ABUSIVE INSURANCE AND INVESTMENT SALES

  1. Common Predators

There are a lot of predators out there when it comes to separating older people from their money.  The usual scam artist dresses up as a respectable person.  They have a nice office somewhere and they put on a heck of a power point presentation.  They advertise themselves as helping to plan for retirement; have plenty of waiving US flags on their ads and advertise about helping veterans, or; talk about estate preservation.  A new breed talks about helping mom and dad get the assistance they need while waiting for VA benefits.  All of them will tell you how trustworthy they are.

Many of these predators stalk the community activity rooms of assisted and independent living centers.  They come to assisted and independent living centers because the only government benefits for assisted and (sometimes) independent living centers is needs based.  The Veterans Administration Improved Pension benefit is the chief benefit that helps pay for assisted and independent living.  Most people know this benefit as the Aid and Attendance benefit.  It pays a sometimes generous benefit that is also tax free.

The benefit has its consequences.  Aside from qualifying service the applicant must not have over a certain amount of resources and the applicants income reduces the benefit.  So, most schemes involve selling something that will reduce the countable assets of the applicant while also restricting their countable income at the same time.  This is generally done through annuities and veterans trusts.

In order to qualify the veteran must have had a minimum of 90 days of active duty, at least one of which was during a defined term of combat. The length of duty for Gulf War veterans is longer, generally 24 months.  Income qualification is the benefit amount. In other words, if your income matches or exceeds the benefit amount, you are not eligible. Income is calculated as net of qualified expenses. Qualified expenses are costs of care in a facility, health insurance, supplies, etc., which exceed the benefit by 5%.

Asset eligibility is an area filled with myths. The actual limit is the amount of your

qualified, but un-reimbursed, expenses over your expected lifetime as calculated by VA life expectance tables. The application has to go to a committee if assets are $80,00 or over.

Generally, a successful application should have countable assets of roughly one year’s worth of expenses.

You may give away all of your money in the morning and apply for benefits in the afternoon. (There was an effort at adding a three year look back provision.  It failed under the weight of an add on provision to the bill.)

A thing to remember, and why most attorneys do not know much about VA benefits, is that attorneys may not charge for helping someone obtain, or keep benefits. Attorneys may not be paid by anyone who might benefit from a successful application either. So, families and facilities where the recipient lives may not pay the attorney.  This means the attorney assisting an applicant and family is usually paid by charging for other planning, or for preparing a veterans trust.

The typical setup is an insurance agent who makes a presentation at an assisted living  center talking about VA benefits and promising to get s the benefits for free. Assisted living centers and independent living centers also generally have a relationship with an agent and suggest contacting the agent during preliminary visits. The agent makes money by selling annuities that work alchemy to change countable assets into non-countable assets. Then the agent points the applicant to an attorney who will write them a trust to “protect” their assets/annuities. The attorney fills in their names on a form trust and charges $2,500 and up for the service. As a bonus, the attorney will make the A&A application for the veteran or spouse for free.

The typical VA trust has these features:

The Grantor(s) lose all control of the funds

Distribution is discretionary and the grantors are not named as beneficiaries

There is an escape hatch to return the res in the event the grantor needs Medicaid

The VA does not count trust assets where the veteran loses all control over the res. So, the typical VA trust makes sure the grantor has no control. The trustee is supposed to give the facility the difference between income and facility cost. This all assumes the trustee who has no legal obligation to do so, does make the payments. You can imagine the potential problems, including the issues about who absorbs the income for tax purposes.

The typical VA trust is not Medicaid compliant.

Annuities can convert countable assets into income, or into a non countable asset. In

order to do this the annuity must be:

Fixed

Non-Commutable

Non-Assignable

The annuity need not be actuarially sound. Which is where the sharks swim. Agents

make a higher commission on deferred annuities than on immediate annuities. An often heard line is buying VA income is increased when the annuity income is not present. This sounds good, but there is an underlying risk.

