South Carolina Balks At Pennsylvania Plan For Insolvent LTC Insurer

South Carolina insurance regulators again vowed last week to not participate in a court-sanctioned plan to rehabilitate the financially struggling Senior Health Insurance Company of Pennsylvania (SHIP), saying the proposal would burden consumers in their state with whopping rate increases or huge benefit reductions.

"The plan is an unprecedented move for a state regulator of insurance regarding a company in rehabilitation," said Ray Farmer, South Carolina insurance commissioner. "Not only does it violate South Carolina state law, but also it puts our seniors who have long-term care insurance through SHIP at exponential risk of reduced benefits or premiums that they simply cannot afford to pay."

Earlier this year, SHIP was put into rehabilitation 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. States had until last week to opt-in or opt-out of the plan.

'A Tragic Injustice'

Farmer said the proposed rehab plan would diminish his authority to protect policyholders in his state and vowed to ignore it.

“We do not believe Pennsylvania has authority to raise rates or lower benefits for South Carolina consumers,” Farmer said in a press release announcing his intentions. “If this plan were to prevail, it would be a tragic injustice for our SHIP policyholders.”

Furthermore, Farmer said the plan gave only two options for regulators, both of which were unfavorable for policyholders. Opting in would allow SHIP to raise rates in South Carolina, in some cases more than 500 percent, he said. Opting out would severely reduce benefits for all policyholders, he contended.

Pennsylvania Insurance Commissioner Jessica K. Altman argued that the court-approved plan provides more options for policyholders than they would have if the company was in liquidation. In an email statement, 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.”

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.

The Maine, Massachusetts, and Washington insurance departments formally intervened in the proceedings to raise objections with the Pennsylvania Commonwealth Court. Those objections were considered and rejected by the court in approving the plan. None of those states formally opted out of the plan, but their appeal remains pending.

Two other states, Maryland and Wisconsin, submitted formal comments but did not intervene as parties. Similar to South Carolina, Louisiana filed a separate action in federal court, but the matter was dismissed.

Injunction Sought

South Carolina, along with a few other states, has filed a motion for temporary injunction with the courts to stop implementation of a rehab plan. That case is pending with Pennsylvania’s Supreme Court.

“Ultimately, this will be an issue decided by the courts,” Farmer said. “But my job is to protect South Carolina policyholders and that’s what I’m going to do.”

Farmer said until he is ordered to do so by a court, he will not participate in implementing the plan, which he said endangers policyholders when they most need benefits. The average SHIP policyholder is 87 years old, he added.

"Pennsylvania [is] demanding that our seniors shoulder the burden of an insolvent company is unjust and we will fight against the implementation of the plan to the fullest extent of the law," Farmer said.

Altman, however, said any state that has raised objections but has not officially opted out of the plan would be considered as having opted-in and policyholders in those states, including South Carolina, will be offered the policy choices under the plan.

In total, she said, states that have proactively, or by default, opted into the plan represent about 80 percent of SHIP policies.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].