Guaranty Funds Post Penn Treaty Unit Policyholder Details

For older policyholders with no inflation protection, rates might stay the same

(Image: Thinkstock) (Image: Thinkstock)

Twenty-five guaranty associations that are responsible for paying claims for a failed Penn Treaty American Corp. unit say 55% of the unit's long-term care insurance policyholders chose compound inflation protection, and just 1.9% chose simple inflation protection.

(Related: What Agents Need to Know About the Penn Treaty Liquidation)

The associations also report, in a rate increase application filed on the unit's behalf in Connecticut, that:

  • 56% of the long-term care insurance policyholders with inflation protection have policies with no elimination period, or time when an insured needs and uses long-term care services before benefits payments begin.

  •  62% of the policyholders without inflation protection have policies with no elimination periods.

  • Only about 19% of the policyholders with inflation protection, and about 27% of the policyholders with no inflation protection, have policy benefit periods with 36 or fewer months.

  • About 42% of the policyholders with inflation protection, and about 39% with no inflation protections, have policies that are supposed to provide lifetime benefits.

Penn Treaty was an Allentown, Pennsylvania-based company that helped create the modern U.S. long-term care insurance market. It began to run into problems around 2000, when state insurance regulators argued that the company was reserving too little for the long-term care insurance business it was selling. At the time, regulators believed that long-term care insurance premiums should stay the same for the lifetime of the policyholder, and they resisted letting managers of American National or Penn Treaty Network America raise prices.

A state court in Pennsylvania put the insurance company subsidiaries in rehabilitation in 2009.

Regulators recently converted efforts to rehabilitate the parent-level holding company's two life insurance subsidiaries, Penn Treaty Network America Insurance Company and American Network Insurance Company, into liquidation proceedings.

The details here come from a rate increase request for American Network.

A group of life and health insurance guaranty associations has filed the request for American Network with the Connecticut Insurance Department, through Long Term Care Group Inc. 

Abstract numbers (Image: Thinkstock)

(Image: Thinkstock)

Long Term Care Group Inc. filed the rate increase request through the Connecticut Life and Health Insurance Guaranty Association, on behalf of 25 state guaranty associations that believe they will have to back at least one American Network policy originally issued by American Network in Connecticut. The Connecticut department posted the filing on its website.

The associations say American Network ended 2016 with 66,741 policyholders throughout the country, including 531 policyholders in Connecticut.

Premiums now average $1,957 per year for the policyholders with inflation protection and $2,509 for the policyholders without inflation protection.

If Connecticut regulators approve the requested increase as proposed, the new average annual premiums would be $3,603 for the policyholders with inflation protection and $2,571 for the policyholders without inflation protection.

The average increase would be 69%, but the actual increase for a specific policyholder could vary dramatically from policyholder to policyholder.

The guaranty associations have proposed leaving rates the same for policyholders who bought their policies after they were 80 or older, and for policyholders without inflation protection who were 60 or older when they bought their policies.

Here's how rates might increase for other policyholders:

  • Without inflation protection, age at issue 55 to 59: 20%

  • Without inflation protection, age at issue under 55: 25%

  • With inflation protection, age at issue 70 to 79: 30%

  • With inflation protection, age at issue 65 to 69: 45%

  • With inflation protection, age at issue 60 to 64: 60%

  • With inflation protection, age at issue 55 to 59: 95%

  • With inflation protection, age at issue under 55: 170%

The overall average increase would be 84% for the policyholders with inflation protection, and 2% for the policyholders without inflation protection.

The guaranty associations are keeping the average increase down by seeking a lifetime ratio of claims to premiums of 93%.

Normally, a long-term care insurance issuer seeking a rate increase could base the increase request on a lifetime claims ratio of 60%, the associations say in their filing.

If the associations were seeking a 60% lifetime claims ratio, they could justify an overall rate increase of 635%, the associations say.

In the past, Connecticut insurance regulators have often rejected requests for long-term care insurance rate increases. In many cases, regulators have argued that insurers' actual long-term care insurance experience in Connecticut was better than the insurers' had originally predicted

The associations note that some policyholders have policies that are supposed to provide benefits beyond what the guaranty associations will guarantee. Those insureds will have the option of reducing their maximum benefits to the guaranty association coverage limit for that policy, the associations say. 

--- Read Jessica Altman May Lead Pennsylvania Insurance Department on ThinkAdvisor.

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