This week the Pennsylvania Department of Insurance approved a crazy plan that allowed Conseco, Inc., a nationwide provider of long-term care insurance, to “separate” itself from that business by placing its remaining LTC policies (reported at between 140,000 and 160,000 total polices) into what many experts believe is an underfunded trust. See http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081113/REG/811139970.
What were they thinking? And what are the implications for both Conseco policyholders and those insured by other LTC carriers?
The bad news is that this is a dangerous precedent. If the trust is indeed not adequately capitalized, remaining elderly and ill policyholders could be subjected to ongoing rate increases. Because the group is closed, no members will be added to supply new capital to the trust. Those who have the good fortune to live the longest may have the misfortune of needing benefits when the money is gone.
The other bad news is we don’t know how many other LTC carriers will decide following Conseco’s example might be a good business decision for them. They may determine profits are more important than promises and try to divest their companies of expensive LTC policies.
The good news, however, is that insurance commissioners around the country vigorously objected to Pennsylvania’s failure to hold public hearings to field objections to the new trust. Chances are, insurers incorporated in other states won’t get a green light to do the same thing, at least not without intense scrutiny.
The other good news is that not all LTC carriers have run their LTC businesses into the ground. Some are managing quite well, selling affordable policies and caring for their policyholders. Their diligence continues to make LTC insurance a safe and essential component of everyone’s retirement planning.
The final good news is that lawyers like us are still in the business of making insurers live up to their end of the bargain. We’ve litigated against Conseco in the past and have been part of the outcry against regulators allowing Conseco or any insurer to get out from under their obligations. If we have anything to say about it, the fight to keep Conseco responsible isn’t over.