SHIP files amended rehab plan, factoring in opt-out states, reduced benefit scenarios; Covid-19 dynamics impacting liabilities

Oct. 23, 2020 — Rehabilitators for the insolvent long term care insurer Senior Health Insurance Company of Pennsylvania filed an amended rehabilitation plan proposal Oct. 21 with the Commonwealth Court of Pennsylvania that addresses options for policyholders in states that want to opt out of the plan, the effect of Covid-19 and changes to calculations and the scope and availability of benefit reductions.

These changes are update the initial April 2020 filed rehabilitation plan. The plan is effective when the court okays it. So far, there are a number of intervenors and the process can be lengthy even as the company, founded in 1887 as the Home Beneficial Society, sees its financial condition deteriorate. Prior to the filing for rehabilitation in January 2020, it was licensed in 46 states, the District of Columbia and the U.S. Virgin islands. It has not sold new policies since 2003 and was once part of Conseco Senior Health Insurance Co.

The funding gap is expected to be $1.2 billion as of the effective date of rehabilitation. SHIP’s financial condition continues to decline, according to the new document. It is estimated that SHIP’s funding gap is more than $1 billion, up from $916 million at year-end 2019.

The rehab plan is an attempt to square up the insolvent company’s claims with its liabilities through a policyholder menu of premium increases and benefit reductions so it does not have to go into liquidation. The goal is to significantly reduce the funding gap, a scenario best advanced under a combination of options presented to policyholders that would increase premiums and/or reduce the rich benefits in their LTC policies to more affordable but more slender coverage.

The multi-phase plan is designed to provide policyholders what they would get, at a minimum, from state guaranty associations in the event of a liquidation.

If 100% of SHIP’s active and disabled policyholders choose two favored options during phase one of the rehabilitation, SHIP’s entire funding gap would be eliminated and the second phase wouldn’t be necessary, the rehabilitators said.

These options are roughly, keeping the current premium and downgrading benefits and taking basic policy endorsements at the so-called “if knew ” premium or the realistic cost if the actuaries who wrote the policies a few decades ago, or less, actually knew what the future held–longevity, lower interest rates, the endurance of chronic diseases and much higher cost of facility or home medical care.

The rehabilitation team, led by Pennsylvania Insurance Commissioner Jessica Altman and Special Deputy Rehabilitator Patrick Cantilo, looked at liquidation, according to the new document, but decided against it to instead offer policyholders additional choices to address their individual needs with the ability for current coverage to stay in place if they are willing and able to pay the much-higher premium rate increase.

The rehab team also looked at a “good bank-bad” bank scenario but found the process would be very complex and would require insurance licenses in the states, where most of those licenses have now been pulled.

In jurisdictions/states that will object to the proposed plan or opt-out, policyholders wouldn’t be permitted to select from th full menu of the plan’s options but still have choices, albeit with some policies downgraded to a lower benefit level. Some states have already filed to intervene in the proceedings.

Of interest is what SHIP is finding with respect to the virulent Covid-19 virus’s mortality and morbidity. Preliminary data indicates that COVID-19 might be causing a decrease in the number of claims filed, and, as expected, and an increase in the number of deaths among the aging population insured by SHIP.

The average SHIP LTC policyholder is 86 and the average claimant is 89 years-old, according to the document. Covid-19 mortality might “reduce slightly SHIP’s deficit,” the rehabilitator stated, but this effect could be temporary.

However, another feature of Covid-19 — the economy — is impacting the bottom line, too.

Many SHIP policyholders have delayed making their required premium payment, the document said, and while SHIP is allowing the delays per regulatory agencies to a degree, “these payments aggravate substantially SHIP’s financial difficulties.” The rehabilitator made clear this forgiveness of premium payments cannot go on forever, and will likely lead to an increased amount of terminations. In fact, there have already been a slight increase in such non-payment of premium terminations.

SHip’s policies and claimants are declining, as the amended document lays out. By June 30, 2020, SHIP had 42,559 of direct policies, of which 5,402 were on claim. Total of administered LTC policies was therefore 44,673, of which 5,753 were on claim.

At the end of 2019, SHIP had 45,518 of direct policies, with 5,776 on claim. SHIP was administering a total of 47,785 policies of which 6,152 were on claim.

The rehabilitators warned that generally, policyholders whose policies were issued in states that have not approved rate increases over preceding years will face higher premium increases or benefit reductions under the plan, to avoid cross-subsidization between and among states.

*SHIP is now known as SHIP in Rehabilitation, so is not an actual licensed insurer The National Organization of Life & Health Guaranty Associations notes that SHIP is obligated for the LTC policies of the following companies: • Transport Life Insurance Co. • American Travelers Life Insurance Co. • United General Life Insurance Co. • Continental Life Insurance Co. due to the fact they merged into or were acquired by the former Conseco.

