Regulators Split On Plan For Insolvent Pennsylvania Health Insurer

Pressure continues to mount on regulators trying to find a way out of the financial mess left by the insolvent Senior Health Insurance Company of Pennsylvania (SHIP).

SHIP was put into rehabilitation in 2021 by the Commonwealth Court of Pennsylvania after regulators said it was “statutorily insolvent.” With $1.4 billion in assets and $2.6 billion in liabilities, the deficit sunk the company’s capital levels, which triggered regulatory oversight. SHIP once had 645,000 long-term care policies in 46 states when it was licensed.

Attempting to avert liquidation, a Pennsylvania court in August approved a rehabilitation plan for the long-term care insurer that gives SHIP's 39,000-plus policyholders a host of choices, all of which would mean higher premiums, reduced benefits, or both.

Then the problems began. Several state insurance commissioners balked at the agreement and sought court remedies of their own. In late-January, Louisiana and South Carolina won preliminary court injunctions preventing Pennsylvania from going forward with the rehabilitation plan in their states.

“Pennsylvania’s plan to force Louisiana policyholders to pay for SHIP’s failure through rate increases and benefit reductions is totally without precedent in insurer failures and strips Guaranty Fund protection from innocent policyholders,” said Louisiana Commissioner Jim Donelon. “The injunctions in Louisiana and South Carolina show there is real nationwide momentum for correcting this disastrously improper use of a rehabilitation proceeding.”

In addition, a group of 27 states that filed an amicus brief in support of a challenge filed by Massachusetts, Maine and Washington in the Supreme Court of Pennsylvania that would declare the SHIP rehabilitation plan unconstitutional and block it from taking effect.

Cease And Desist Order

On Feb. 8, Maine Insurance Superintendent Eric Cioppa issued a cease and desist order against the SHIP rehab plan. A virtual public hearing is scheduled for Friday at 9 a.m. to determine the state's next move.

Approximately 350 Maine residents, with an average age of 86 years, are SHIP long-term care insurance policyholders, Cioppa said in a news release.

SHIP's appointed rehabilitator began taking action under the plan in late January by sending a "Coverage Election Package" to Maine policyholders, requiring them to select modified benefits or premium increases by March 15, 2022, with an effective date as early as April 1, 2022.

Pennsylvania Insurance Commissioner Jessica K. Altman has said that the court-approved plan provides more options for policyholders than they would have if the company was in liquidation. In a November statement to InsuranceNewsNet, she said the plan is “equitable across states and across policyholders.”

“The court thoroughly reviewed the proposed plan and the objections that were filed by a few states,” she said. “The court issued a well-reasoned opinion addressing the objections and opposition and approving the plan.”

Genworth 'Ominously Looming'

The SHIP outcome could be setting a bad precedent, Commissioner Donelon noted, with Genworth "ominously looming" on the horizon.

Genworth has more than 1.1 million policyholders nationwide. Genworth Life Insurance Co., which has most of Genworth’s long-term care policies, has been rated a C++ by AM Best rating agency, so the SHIP rehabilitation litigation "could have broad implications" for Genworth policyholders down the road, Donelon said in the news release.

“The most egregious aspect of Pennsylvania’s plan is that it would deprive 30,000 SHIP policyholders across America, who are on average 86 years old (premium paying) and 89 years old (drawing benefits), of their access to $800 million of Guaranty Fund protection in place in all 50 states that could be used to cover two-thirds of SHIP’s losses,” Donelon said

Like similar long-term care insurance in the market, many of SHIP's policies were historically and substantially underpriced, Pennsylvania officials noted in a statement.

“Policyholders have not been asked to pay the premiums that would be necessary to assure that benefits will be available when needed," the state said in support of the court-ordered plan.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.