The risk is that the person may need Medicaid. To be Medicaid compliant, an annuity must be:

Fixed

Immediate

Non-Commutable

Non-Assignable

Actuarially Sound

The State must be the first death beneficiary up to the amount the state paid in benefits.

The truly bad consequences of such a setup come when someone buys a deferred annuity and then needs Medicaid. They have a countable asset in a non commutable annuity. Even those may be cashed in; just with a hefty penalty of  about 28%. According to a recent national study the average stay in an assisted living facility is around 28 months. Tennessee stays are generally longer.  Meaning that a person in need of assistance has paid a lot of money in commissions for annuities and for a trust that help them get VA benefits at the cost of being ineligible for Medicaid.

This discussion may seem technical and boring.  When a family is going through the horror show of qualifying a demented mom and dad for Medicaid when they have been sewed up in VA only qualifying benefits it is not even vaguely boring.

Another common predator can be (but is not necessarily) the guy selling reverse mortgages.  Reverse mortgages have their place and can be extremely helpful under the right circumstances.  That set of circumstances is as small as the set of circumstances some sales persons tout is large.  Some sellers of reverse mortgages deserve two red flags instead of just one.

  1. Red Flags to Look for and How to Report Suspected Abuse

The biggest red flag I look for is whether or not the potential scammer talks about the downside of whatever thing it is they are selling.  If they never mention a downside, or even a potential downside, they are a scammer.  Another big red flag is that old saying; “If it looks too good to be true, it is not true.”

Scammers often come to you instead of you coming to them.  They will show up at the doors of the target demographic and invite themselves in, making the victim uncomfortable and probably more than a little afraid.  The idea is that the victim will buy whatever it is just to get the scammer out of the house.

One size fits all in a scheme, or product, is red flag material.  One size does not generally fit all and anyone who assures you of that does not have your best interests at heart.  Conversely, a scheme, or product, that is just for veterans oftentimes means that it will render the victim ineligible for TennCare Medicaid when it is needed.

Scammers often spend little time learning all about the person, their family situation and their particular needs.  If they don’t need to know these things it is because they have a sale in mind, not helping the senior.

Lack of qualification is another red flag worth noting.  If a person claims to be an expert in elder issues and there is no indication that they have any training in the area, it is either a scam, or they have no idea what they are doing and it amounts to the same result for the victim.  Even well intentioned people can significantly harm elders with mishandling, or misunderstanding, elder issues.  This includes lawyers.  There are a lot of lawyers out there who claim to know what they are doing and who really only have some forms that they got from somewhere.

  1. The Criminal Consequences of Abuse

The statutes speak for themselves.

Tenn. Code Ann. § 71-6-117

 

(a) It is an offense for any person to knowingly, other than by accidental means, abuse, neglect or exploit any adult within the meaning of this part.

(b) A violation of this section is a Class D felony.

(c)(1) Following a conviction for a violation of this section or § 71–6–119, the clerk of the court shall notify the department of health of the conviction by sending a copy of the judgment in the manner set forth in § 68–11–1003 for inclusion pursuant to title 68, chapter 11, part 10.

(2) Upon receipt of a judgment of conviction for a violation of an offense set out in subdivision (c)(1), the department shall place the person or persons convicted on the registry of persons who have abused, neglected, or misappropriated the property of a vulnerable individual as provided in § 68–11–1003(c).

