March 3, 2022 –Claiming that only individual states have the authority to approve or deny insurance rates and forms for policies in their jurisdictions, a few states have begun issuing cease and desist orders against the rehabilitators of insolvent long-term care provider, Senior Health Insurance Company of Pennsylvania (SHIP).
Some states have already won or filed injunctions as the controversial plan gears up for implementation. March 15th is the deadline for policyholder responses.
Commissioners in Connecticut and Washington State are among the latest jurisdictions to issue and cease and desist to prevent SHIP from sending the coverage selection package material or otherwise trying to get policyholders to choose among a menu of reduced benefits and higher rates which were not approved by them. These Pennsylvania Commonwealth Court court-approved rate structures, meant to offer choices to policyholders and help make up for the $1.2 billion shortfall SHIP’s balance sheet due to underpriced rates in years past, were approved by a court process for rehabilitation Pennsylvania with the state insurance department as rehabilitator.
|SHIP rehab Cease and Desist orders||Injunction requests filed, pending or remanded||Intervening states in Pa. court against SHIP rehab||Disapproval of rates by insurance commissioner in Department filing|
|Washington State||South Carolina (appealed by Pa. rehabilitator)||Massachusetts|
Iowa denied SHIP’s requested rate filing
|Connecticut||North Dakota||Washington State|
|District of Columbia|
Iowa hearing March 9 via the state AG’s office
|Utah* pending confirmation|
|Massachusetts* pending confirmation|
well as the District of Columbia and the U.S. Virgin Islands.
The states issuing cease and desist orders against the rehab plan for the $1.2 billion-in-the-red LTC insurer are on both coasts, and in the Midwest and the West, according to sources. As the filings become public, they will be listed here.
On March 1, Washington State Insurance Commissioner Mike Kreidler issued a cease and desist order against SHIP in rehabiliation to immediately stop soliciting signatures from Washington’s 1,200 plus policyholders for benefit and rate changes because they have not been approved. Maine took the same action last month under Insurance Superintendent Eric Cioppa for its long-term care insurance policyholders, whose average age is 86 and who face slices to their benefits or much bigger premiums under the rehab plan.
A good majority of U.S. states are opposing the SHIP rehabilitation plan in one form or another, whether by signing on in support of the three intervening states —Maine, Massachusetts and Washington State —who have sued to stop it, by rejecting the imposition of its rate plan or by seeking, and in some cases winning ,temporary injunctions. There are injunctions filed in Louisiana, South Carolina, where there are temporary relief orders, and in North Dakota and Iowa. The Iowa Attorney General’s Office, representing Insurance Commissioner Doug Ommen, filed a petition for an injunction in district court against SHIP to halt the implementation rehab until and unless SHIP “fully complies with the requirements of Iowa law.” A hearing is scheduled for March 9.
According to the Maine’s Cioppa, in total 30 jurisdictions have opposed the SHIP rehabilitation plan “as being unfair to policyholders.”
However, the states that have sued or entered orders like Washington’s account for about 12 % of the policies affected by the rehabilitation plan.
Louisiana Insurance Commissioner Jim Donelon said he was leading a group of 27 states that filed an amicus brief in support of a challenge filed by the three intervening states “that would declare the SHIP rehabilitation plan unconstitutional and block it from taking effect.”
Donelon has expressed concern about the erosion this rehabilitation would bring, if it prevails, to the nature of independent state insurance regulation. He also worried about the cascading effects for potential future similar restructurings, specifically naming Genworth Financial, with is 1.1 million LTC policyholders nationwide, in when announcing the successful court injunction Jan. 27.
Washington’s cease and desist order states that Harrisburg, Pa.-based SHIP is: “ordered to cease and desist” from disseminating, implementing, or enforcing the ‘Coverage Election Package,’ to policyholders in the state, … implementing any choice already made by a policyholder under the package or attempting to enforce these choices, or requesting that policyholders select rates or benefits different from those authorized by the insurance commissioner,” and otherwise making decisions or sending information to policyholders without the approval of the commissioner.
