Failed Insurers Leave Customers In A Costly Bind
Oct. 24--The expected, potentially record-breakingly expensive liquidation of Penn Treaty American Insurance Co. of Allentown will likely boost costs for mainstream health insurers, who are pledged to bail out industry failures.
Plus, rates will likely go up, a lot, for Penn Treaty's 100,000-plus remaining customers, as I noted in this space Oct. 16.
It's not just Penn Treaty: The Federal Long Term Care Insurance Program this year also boosted monthly payments for 264,000 members this year. By a lot.
A reader who retired from the old Philadelphia Naval Shipyard 20 years ago told me the rate for his $350,000 long-term care coverage will more than double next year, from the $118 per month he was sold as a lifetime rate in 1995, to $260 a month.
They gave him alternatives: Keep the payment at $118, but cut the benefit limit to $200,000. Or cancel.
Members had until this month to choose. One-third didn't answer, and will get the full increase, along with those who agreed to pay more. Just 4 percent canceled, according to the insurers.
Why did promised rates go up, and by so much? The federal Office of Personnel Management was finally persuaded that if it didn't authorize the increase, the plan would fail and nobody would write new policies.
Surprise! Federal retirees are living longer than expected, and need more long-term care. "I guess the actuaries got drunk when they gave us the first rate and worked it all out on the back of a napkin," the shipyard retiree told me.
John Hancock Life & Health Insurance Co., current operator of the federal long-term-care program, says it boosted rates between 26 percent and more than 100 percent, depending on the policy.
"Unfortunately, premiums are not sufficient to meet the program's future, projected claims costs," the government tells retirees on its website, forcing Hancock to charge "significantly higher premiums."
Insurance managers also blame, of all institutions, the Federal Reserve and its recession-fighting policies: "The historically low interest rates of recent years have reduced investment income and future projected investment returns, which do have an impact on premiums, along with our revised view of future, projected claims and mortality rates," according to a notice sent to policyholders this year.
"My wife and I have long-term care with John Hancock, who raised our rates by 20 percent this year, and stated in the letter they are filing" for a second increase for their long-term-care policy this year, that would put total monthly cost 45 percent higher, Bucks County retiree Jack Murphy tells me.
"They had a bad business model and we must now pay for their mistake," he figures.
Murphy does his research. He's skeptical of John Hancock Life's crying poverty: He noted it is owned by Canada-based Manulife Financial Corp., which has earned more than $2 billion in after-tax profits in each of the last four years. Analysts expect Manulife will make almost twice that much this year, and more next year.
Murphy says he has emailed complaints to Pennsylvania Insurance Commissioner Teresa Miller, but hasn't heard back. He thinks her department "is very generous" to insurers.
"Our priority when considering recent rate requests is to balance both consumer and company needs," Miller's spokeswoman Ali Fogarty told me.
Murphy says he's studying alternative suppliers, not just for long-term care -- which may be a tough policy to replace as clients age -- but also his Pennsylvania auto and homeowners policies, which he says are up double digits this year.
"I would recommend everyone to review and put out for quotes their insurance needs every three years," Murphy concluded.
215-854-5194
@PhillyJoeD
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