(3) Upon entry of the information in the registry, the department shall notify the person convicted, at the person’s last known mailing address, of the person’s inclusion on the registry. The person convicted shall not be entitled or given the opportunity to contest or dispute either the prior hearing conclusions or the content or terms of any criminal disposition, or attempt to refute the factual findings upon which the conclusions and determinations are based. The person convicted may challenge the accuracy of the report that the criminal disposition has occurred, such hearing conclusions were made or any factual issue related to the correct identity of the person. If the person convicted makes such a challenge within sixty (60) days of notification of inclusion on the registry, the commissioner, or the commissioner’s designee, shall afford the person an opportunity for a hearing on the matter that complies with the requirements of due process and the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

 

TN LEGIS 961 (2014), 2014 Tennessee Laws Pub. Ch. 961 (S.B. 1852)[1]

 

 

Tenn. Code Ann. § 71-6-102

 

As used in this part, unless the context otherwise requires:

(1)(A) “Abuse or neglect” means the infliction of physical pain, injury, or mental anguish, or the deprivation of services by a caretaker that are necessary to maintain the health and welfare of an adult or a situation in which an adult is unable to provide or obtain the services that are necessary to maintain that person’s health or welfare. Nothing in this part shall be construed to mean a person is abused or neglected or in need of protective services for the sole reason that the person relies on or is being furnished treatment by spiritual means through prayer alone in accordance with a recognized religious method of healing in lieu of medical treatment; further, nothing in this part shall be construed to require or authorize the provision of medical care to any terminally ill person if such person has executed an unrevoked living will in accordance with the Tennessee Right to Natural Death Act, compiled in title 32, chapter 11, and if the provision of such medical care would conflict with the terms of such living will;

(B) “Abuse or neglect” means transporting an adult and knowingly abandoning, leaving or failing to provide additional planned transportation for the adult if the adult’s caretaker knows, or should know, that:

(i) The adult is unable to protect or care for himself or herself without assistance or supervision; and

(ii) The caretaker’s conduct causes any of the results listed in subdivision (1)(A) or creates a substantial risk of such results;

(2) “Adult” means a person eighteen (18) years of age or older who because of mental or physical dysfunctioning or advanced age is unable to manage such person’s own resources, carry out the activities of daily living, or protect such person from neglect, hazardous or abusive situations without assistance from others and who has no available, willing, and responsibly able person for assistance and who may be in need of protective services; provided, however, that a person eighteen (18) years of age or older who is mentally impaired but still competent shall be deemed to be a person with mental dysfunction for the purposes of this chapter;

(3) “Advanced age” means sixty (60) years of age or older;

(4) “Capacity to consent” means the mental ability to make a rational decision, which includes the ability to perceive, appreciate all relevant facts and to reach a rational judgment upon such facts. A decision itself to refuse services cannot be the sole evidence for finding the person lacks capacity to consent;

(5) “Caretaker”:

(A) Means an individual or institution who has assumed the duty to provide for the care of the adult by contract or agreement;

(B) Includes a parent, spouse, adult child or other relative, both biological or by marriage, who:

(i) Resides with or in the same building with or regularly visits the adult;

(ii) Knows or reasonably should know of the adult’s mental or physical dysfunction or advanced age; and

(iii) Knows or reasonably should know that the adult is unable to adequately provide for the adult’s own care; and

(C) Does not mean a financial institution as a caretaker of funds or other assets unless such financial institution has entered into an agreement to act as a trustee of such property or has been appointed by a court of competent jurisdiction to act as a trustee with regard to the property of the adult;

(6) “Commissioner” means the commissioner of human services;

(7) “Department” means the department of human services;

(8) “Exploitation” means the improper use by a caretaker of funds that have been paid by a governmental agency to an adult or to the caretaker for the use or care of the adult;

(9) “Imminent danger” means conditions calculated to and capable of producing within a relatively short period of time a reasonable probability of resultant irreparable physical or mental harm or the cessation of life, or both, if such conditions are not removed or alleviated. However, the department is not required to assume responsibility for a person in imminent danger pursuant to this chapter except when, in the department’s determination, sufficient resources exist for the implementation of this part;

(10) “Investigation” includes, but is not limited to, a personal interview with the individual reported to be abused, neglected, or exploited. When abuse or neglect is allegedly the cause of death, a coroner’s or doctor’s report shall be examined as part of the investigation;

