Conseco sells that coverage, called long-term-care insurance. But right now, it wishes it didn't.
The Carmel-based company has been losing millions of dollars a month on long-term-care policies, as the costs of providing care have outstripped the premiums collected.
Conseco also is facing lawsuits and an investigation by a congressional committee into whether it wrongly denied customers' claims under its long-term-care policies.
The troubles have kept Conseco's stock price depressed, furthering speculation that the company might be acquired.
"It's certainly possible, and I'm hopeful. I wish somebody would," said Mark Foster, chief investment officer at Kirr Marbach & Co. in Columbus, Ind. His firm owns 488,000 Conseco shares.
And yet here's another paradox: The biggest hindrance to investors' buying more shares or to an acquirer's buying the whole company, Foster said, is uncertainty over Conseco's long-term-care business.
"It's hard to believe that it's going to be worse," he said. "But I don't think anybody's got their arms around it and knows what it's going to be."
One reason no one knows is that losses on its long-term-care policies have been a problem for Conseco since co-founder Steve Hilbert was still CEO. Conseco inherited most of its long-term-care policies from companies it scooped up in the 1990s in an acquisition spree.
Today, Conseco sells long-term-care policies through its Chicago-based sub- sidiary, Bankers Life & Casualty Co. Another subsidiary, the Carmel-based Conseco Insurance Group, manages older policies but no longer sells new ones.
Both units suffered losses on longterm-care policies last year.
Conseco's elderly customers have been hanging on to those policies longer and filing more expensive claims than expected. Those trends forced Conseco to spend $100 million in the last nine months to shore up its reserves to cover the ongoing claims.
The company has also pushed regulators for tens of millions in price hikes to stop the bleeding of cash. As of May 1, Conseco had won 62 percent of the rate increases it has sought.
Conseco is trying to save money by strengthening its computer systems, improving its customer service and paying its claims more accurately. To help with those efforts, it consolidated its long-term-care administration teams under one executive last year.
So far, Conseco has shaved $4 million in costs. It wants to save another $6 million.
"Those are very significant improvements that have taken place," said Conseco spokesman Tony Zehnder. "We are making measurable progress."
Conseco's stock has dropped slightly in the last year, even after a nice rally during the last four weeks. It now trades for about $20, down from more than $24 this time last year.
That depressed value has led many to peg Conseco as a likely buyout target. In May, Barron's magazine named Conseco as potential takeover bait for a large life insurer, such as American International Group, Prudential Financial or MetLife-all of which have loads of cash to spend.
Or some think a private equity firm might buy Conseco and make it a private company. Private equity firms have recently agreed to buy such companies as Warsaw-based Biomet Inc. and the Chrysler unit of Germany's DaimlerChrysler.
Jukka Lipponen, an insurance analyst at Keefe Bruyette & Woods in Connecticut, said a private equity deal is the only one that makes sense, but that it's still unlikely.
A long list of insurers has stopped selling long-term-care policies in recent years.
"People that have already stopped selling long-term care, why would they buy back into it?" Lipponen asked.
They might because of the large number of potential customers.
Eight million Americans own a longterm-care policy, according to the American Association for Long-Term-Care Insurance. But that number could balloon as 75 million baby boomers enter their 60s. The Census Bureau expects one in nine of them to live to at least age 90.
On May 24, Rep. John D. Dingell, DMichigan, launched an investigation into how Conseco and another long-term-care insurer, Penn Treaty American Corp, treated their customers.
Dingell sent a letter to Conseco CEO C. James Prieur, noting that Conseco's rate of complaints on its long-term care is higher than that of its peers. Dingell demanded that Conseco produce documents that detail its claims-handling polices and practices.
Conseco issued a written statement, saying, "We agree that every long-term-care policyholder deserves assurance that their claim will be handled timely and in accordance with the terms of their contract. We look forward to working with the committee to complete a thorough and fair review."
Conseco officials also noted the insurer paid out $600 million in claims last year and had a denial rate of less than 2 percent.
Insurers are wresting with long-termcare policies in part because they're a relatively new product.
Long-term care was not sold widely until the late-1980s.
At that time, insurance actuaries tried to put a price on the policies, but they had scant data to tell them how costly the claims would be. So long-term-care policies have been chronically underpriced.
The holders of long-term-care insurance haven't canceled them or cashed them out nearly as often as life and health insurance policyholders do. The cost of medical care has spiraled. And life insurance companies haven't earned as much on their investments as they had hoped.
All three factors have conspired to generate less revenue than expected and yield more payouts than predicted.
"Basically, all of the early industry products were mispriced," Lipponen said.
Conseco bought into the long-term care business in a big way when it acquired Transport Holdings Inc. and American Travellers Corp. in 1996. The next year, Conseco acquired more long-term business when it bought Washington National Insurance Co.
As early as April 2000, Conseco reported that its rate of claims in long-term care had surged. It said then it was seeking rate hikes from regulators and trying to sell more profitable products.
In 2002, Conseco spent $110 million to shore up its reserves for long-term-care policies-just before it entered bankruptcy reorganization.
After it emerged from bankruptcy in September 2003, Conseco appeared to have its long-term-care policies under control. But in its third quarter of last year, Conseco's rate of losses spiked on its older long-term-care policies. That segment lost $13 million.
In its next two quarters, those losses only worsened.
Mark Finkelstein, an analyst at Cochran Caronia Waller Securities, wrote in a note to investors last month, "Our best guess is the worst is behind the company, but volatility is likely to continue throughout the business."