature is inconsistent.
12. Someone other than the applicant signs the application with power of attorney.
13. The insurance company receives first notice of a claim 60 days or more after start of care.
14. Family members delay forwarding personal caregiver notes or medical releases.
15. The insured resumes care 180 days (or shortly after 180 days) after prior claim to obtain restoration of benefits.
16. The insured purports a miracle cure with minimal number of days remaining in the benefit period to obtain restoration of benefits.
17. The insured inquires about the restoration of the benefits policy provision.
18. A relatively young insured (less than 50 years of age) purchases a LTC policy or files a claim.
19. The insurance company receives letters of appeal from a physician without supporting medical records.
20. The insured obtains pending medical appointments on listed medical records during the underwriting process.
21. The insured receives a 90-day certification from the physician for a condition that would not normally be expected to last 90 days.
22. The insured takes medications for chronic conditions not disclosed on the application or face-to-face assessment.
23. The insured’s medical history indicates prescriptions that he or she should have disclosed on the application. 

LTC Agent Fraud

Consider this hypothetical scenario:

“Fred” is a marketing representative for a major insurance carrier, and he specializes in the sale of long-term care insurance policies. Joe, a prospective insured, comes in to Fred’s office and explains that he needs LTC insurance and needs the policy issued “as soon as possible.” Fred takes note of Joe’s young age, lack of familiarity with LTC insurance and his haste, and that he appears to be having difficulty expressing his thoughts and answering application questions. Despite his reservations, Fred takes the application from Joe without comment and sends it into his company’s underwriting department for approval. Fred figures that any misrepresentation made by Joe will be caught at the underwriting stage of the application process. 

Fred may be right about his company’s underwriting requirements, but he also may be setting up his company for a large claim of questionable merit in the near future. Most insurance agents who sell long-term care insurance are knowledgeable, conscientious, and dedicated to serving their clients. However, the high percentages of first-year commissions to sales agents (an average of just below 50-percent premium in the year 2000) is a juicy incentive for unscrupulous and uneducated agents to enter the fray. LTC renewal premiums can bring commissions of 10 to 15 percent of the premium.

LTC product selection is a difficult and dizzying process for any customer, but the process can be especially trying for seniors who may be intimidated by aggressive sales scare tactics. In the book, “Avoiding Fraud When Buying Long-Term Care Insurance,” author Richard Alexander discusses an undercover investigation conducted by the New York City superintendent of consumer affairs. The investigation revealed the following:

• Agents used scripts to rush customers to “buy now by using the fear of financial ruin, becoming dependent on family or going on welfare because of catastrophic medical bills.”
• Agents told customers that unless a check was handed over to them “today,” the customer would not be covered if they were struck by an illness or disability “tomorrow.” This implies that coverage is a forgone conclusion if the customer does turn over a check.
• Agents warned younger customers about the risk of increasing premiums in the future but the increases were greatly exaggerated.

Alexander wrote that the U.S. House Select Committee on Aging has reported many abuses by sales agents, including delays in receiving premium refunds, churning, duplicate sales, overselling, clean sheeting, and agent misrepresentations.⁵ An agent practices churning, or “turn to earn,” by returning to the insured to sell a “new” and/or “improved” policy so the insured replaces a perfectly good policy. Clean-sheeting is a tactic in which an agent fails to disclose potentially disqualifying information about an insurance applicant. The committee detailed specific incidents in which elderly persons died penniless due to unscrupulous sales agents.

LTC Agent Fraud Indicators

1. The insured says that the agent did not properly detail or explain the features on the LTC policy, such as the elimination period, premium increases, inflation protection, options to purchase additional coverage, and covered losses.
2. The insured alleges that an agent forged his or her signature on a change form, which increased the amount and type of coverage and caused higher premiums and higher commissions.
3. The insured describes an agent’s churning or turn-to-earn tactics.
4. The insured says the agent directed him or her to a provider that has been the source of questionable care and billing in the past.
5. The agent appears to have a financial interest in a provider involved in the care (ownership, managerial, relatives), which could also indicate the possibility of kickbacks.
6. The agent has sold too much insurance and coverage to the subject.
7. The agent is related to the insured.
8. The agent arranges care for the insured.
9. The agent argues denial of benefits. (This also can be an indicator of fraud by the insured or provider.)
10. The insured states that he or she called the agent with information that should have been included on the application (for example, medications).
11. The insured states the information was omitted from the application at the agent’s discretion. 

LTC Medical/Service Provider Fraud

Consider this hypothetical scenario.

“Joe’s” LTC policy application (minus adequate medical disclosures) passes through underwriting successfully and he obtains a long-term care insurance policy. One year passes, and Joe’s wife, Lily, determines that she can no longer assist Joe with bathing and dressing. Lily makes a claim to the LTC insurer for benefits. After the elimination period has been satisfied, Lily contacts a local nurses’ registry, which provides home health aides to individuals requiring assistance with their ADLs. Lily and the representative of the nurses’ registry agree to an hourly rate of $9 per hour for services. However, the nurses’ registry, without Lily’s knowledge, bills the LTC insurer $13 per hour for services.  

Medical or service providers have numerous opportunities for LTC fraud. A home health care aide exaggerates the number of hours he or she worked in a given day or bill for days that he or she did not show up. The provider bumps up the hourly service rate without the knowledge or permission from the insured or bills for services not rendered. A physician can certify loss of ADLs as a favor to the insured, or in exchange for a kickback, etc.

