Pa. commissioner turns a blind eye to irresponsible action of long-term care insurer

Posted: December 12, 2008

Filed in: Trade Talk
See more: conseco, Joel Ario, long-term care, LTC, senior health, senior health insurance company of pennsylvania, wall street journal

Pennsylvania Insurance Commissioner Joel Ario missed the boat in allowing mega-size insurer Conseco to shirk its responsibility in honoring long-term care insurance policies that it sold through a subsidiary, Senior Health Insurance Co. of Pennsylvania.

According to an article in the Wall Street Journal, Ario allowed the insurer to place a chunk of its LTC policies into a non-profit trust after the firm determined the policies were a “drag” on its earnings. Conseco cited pricing and required capital infusion as the need to “dump” the policies.

Critics say that policyholders are at risk of reduced benefits, increased premiums, or losing their coverage all together.

This could set a devastating precedent for not only long-term care policies, but policies in many lines. Don’t like how the policies you sold are performing, and want to ignore and shirk the responsibility to some policyholders who have paid for the coverage for decades? Heck, just turn them over to the state, and along the way, get the insurance commissioner to bless your slight.

Perhaps, instead, if the insurance commissioner found that Conseco is in fact unable to honor its obligations, the state should take the firm into receivership and straighten it out or possibly sell it. Now, the policyholders are left holding the bag.

When my child does something wrong (e.g., walk through a neighbor’s flower bed to retrieve a ball), I make sure my child owns up to it with the neighbor, even if it means taking funds from the money they have been saving for that new Wii game, and buying and replanting the flowers with their own time and money. Nobody learns a lesson, and no one is really “whole” again if I, as the parent, take over the responsibility and pay for and replant the flowers myself.

In its press release describing the transfer to the fund, the firm says: “Conseco, Inc.’s insurance companies help protect working American families and seniors from financial adversity.”

Tell that to its long-term care insurance policyholders.

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4 Responses

Frank Lazarus Says:
December 12th, 2008 at 6:38 pm
You have nailed this one Tony. This action actually invites and incents companies to do ANYTHING to undercut competition to get business, and if (or WHEN) the business turns bad, simply walk away from it.
This is a long term business, and companies must run their business accordingly.
Only policyholders get hurt here, not the management or shareholders of this mis-managed company.
Scott A Olson Says:
December 13th, 2008 at 12:32 pm
Insurance companies don’t have the authority to “transfer policies into a trust”. It was the Pennsylvania Insurance Commissioner and the PA DOI who had the authority to do this. They did it for the benefit of all the policyholders because Conseco Senior Health was on the road to insolvency.
By putting the policies into a trust, the PA Ins. Commissioner can cut administrative costs and eliminate waste, including executive compensation. The roughly two hundred million dollars of annual premiums paid by the policyholders can go towards current and future claims.
The PA Dept of Ins. is facing a very difficult situation with a different insurer that might go into conservatorship January, 2009. I think the PA DOI’s conclusion regarding the Conseco policies, is that a well-managed trust now is better than trying to mop up a big mess through conservatorship later.
As with any insurance purchase, it’s very important to check the financial ratings of the LTC insurers you are considering.
Scott A Olson Says:
December 13th, 2008 at 12:35 pm
Insurance companies don’t have the authority to “transfer policies into a trust”. It was the Pennsylvania Insurance Commissioner and the PA DOI who had the authority to do this.
They did it for the benefit of all the policyholders because Conseco Senior Health was on the road to insolvency.
By putting the policies into a trust, the PA Ins. Commissioner can cut administrative costs and eliminate waste, including executive compensation. The roughly two hundred million dollars of annual premiums paid by the policyholders can go towards current and future claims.
The PA Dept of Ins. is facing a very difficult situation with a different insurer that might go into conservatorship January, 2009. I think the PA DOI’s conclusion regarding the Conseco policies, is that a well-managed trust now is better than trying to mop up a big mess through conservatorship later.
As with any insurance purchase, it’s very important to check the financial ratings of the LTC insurers you are considering.
Ross Schriftman Says:
December 28th, 2008 at 6:05 pm
Dear Tony,
This time I will defend the Department of Insurance. In fact, I am a policy holder with Conseco. I received a letter from C. Everett Koop; a trustee stating what is ocurring.
What is the difference if the trust pays my claim or the insurer. There is over $3 billion in reserve to pay future claims. Healthy risks will NOT cancel their coverage if they are smart. That is because if they shop they will not be able to find lower rates anywhere. I pay less than $200 per quarter for my $150,000 of benefits. I am 56 and healthy. Please, someone make me an offer that has a lower premium.
The NY Times reporter who said benefits will be reduced is dead wrong and could be sued for yelling fire in a theatre. Benefits can not be reduced without the approval of the policy owner. Rates can increase and if they do they would have to triple to match what other insurers are charging.
A much bigger problem is the unfunded liabilities in government programs such as Medicare, Medicaid and Social Security which are over $100 trillion. If the government itself were an insurer it would have been shut down for making promises it obviously can’t keep. If you think premiums for LTCi are high, wait until the next generation starts paying twice (government numbers) the rates for taxes. I tell parents having kids today that they are 70% babies. That will be their tax rates. LTCi is a bargain and will continue to be so for those who are smart enough to purchase and hold on to.
Sincerely,
Ross Schriftman, RHU, LUTCF, ACBC, MSAA