(11) “Protective services” means services undertaken by the department with or on behalf of an adult in need of protective services who is being abused, neglected, or exploited. These services may include, but are not limited to, conducting investigations of complaints of possible abuse, neglect, or exploitation to ascertain whether or not the situation and condition of the adult in need of protective services warrants further action; social services aimed at preventing and remedying abuse, neglect, and exploitation; services directed toward seeking legal determination of whether the adult in need of protective services has been abused, neglected or exploited and procurement of suitable care in or out of the adult’s home;

(12) “Relative” means spouse; child, including stepchild, adopted child or foster child; parents, including stepparents, adoptive parents or foster parents; siblings of the whole or half-blood; step-siblings; grandparents; grandchildren, of any degree; and aunts, uncles, nieces and nephews; and

(13) “Sexual abuse” occurs when an adult, as defined in this chapter, is forced, tricked, threatened or otherwise coerced by a person into sexual activity, involuntary exposure to sexually explicit material or language, or sexual contact against such adult’s will. Sexual abuse also occurs when an adult, as defined in this chapter, is unable to give consent to such sexual activities or contact and is engaged in such activities or contact with another person.

 

  1. Examples of Long Term Care Plans and Issues

Long term care plans come in a variety of packages.  Generally, they are either a plan that involves insurance of some sort, or a plan that involves handing over all of your assets in exchange for care for a set period of time.  The latter are disappearing as tighter regulation and lack of profit make them less attractive investments.

In the insurance arena plans tend to be straightforward insurance that pays for long term care, or a variety of life insurance that provides long term care.  A basic divisor in the insurance type plans is payouts.  Some plans provide a smaller payment over a longer period of time.  Unless there are other sources of payment these plans tend to be problematic.  Other plans pay out larger sums over a shorter period of time.  While this may not seem like good planning, it is generally better than smaller over longer.  This is because statistically speaking people do not stay in long term care over that long a period of time.

The higher level issue with such policies is that the companies who marketed them in such great numbers no too long ago discovered that people live longer in care than they expected.  This means that companies went into receivership, or the company abandoned that area of coverage.  Either means dealing with an administrator that will not be all about customer service.  The other effect is that plans pay out less than they used to which could easily mean that coverage will be inadequate and that all those premiums mean not much at all when it comes time to need the insurance.  Some plans offset the increasing pay outs by continuing to charge premiums while the insured is actually receiving institutional care.  Others (and sometimes the same company) will provide coverage for a year or so and then demand a new condition create the need for long term care, or discontinue coverage until that new condition comes along.  One sometimes wonders how those insurance executives sleep at night.

Another issue to consider is what happens in partial months.  People in institutional care tend to have visits to the hospital for various ailments.  Does the coverage suspend during that time?  After so many days does the coverage suspend for just those days, or for the entire month?  Even though facilities have reduced costs when the resident is in the hospital, they continue to have some costs by way of reduced income from a room that is not earning income.  So, the facility charges a room rate.  Does the long term care policy cover that cost?

  1. Combating Aggressive Advertising of Private Medicare Advantage Plans

This portion of the seminar does not encompass the alphabet soup of Medicare coverages and replacement coverages.  It would be as well to thoroughly understand those coverages before giving a client advice.  There are a few topic that needs to be understood for this portion of the seminar.  One is that Medicare Replacement policies are private policies that are regulated by Medicare and partially funded by Medicare.  Two is that Medicare Replacement policies (Part C policies) cover many more medical issues and health preservation practices than Medicare.  Three is that Medicare Replacement policies tend to be a burden rather than a boon when the insured is in need of skilled care in a nursing home, or rehabilitation facility.

Unfortunately, the sale of Medicare Replacement policies has become the scheme of choice for some unsavory characters.  A list of the marketing rules regulating Medicare Replacement policies and common violations give an insight into what unethical tactics are used by some.

Medicare Marketing Rules

Plans and Insurance Agents M AY N O T:

Market plans in health care settings (waiting rooms, exam

rooms, pharmacy counters, etc.)