To make matters worse, the LTC insured is often incapacitated or lacks the cognitive ability to recognize that fraud is taking place right under his or her nose. There are also two major hurdles for an examiner of LTC provider fraud:

• The insured’s indifference: The insured does not always understand that overbilling or improper billing drains his or her financial resources. The insured often says to the examiner, “Who cares? My bills are getting paid.”
• The insured’s fear: The insured commonly does not wish to participate in insurer examinations of the medical provider and examinations related to home health aides. The insured fears that the aide may seek revenge and may physically harm him or her and/or fears that he or she will not be able to find a suitable caregiver replacement.

LTC Provider Fraud Indicators

1. The insured says that the provider negotiated a lower hourly rate than the one actually billed to the company.
2. The insured tells the insurance company that he or she did not receive the services outlined on the explanation of benefits form.
3. The signatures on the daily/weekly billing forms appear to be forged or multiple days appear to have been signed at one time.
4. The insurance company receives billing from the same caregiver for assistance provided to insured seven days a week.
5. The amount billed by the provider is significantly higher or lower than rates typically seen in that geographic area.
6. The provider delays providing paperwork and/or billing documentation to the company without appropriate explanation.
7. The provider is related to the insured or the provider’s address or phone number matches that of the insured, guardian, or a relative.
8. The caregiver’s or facility’s license cannot be located, appears to be altered, or has expired.
9. The invoice is handwritten and/or important information is missing including the name of the insured or the LTC provider.
10. Language used in the invoice suggests that the billing party is unfamiliar with the LTC process.
11. The invoice letterhead appears to have been created on a home computer.
12. The provider has multiple operating identities, such as “AAA Care,” “AAA Care Registry,” and/or “AAA Inc.”
13. The provider does send bills in a timely way.
14. The independent provider fails to sign the billing form.
15. The provider has multiple tax identification numbers.
16. Home health care nurse assessments are repetitive.
17. The plan of care developed by the provider never changes.
18. Bills consistently meet the daily maximum benefit of the policy.
19. The insured or a relative describes lower or minimal level of service than actually provided.
20. The provider inconsistently bills items with normal practices or does not itemize for services and supplies.
21. The physician’s certification is vague or is inconsistent with the diagnosis. Medical degree or proper credentials are not properly documented.
22. A stamped signature appears on the physician’s certification instead of the physician’s actual signature.
23. The physician’s form and the claimant’s certification of need form contain identical handwriting or typing.
24. The provider is uncooperative and fails to send documentation in a timely manner.
25. When calling the insurance company to verify benefits, the provider knows the elimination period, daily benefit, and benefit period.
26. The LTC providers “turn over” regularly.
27. The provider cares for more than one person in the same household and allows the full rate for each person.
28. The provider bills different caregivers on the same date. 

LTC Fraud Prevention Commitment

It has been said that the difference between being involved and being committed is like a ham-and-egg breakfast: the chicken is involved, but the ham is committed. Insurance company managers must protect their entities from the likely wave of LTC insurance fraud by committing to an LTC insurance fraud prevention and investigation program worthy of this dramatic global health care fraud issue.

• Hire and strive to retain experienced underwriters, claims representatives and investigators familiar with LTC insurance processes. Encourage these groups to meet with each other frequently to discuss pertinent LTC insurance issues and make topical presentations throughout the company. Offer additional training and education and require staff members to join professional memberships and organizations.
• Ensure that all employees are familiar with LTC fraud indicators and install a user-friendly system that allows employees to make case referrals to the company’s investigative unit.
• Audit the LTC underwriting and claims controls to make sure the entity is not leaving gaps that can be exposed by savvy fraudsters.
• Actively investigate agents who engage in questionable sales practices and then deliver appropriate punitive action. Require agents to participate in regular training and undertake market conduct investigations when appropriate.
• Adjust staffing and budget requirements so that (1) underwriters and claims representatives have time to effectively scour records and billing forms for inconsistencies and questionable signatures and, (2) appropriate investigation can be done in the field. Experienced investigators can follow up on case referrals with personal visits to the insured, agent and/or medical or service provider in question. Nothing sends a message to a fraudster better than a personal visit by someone with the skills and the time to get at the heart of the issue.
• Make appropriate referrals of LTC insurance fraud cases to local and national governmental insurance departments and fraud units, and law enforcement and regulatory agencies.
• Publicize successful fraud-fighting efforts throughout the company and the insurance industry.
  Long-term care insurance fraudsters are poised to launch major attacks on the financial services industry. Insurance entities must take the offensive.

Timothy J. Springer, CFE, CIFI, FCLS, is a senior home office representative with a major financial services company.

1. Phyllis Shelton, Long-Term Care Planning Guide Nashville: Shelton Marketing Services, Inc.) , 1999.
2. From figures compiled by RBC Insurance for www.Insurance-Canada.ca.
3. Insurance Fraud: The Quiet Catastrophe Hartford: Conning & Company, 1996.
4. “Healthcare Financing Review” Baltimore: Centers for Medicare & Medicaid Services, Fall 1996.
5. Richard Alexander, editor, Avoiding Fraud When Buying Long-Term Care Insurance San Jose: Alexander, Hawes & Audet, LLP, 1999.