Washington asks court to block SHIP long-term care rate increases

Washington state turned to the courts last week in a bid to block any premium increases by Senior Health Insurance Company of Pennsylvania.

Filed in Washington Superior Court by Attorney General Robert W. Ferguson, the petition asks the court to enforce a cease-and-desist order denying any premium increases to Washington consumers. Insurance Commissioner Mike Kreidler blames "misleading coverage election packages [SHIP] mailed in March 2022."

Various state insurance departments continue to resist plans to stabilize the insolvent long-term care insurer. In September, a North Dakota judge granted a preliminary injunction to state regulators making similar claims.

“As Washington’s insurance regulator, it’s my duty to look out for policyholders in our state,” Kreidler said. “SHIP is in dire financial straits and offered people benefit options they simply cannot deliver. I’ll request the Washington courts declare the order to cease and desist against the company valid, to stop the implementation of decisions consumers made based on misleading information the company provided.”

SHIP was put into rehabilitation in 2020 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 approved a rehabilitation plan for the long-term care insurer that gave SHIP's 39,000-plus policyholders a host of choices, all of which would mean higher premiums, reduced benefits, or both.

That's when problems began. Since SHIP has thousands of policyholders spread across other states, the difficult agreement meant many different regulators had to acquiesce. Many refused.

States go to court

Kreidler, along with insurance regulators from Maine and Massachusetts, appealed the rehabilitation plan, claiming it was unfair to policyholders. The Pennsylvania Supreme Court, however, upheld the plan.

The Commonwealth Court ordered Kreidler to not take any action that interfered with the rehabilitation plan in an August 25, 2022 ruling. But the court "didn’t identify a single action that interfered with the plan," Kreidler said. The court also ordered the rehabilitator to “continue implementation of the Approved Plan without regard to the administrative orders … which the Court concludes are nullities.”

Kreidler said he "does not believe that the Pennsylvania court has jurisdiction to determine the validity of Washington’s cease-and-desist order."

"Nothing in the Rehabilitation Plan strips the Insurance Commissioner of the authority and obligation to enforce the consumer protection provisions of the Insurance Code against SHIP, and nothing in the Rehabilitation Plan, or any orders issued by the Receivership Court excuse SHIP from the consumer protection requirements of the Insurance Code," the petition reads.

Washington is home to 1,200 SHIP policyholders, the state insurance department said.

SHIP offers choices

SHIP’s financial statements show a $1.2 billion deficit. The deficit will grow as policyholders make claims, reducing the amount available to pay future claims, Washington regulators say. SHIP mailed letters in 2022 to all policyholders announcing a premium increase and directing them to select one of five coverage options:

• Downgrade their policy;
• Convert to a basic policy;
• Convert to an enhanced basic policy;
• Convert to an enhanced paid-up policy; or
• Keep their current policy.

But two of the options — downgrading their policy and keeping their current policy — advertise an “unlimited” maximum lifetime benefit, Kreidler said.

That  statement is misleading because the company hasn’t provided a projection that shows how, after the elections are implemented, the deficit will be reduced enough to consider the company rehabilitated, Kreidler explained. Rather, all publicly provided discussions and projections indicate that the company will eventually need to be liquidated and shuttered, meaning those “unlimited” and “lifetime” benefits will be capped at a maximum of $500,000.

The election package also required policyholders to attest that any selection they made was voluntary. However, if someone didn’t select an option, the Pennsylvania rehabilitator made a selection on their behalf.

InsuranceNewsNet Senior Editor John Hilton 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.