Kreidler, who is on of the three commissioners intervening in the SHIP rehab plan, now on appeal without a stay in the Supreme Court of Pennsylvania, and others do not want their policyholders facing reduction in benefits or significantly higher premiums at advanced ages and prefer the liquidation process.
“State guaranty associations are set up in each state to pay claims when an insurer is placed in liquidation. Washington’s guaranty association pays claims up to $500,000 for a policyholder of a liquidated insurer,” Kreidler stated in a press release.
The guaranty association would ” give some limited protection for policyholders but is no panacea. SHIP will not recover from its financial insolvency, but liquidating the company and triggering the states’ guaranty associations will offset some of the impact on policyholders,” Kreidler wrote.
To be sure, Washington State is more generous than the average state’s limit through the guaranty associations of $300,000.
Maryland Insurance Commissioner Kathleen Birrane on Feb. 15 denied the rate package in an administrative filing after a hearing. She advised rates could be filed in the future consistent with her parameters and pre-rehab rating characteristics used by SHIP.
“The threatened unilateral reduction in benefits also appears to have a potential permanent adverse effect on policyholders’ guaranty association benefits in the likely event that SHIP is place into liquidation at a later date,” Birrane wrote. Special Deputy Rehabilitator [Patrick] Cantilo has admitted in previous testimony that ‘it is not likely that we will magically restore SHIP to solvency, but it is likely that the plan …would substantially reduce the deficit,’” she noted in her order.
The SHIP actuarial memorandum shows that the plan’s premium increases are as high as 1,361% for Maryland policyholders, with an average rate increase for her state’s policyholders as 136. Maryland is one of the opt-out states objecting to the imposition of the out-of-state rehab plan’s rates and benefits changes.
Packets containing a host of choices for future coverage have already been mailed to policyholders throughout the U.S.
They directs SHIP policyholders to select one of five coverage options, with an accompanying premium change:Even though two of the options among the election packet —downgrading your policy and keeping your current policy—advertise that the Maximum Lifetime Benefit is “unlimited,” Kreidler alleged this claim to be misleading because he doesn’t think SHIP has the funds to fulfill this promise.
The option selection package postmark date is March 15th, and the rehabilitator hopes to begin the implementation of the actual rehabilitation in April.
SHIP was placed into rehabilitation in January 2020. Rehabilitators, led by recently departed Pennsylvania Insurance Commissioner Jessica Altman created a rehabilitation plan, which was amended after receiving input from stakeholders This was approved by the Pennsylvania Commonwealth Court in August 2021 and adjusted I the fall. SHIP began mailing the options section package in January.
The intervening state commissioners argued in a reply brief before the Pennsylvania Supreme Court Feb. 22 that the “Rehabilitator contends there is no evidence of policyholder impact, but the whole Plan is expressly about reducing policyholder contract rights,”
The Pennsylvania Insurance Department and the rehabilitator have contended that SHIP’s plan is about giving policyholders options and have noted that despite the opposition, the plan will be accepted by the majority of the policyholders based on the population in states that are not opposing the plan.
While the rehabilitator argued that “there is no evidence of harm to the rate review process,” the three intervening state commissioners wrote in their Pennsylvania Supreme Court filing last month that “the Plan’s express purpose is to take control of rates nationwide and displace the existing state-based rate review process.” Others have used stronger language to suggest the displacement of the entire state-based system of regulation.
Before November 2008 SHIP was known as Conseco Senior Health Insurance Co. From 1997 to 2000, a number of other LTC companies merged into, or were acquired by Conseco. It filed for bankruptcy in 2002, but emerged from it a year later. The rates the company offered for LTC insurance proved woefully adequate, as they have for others in the business. This is because the original underwriters did not anticipate longevity, morbidity, low interest rates and minima lapse rates.
As Maryland’s insurance commissioner noted in its administrative ruling, “Only a small fraction of SHIP’s original business remains in force.”
The average SHIP policyholder in Maryland is approximately 85 years-old and the average policyholder on claim is about 90.
Policyholders for all remaining LTC companies or blocks of business have held onto their richer policies as if they were gold—and are now facing staggering premium increases whether or not their insurer is solvent.