Approach beneficiaries in a parking lot or hallway to try to sell a plan

Insurance Agents MAY:

Provide light snacks and/or beverages

Give out gifts worth less than $15 (but must provide gifts to anyone – not only in exchange for plan enrollment!)

Insurance Agents MAY NOT:

Provide or pay for meals

Offer money or gift cards in any amount or

Offer gifts worth more than $15

Insurance Agents M AY:

Contact the following people by phone:

People currently enrolled in a plan with their company

People who have given the company “permission” to contact them

People formerly enrolled in their plan to conduct a disenrollment survey

Market plans through direct mail

Insurance Agents MUST

make an appointment with before visiting someone in their home

Scope of Sales Appointment Confirmation Form Documentation showing scope of the appointment

Plan representatives cannot market health care products beyond what beneficiary agrees to discuss

Insurance Agents M AY N O T:

Market or sell non – health care related products (annuities, investments) during an appointment

Insurance Agents and plans M AY N O T:

“Cold” Call, use door – to -door marketing, or market plans using any other unsolicited contact

Enroll a person in a plan without his/her permission

Lie to get a beneficiary to enroll in a plan

Sign someone up for a plan over the phone unless that person called them

Plans are responsible for agent and broker conduct

State insurance departments also regulate agents and brokers

No “cherry – picking” allowed

Insurance Agents MUST:

They must be licensed, certified, or registered under state law

They must follow appointment rules

They must be properly trained and pass a test

Common Violations

Mass enrollment at events

Last fall we have an agent set up in a WY casino enrolling people without their knowledge.

Providing misleading or incorrect information

Making false claims about benefits or the plan’s network of providers

Agents going into housing complexes without appointments and going door –

to – door

(Source: Senior Medicare Patrol)

  1. The Misuse of Senior Designations

The number of senior titles used by people who are trying to lull senior into trusting them is legion.  Following are a few used locally:

“Estate Planning” is a common title for insurance agents selling senior related products.  Products without accompanying planning tend to have little to do with planning any estate other than the insurance agent’s estate.

“Senior Advisor” is another meaningless term that has no set of qualifications behind it.

“Certified Elder Planning Specialist” is a popular misnomer in certain areas.  Here “certification” appears to come from Uncle Hank’s School of elder Planning and Screen Door Company.

The following is a table of designations in common use and the training required from consumerfinance.gov:

Senior Designation                                                    Required Coursework

Accredited Retirement Advisor                                 None

Accredited Retirement Plan Consultant (ARCP)       None

Certified Senior Advisor (CSA)                                 Three-day training course

Certified Retirement Financial Advisors (CRFA)      None (optional three day course)

Certified Specialist in Retirement Planning (CSRP)  Self-study seven courses

Chartered Advisor for Senior Living (CASL)            15 Semester Hours

Persona Retirement Planning Specialist (PRPS)         6 weeks of self study with 24 hours of webcast recorded lectures

Retirement Income Specialist (RIS)                           60-hour online study program

The next table is a listing of accreditation of training programs from consumerfinance.gov:

Senior Designation                                                    Accreditation

Accredited Retirement Advisor                                 Not Accredited

Accredited Retirement Plan Consultant (ARCP)       Not Accredited

Certified Senior Advisor (CSA)                                 Nationally Accredited (NCCA) [2]

Certified Retirement Financial Advisors (CRFA)      Nationally Accredited (NCCA)

Certified Specialist in Retirement Planning (CSRP)  Not Accredited

Chartered Advisor for Senior Living (CASL)            Regionally Accredited

Persona Retirement Planning Specialist (PRPS)         Not Accredited

Retirement Income Specialist (RIS)                           Not Accredited

 

  1. Examples of Different Types of Investment Sales Schemes

 

Everyone has heard of major investment scams like Enron and Bernie Madoffs fund.  The scams that get most older people are more mundane.  It involves promises of absolute security and “interesting” sounding returns on investment.  High returns are generally connected with delay in receiving income, which coincidentally means higher commissions for the investment advisor.

