Court approves insolvent LTC insurer SHIP’s rehabilitation plan

UPDATE: Find the approved rehabiliation plan posted by the court on Sept. 30 here:

Aug. 26, 2021 — The Commonwealth Court of Pennsylvania has approved the amended rehabilitation plan for insolvent long-term care insurer, Senior Health Insurance Company of Pennsylvania (SHIP.) 

The rehabilitation will address SHIP’s “hazardous financial condition” involving about 39,000 in-force policies by increasing premiums and shaving benefits in many cases, according to the court. 

The goal is to avoid liquidation fo the company and a spill of all its liabilities into the state guaranty funds, where benefits could be more severely capped. 

SHIP has a deficit of about $1.2 billion, reflecting $1.4 billion in assets and $2.6 billion in liabilities. It was licensed in 46 states and had issued 645,000 LTC policies, covering services provided in nursing homes and assisted living facilities, as well as home-based health care services and adult day care. 

About 13% of SHIP’s LTC policyholders are on claim, and the Pennsylvania-based rehabilitator expects that number to rise to 32% by 2050, the court’s approval order stated. The order calls for the rehabilitator, the Pennsylvania Insurance Department regulators, to submit an actuarial memo on rates to use in the first phase of the effort, according to a court decision Aug. 24.

In her decision, Judge Mary Hannah Leavitt rejected the arguments of the intervening state regulators from Maine, Massachusetts and Washington State for an opt-out provision of the plan. 

She focused on how the plan would give existing policyholders as much choice as possible in their more narrow outcomes, given the state of the company.

“The Plan is structured to maximize policyholder choice in several ways. Depending on his circumstances and preferences, a policyholder may choose to continue his policy with all benefits and terms unchanged by paying the actuarially justified annual premium for that policy. Alternatively, the policyholder may choose to reduce some policy coverages as more suitable to the policyholder’s current circumstances in order to avoid or temper a premium increase,” the judge noted. 

She offered the example of a 95-year-old policyholder, as SHIP’s customers now are aging seniors.. 

This senior citizen might decide to reduce the maximum coverage period from 10 to five years instead of paying the premium required for a policy with a 10-year period of coverage, she stated. 

The rehab plan also intends to smooth out premiums for similar coverages as currently, SHIP policyholders pay very different rates for the same amount of benefits. This “discriminatory” rate structure is a results of decisions of different state regulators on SHIP’s proposed rate increases, according to Leavitt. 

“Policyholders whose state of issue has approved the requested rate increase pay more for the same coverages than policyholders whose state of issue has disapproved the requested rate increase. As a result, the former group of policyholders pays more than its fair share of the costs of providing the coverages and the latter group pays less than its fair share,” Leavitt wrote.

The Commonwealth Court’s decision following mid-May 2021 hearings.

SHIP filed an rehabilitation application in April 2020 and appointed the Pennsylvania Insurance commissioner to serve as rehabilitator of SHIP and to “ take steps to address SHIP’s financial challenges; and to protect its policyholders and other creditors.” The Pennsyvlani regualtors filed an amended plan in October 2020.

SHIP, founded in 1887 as the Home Beneficial Society, continues to see its financial condition deteriorate. Prior to the filing for rehabilitation in January 2020, it was licensed to do business by state regulators. It has not sold new policies since 2003 and was once part of  Conseco Senior Health Insurance Co.

The states with the most SHIP LTC policies in force as of Dec. 31, 2020, are Texas, Florida and Pennsylvania. The three states represented by the intervening state regulators in this matter have much fewer policies in force, according to the court opinion and order.

For more on how this affects policyholders, see: https://www.investopedia.com/ship-policyholders-face-hard-choices-under-rehab-plan-5199055