S.C and Louisiana win temporary injunctions against SHIP rehab plan; stay pending appeal in Pa is denied

Feb. 7 — South Carolina and Louisiana state insurance regulators have won temporary injunctions against implementation of the rehabilitation plan for insolvent insurer Senior Health Insurance Co. of Pennsylvania (SHIP), even as a broad multi-state effort to stay the controversial plan pending appeal failed.

S. C. judge thinks rehab plan might be overturned

The temporary injunction preventing the plan from being implanted in South Carolina used strong language pointing to state sovereignty, attempts to “supplant” the Palmetto State’s own laws  and invoked the McCarran-Ferguson Act which holds that the business of insurance be regulated by individual states. 

Photo by Miguel u00c1. Padriu00f1u00e1n on Pexels.com

Not only did Fifth Judicial Circuit for Common Pleas Court Chief Administrative Judge L. Casey Manning write that the amended rehabilitation plan “appears to be founded on a clearly erroneous reading of the law,” but the South Carolina judge added that it appears “likely” to be overturned on appeal.

Manning also expressed concern that the rate increases and benefit reductions will permanently cut into policyholders’ guaranty find benefits “in the likely event that SHIP is paced into liquidation” in the future.

Policyholders are past 85 and face cuts, higher costs

The Pennsylvania Commonwealth Court-approved rehabilitation plan for the remaining 45,000 policies in force at SHIP is meant to right-size the insolvent long-term care insurer’s woeful $1.2 billion deficit through various options —called an election package —selected by policyholders. The elderly—the average age is 87 years old— policyholders will have to choose to pay substantially more for current coverage or get fewer benefits or few years of coverage or some combination of higher premiums and reduced benefits. 

SHIP was placed into rehabilitation in January 2020 and the Pennsylvania Commonwealth Court approved an amended plan of rehabilitation in August 21, and updated this plan Nov. 4. Notices have been sent to policyholders in most states and the plan is expected to go into effect except where there are injections in April, after policyholders elect their more expensive choices or take haircuts. The average policyholder actually on claim is aged 90, according to court documents. 

A majority of states oppose the Pa.-born SHIP rehab plan

More than half of all U.S. states plus Washington, D.C., filed amici briefs supporting the three state insurance commissioners who are appealing to the state Supreme Court of Pennsylvania to stop the plan. These commissioners favor a liquidation and the triggering of state guaranty funds to help make policyholders whole. These 27 jurisdictions filed to join on in opposition Dec. 27 in the appeal of the low Commonwealth Court’s decision to approve the plan.

However, the efforts of Maine, Massachusetts and Washington State regulators for a stay pending their ongoing appeal was denied on Jan. 31, so policyholders will get sent the rehabilitation plan places, except in the two states, Louisiana and South Carolina, that have successfully gotten a temporary injunction–for now.  

In South Carolina, SHIP’s rehabilitators, under the aegis of Pennsylvania Insurance Commissioner Jessica Altman, are prevented from communicating, implementing or enforcing or in any way interfering with the “rights” of SHIP long-term care insurance policyholders, including notifications about higher premiums or changes in benefits under the plan. 

S.C. and Louisiana judges: we reject (for now) rehab plan rates

The temporary injunction order in South Carolina, dated Jan. 20th says that the plaintiffs, led by Insurance Director Ray Farmer, have shown a “likelihood” of success on the merits. They have also satisfied the requirement that an injunction is necessary to prevent “irreparable harm” and there is no other adequate remedy available, Judge Manning wrote. 

“Enforcing Defendant’s apparent attempt to supplant the laws of South Carolina and others states risks adoption of a ‘policy of hostility to the public Acts’ of each of the forty-plus affected states. Resulting in a direct injury to their sovereignty,” Manning wrote. 

Similarly, but more briefly, the Nineteenth Judicial District Court for the Parish of East Baton Rouge issued an order Feb. 3 granting a preliminary injunction against any Louisiana policyholders for any increase in premiums rates under the rehab plan. 

However, Louisiana District Court Judge Timothy Kelley did cite an agreement allowing the defendants, to provide 21 days notice before any benefit reductions or other policy cuts are effective. Kelley added that he will allow the plaintiffs, led by Louisiana Insurance Commissioner Jim Donelon, to return to court to argue that these benefit reductions or other changes fall within the scope of the injunction. 

Rehabilitators launch strong language, as well

In opposing the attempt, lawyers for the rehabilitators last month called the temporary injunction tactic “part of an extraordinary collateral attack on a court-approved rehabilitation plan and the state officials implementing that plan.”

The Pennsylvania Insurance Department has previously stated in an email that “Commissioner Altman placed the interests of affected policyholders as the top priority in proposing the Plan. In pursuit of this goal, the rehabilitation plan: maximizes the choices available to policyholders and provides more options than a policyholder would have in a liquidation, allows policyholders to maintain their current level of benefits including when they are entitled to benefits above their state guaranty fund’s benefit cap that would be applied in a liquidation…” The spokesperson said these options are offered “in a manner that is equitable across states and across policyholders.” 

Behind the scenes, there is a lot at play

 Donelon has repeatedly expressed vociferous opposition to the rehab plan and claims in documents and interviews that it flies in the face of the tenets of state insurance regulation, as does Farmer.

Many of the 25 or so other states that have voiced more administrative opposition are waiting to see what happens. Some of these states have opted out of the rehab plan and when rates from the plan are imposed on their policyholders,  it has been suggested their state attorneys general might take legal action. Most of the state insurance commissioners that joined as amici didn’t clearly opt-out to set their own rates it is uncertain how they will act when the rates are implemented. 

 Of interest, three of the four National Association of Insurance Commissioners</s officers, President Dean Cameron Vice President Andrew Mais and Secretary-Treasurer Jon Godfread North Dakota, support the appeal of the intervening regulators plan as amici brief co-signers. Several of the amici are former NAIC presidents, like Donelon, Farmer and main appellant Maine Superintendent Eric Cioppa. The longest-serving insurance commission now, Mike Kreidler of Washington state, is also an appellant. 

The states that have okayed the plan include those with the largest number of policyholders. 

The SHIP LTC rehabilitation situation was discussed at the recent Commissioners’ annual winter conference, according to those with knowledge of the discussions.

Several large insurers, including Anthem Inc. and United Healthcare Insurance Co. support the rehab plan. The life and health insurers would pay into the state life and health insurance guaranty association funds in the event of a liquidation, which counsel for  intervening insurance regulate has written is unavoidable — but delayed by the plan. 

Sample page for SHIP rehabilitation plan options for 82 year-old Florida policyholder, from the SHIP rehabilitation plan, as amended.

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