In a little publicized but highly consequential move, Conseco Senior Health Insurance Company, a leading provider of controversial long-term care insurance policies, requested Pennsylvania Insurance Commissioner Joel Ario establish a new company, Senior Health Insurance Company of Pennsylvania, to manage its 150,000 or so long-term care polices as the company struggles to remain solvent. Click here to review documents and comments.
In a letter to Ario, California Insurance Commissioner Steve Poizner expressed his concern that creation of a new trust would have a detrimental effect on policyholders around the nation, including California, leading to “unaffordable rate increases and the eventual insolvency of the trust.” Poizner exhorted Ario to make no decision without conducting a public hearing, even though Pennsylvania law does not require one.
Bonnie Burns, of California Health Advocates, was even more to the point: “I am writing to you with alarm,” she began as she urged Ario to deny Conseco’s attempt to “dump” its LTC polices thereby “creating a virtual death spiral from which there will be no recovery.”
Joseph Belth, professor emeritus of insurance in the Kelley School of Business at Indiana University and editor of “The Insurance Forum,” closely examined Conseco’s proposal. He advocates Ario should not merely disapprove the plan, but also should immediately seize Conseco Senior Health Insurance with a goal of preserving the assets then selling or rehabilitating the company. This alternative, he believes, would avoid “the drastic alternative of liquidation.” See http://www.ins.state.pa.us/ins/lib/ins/conseco/034.pdf.
Futhermore, says Belth, Conseco’s plan “would lead to a series of substantial premium increase requests that would place state insurance regulators across the country in a difficult position. Approval of the requests would place a severe burden on policyholders, most of whom are seniors, and force them to make difficult decisions about whether to absorb the increases or discontinue the policies.”
What happens in Pennsylvania will have repercussion around the country. If Conseco is let off the hook, how many other LTC and disability insurers will attempt to evade responsibility? How many more policyholder might be forced to wait in line for a shrinking pool of benefits when they need coverage?
Insurance commissioners around the country need to step up to protect policyholders by finding alternatives similar to the one Belth proposes. And insurers need to take note: The Conseco dilemma is a case study in how not to run your business.