Other investment schemes to watch out for involve insurance schemes where there is a high payoff – for a statistically low incident occurrence.  For example life insurance policies that pay high dividends when the cause of death is specifically and exclusively cancer.

Churning is a common form of pumping older people for commission money while at the same time making sure their investments are not around when they need them.  Calls are made to describe what the advisor has “put all of his/her best clients into.”  The client is not told about the cost of moving funds and believes that they are not just one of hundreds of people called from a boiler room and agrees.  This can happen numbers of times a year.  By the time the commissions and withdrawal penalties are paid, a lot of a one time decent nest egg is now more than a bit depleted.

The latest wonderful investment is tax free retirement.  Basically, you take all of your savings and buy a life insurance policy with a single, up front, premium.  After that, you can take out loans against the policy.  Since the loans are not income under Section 61 of the IRC, they are free of income tax.  What is sort of skimmed over by some sales persons is the interest charged on the loans and the consequence of taking out enough loans to effectively cash in the policy.  Just so you will know, subsection (a)(10) of Section 61 notes that income is recognized to the extent the payoff exceeds the accumulated premiums when a life insurance policy is cashed in (as opposed to paying out when the insured dies.)  Listen to a radio show near you for more details and a toll free number for calling in to buy one of these exciting opportunities.

A Big area of abuse connected to older people actually victimizes the families of older people as much as the older people themselves.  The VA application process usually takes seven to eight months or longer.  There are a number of reasons for this, not all of them blamable on the VA.  The why doesn’t matter quite so much as the effect.  The people needing the assistance panic and wonder why they are not getting any information.  The facility is revenue pressured and wants to know why they haven’t been paid yet; putting significant pressure on their resident to find the money somewhere.  That somewhere is usually the family as all of the applicants money is socked up in annuities that cannot be cashed in without a big penalty and which won’t start paying income for ten years or so.

The adult children are not typically in a position to pay the several thousand dollars a month that the anticipated VA benefit will pay towards care.  So, facilities have now begun alliances with companies who will loan the resident/applicant and family the money to pay the facility while everyone is waiting on the VA to kick in benefits.  They are all assured that the loan will get repaid when the back benefits arrive.  If the anticipated benefits are denied there will be the loan to be repaid as well as the problem of what is going to happen with mom and dad now.  There is also the matter of the interest on the loan.

  1. Litigating Bad Faith/Abuse in Insurance Investment Sales: Critical Tips

First, make sure that your client is willing to go through with the litigation.  Some seniors get extremely anxious at the thought of having to testify in deposition and especially in court.  You may not be doing your client a favor if you make their life miserable in the pursuit of the person who scammed them.

Second, make sure your client can testify.  If their memory is such that they cannot remember anything, their testimony is not going to be especially helpful.  On the other hand, a bad memory alone is no reason to keep that person from testifying.  If your client is asked to explain how whatever it is they got sold helps them and they have no idea, the trier of fact is probably going to have a notion of how much they knew when they bought it.

Third, preserve that testimony.  If your client is alive get a video deposition for purposes of preserving testimony.  The same goes for any other important witness whose age and health is a factor in expected lifespan.

Fourth, get all the discovery you can about what the defendant showed your client and what they represented to your client.  Try to find examples of inducing reliance.

Fifth, establish your case before you tell the client it is going to be prosecuted.  Seniors tend to hear vague promises as absolute guarantees.  Be clear that you are only investigating until you have found enough preliminary material to know that it can work.  The client is not one who is likely to understand a quick demand to see if there is any money out there strategy.  Equally to the point, neither is their family.

[1] All of subsection (b) was replaced.  The quoted text took effect on July 1, 2014.

[2] National Commission for Certifying Agencies