Outgoing Texas insurance commissioner: NAIC must be accountable, responsive and transparent to assure state-based regulation survives & thrives

UPDATED with NAIC response given before publication; Commissioner Kent’s last day was Sept. 30. The governor is expected to announce a new commissioner soon.

Oct. 14 — A former insurance commissioner who has been actively involved with national insurance regulatory and modernization initiatives has penned a sharp critique of the National Association of Insurance Commissioners that questions its hefty growth over the years and the sufficiency of its oversight. 

“The NAIC is likely at a crossroads regarding its identity. It will need to decide whether it is a member services organization or primarily a monopoly service provider,” wrote former Texas Department of Insurance Commissioner Kent Sullivan in a September analysis that was prepared at the request of several state legislators. It was sent to all state commissioners, as well, a recipient noted.

Sullivan wrote the piece while he was still commissioner. His last day in office was Sept. 30, the Department informed.

Sullivan, who had been Texas insurance commissioner since October 2017 and who, in August, notified the governor he would be stepping down when a replacement has been found, has been active in many high-profile NAIC life insurance, solvency and actuarial committees and also served on an advisory committee at the Federal Insurance Office.

The former private practice litigation lawyer and appeals court justice offered his views on challenges such as organizational consistency, accountability clarity, transparency and speed of change which he thinks the NAIC must address in order to maintain the primacy of state insurance regulation.

This comes at a time when this apparatus, fixed under the 1945 federal McCarran-Ferguson Act, is “increasingly challenged domestically by the authority of the Federal Reserve and the Treasury Department, and from abroad by such groups as the International Association of Insurance Supervisors and the Financial Stability Board,” Sullivan wrote.

Issues of friction between state sovereignty over insurance oversight and NAIC positions on interstate or national matters are one of the focuses of the critique. 

Sullivan raised an instance of NAIC support for an amicus brief on behalf of the multi-state compact for insurance regulation, funded by an NAIC loan, a position the Texas Department declined to support due to a lack of details. States were just expected to just sign on without knowledge of the NAIC’s underlying legal position, Sullivan alleged. The organization then came out in support of the larger compact over a conflicting state statute in Colorado, he wrote.

Sullivan made references to other opaque areas of the $124.5 million budgeted, almost-500 person organization, from its tax filings to how its membership is sometimes kept in the dark, to the detriment of transparency and potentially states’ needs.

However, when a coordinated, multi-state approach is indeed needed, the NAIC can take precious time, though, he argued, pointing to inconsistency in state actions as contributing to the long-term care insurance solvency crisis. He noted his department had, along with others, urged a national approach, but that states continue to await final work product and recommendations from” an executive level task force made up of insurance commissioners. 

The NAIC LTC Task Force has reported making progress on its workstreams such as multi-state rate coordiantion and is scheduled to meet virtually at the organization’s fall national meeting Dec. 4th.

The commissioner, who will be returning to private practice, expressed frustration with a Texas Department initiative, too, involving a thwarted artificial intelligence solution that was at first supposed to address “immediate and serious problems” there in reviewing policy forms. He said the NAIC’s primary technology, named SERFF, is antiquated.

Yet, after spendings “hundreds of hours of time” on the project between the Department and NAIC commissioners in leadership positions within the organization, the AI project suffered an “abrupt (and unilateral) change in direction” when the NAIC delayed the modernization project, he said. The results of this project have yet to be furnished. 

The NAIC responded by stating that “we whole-heartedly share former Commissioner Sullivan’s assessment that the NAIC needs to survive and succeed.’  To that end, we will keep working collaboratively with our members and legislative colleagues to aggressively protect consumers and ensure that the U.S. remains a world-class insurance market now and into the future.”

The Texas department website notes that it regulates the second-largest insurance market in the nation and the seventh-largest globally. Sullivan’s leadership on modernization”has led to faster service in complaint resolution and agent licensing, an increase in online licensing applications, and a major organizational restructuring,” it touts.

Sullivan also included as an attachment in his critique then-Connecticut insurance commissioner Tom Leonardi’s well-publicized invective against the NAIC’s from December 2013, which famously began, “We have met the enemy and he is us!

Sullivan noted that Leonardi’s letter referred to the NAIC officer selection process as “student council elections.” He wrote that in his experience, these “elections still lack meaningful discussion of important substantive issues.”

However, in 2020, the NAIC leadership did respond quickly to member concerns on national crises, events, and structural inequities with its CoronaVirus Resource Center, “a place where everything every state has done for bulletins, to directives, to regulations, to any alert is in one central location,” as a recent podcast conversation between NAIC CEO Michael Consedine and NAIC President and South Carolina Insurance Director Ray Farmer pointed out. In July, it then created a special committee on Race and Insurance in which “everything is on the table,” according to Farmer.