Long-Term Care Insurer Pain May Hit More Companies

A working group may update NAIC guaranty association rules

(Photo: Thinkstock) (Photo: Thinkstock)

Some state insurance regulators want to increase the number of insurers that help protect consumers against long-term care insurance (LTCI) issuer failures.

The National Association of Insurance Commissioners has given a team of regulators permission to try to revise the NAIC's Life and Health Insurance Guaranty Association Model Act.

(Related: Consumer Rep Seeks Standard LTCI Issuer Insolvency Notice)

The team hopes to pull at least some health maintenance organizations into the guaranty associations that protect health insurers against insolvencies. The team may also try to merge the guaranty association accounts for health insurers with the accounts for issuers of life insurance and annuities.

Both proposed changes could expand the list of companies that get guaranty association assessment bills when LTCI issuers fail.

Members of the NAIC's executive committee approved the model law revision effort Monday, at the NAIC's summer meeting in Philadelphia.

The Receivership Model Law Working Group, part of the NAIC's Financial Condition Committee, is in charge of the revision project. Jane Koenigsman is the NAIC staff contact for the project.

The working group put a description of the project in a summer meeting document packet. 

Guaranty association basics

Most states use guaranty associations, or mandatory groups for insurers, to protect consumers against the effects of insurer failures. 

Few guaranty associations require member insurers to pay large insurer failure protection premiums on a regular basis. Instead, an association waits for a member issuer to fail, then sends the surviving member issuers assessment bills. Revenue from the assessment bills is supposed to cover the insolvency-related costs.

A frail hand (Photo: Thinkstock)

(Photo: Thinkstock)

Many states put limits on the benefits a guaranty association will cover, and the amounts a solvent member insurer must spend on assessments, in an effort to keep the failure of one insurer from causing other insurers to fail.

Regulators want agents, brokers and consumers to help monitor and manage insurer failure risk. To keep producers and consumers vigilant, guaranty associations tend to keep a low profile. Insurance regulators and guaranty association managers discourage insurers and producers from telling consumers much about the associations.

Long-term care insurance and the guaranty associations

Some issuers of LTCI have been facing financial problems in recent years because of the effects of inaccurate assumptions about policyholder behavior, low portfolio investment returns, and restrictions on LTCI rate increases.

Many insurance agents and brokers think of LTCI as a complement to life insurance policies and annuities, but states classify LTCI products as health insurance products. Health insurance guaranty associations have protected LTCI policyholders against issuer insolvencies.

This year, many health insurers are paying assessments in connection with the failure of Penn Treaty Network America, a pioneer in the LTCI market, and the failure of American Network Insurance Company, Penn Treaty's sister company.

Some health insurers say life and annuity issuers should help pay the Penn Treaty and American Network guaranty association assessments.

Regulators and insurers are also talking about where health maintenance organizations fit in.

The first HMOs were provider-run organization that tried to provide carefully managed, comprehensive care for the enrollees. Some states have regulated HMOs separately from health insurance companies, and kept HMOs out of state health insurance guaranty associations.

Some of the insurers now paying Penn Treaty-related assessments would like to see states require at least some HMOs to help pay the Penn Treaty failure bills.

Bruce Ferguson of the American Council of Life Insurers said in July, during a receivership working group conference call meeting, that ACLI likes the idea of providing broad guaranty association support for issuers of LTCI and other life and health products.

"If only LTCI writers are assessed, there would not be enough capacity to absorb another LTCI insolvency," according to the working group's summary of Ferguson's remarks.

In addition, even the ACLI members that do not write LTCI recognize the importance of the guaranty association system and the protection it provides for consumers, Ferguson said.

Nat Shapo, a former Illinois insurance regulator who represented nonprofit HMOs during the call, and Chris Petersen, who represented national major medical issuers, split on the question about whether to put HMOs in the guaranty associations.

Shapo argued that life insurers wrote about 97% of the LTCI now in force, and that HMOs wrote little of the LTCI sold by health insurers. He said making HMOs pay for LTCI issuer failures would not be good public policy.

Petersen supported the idea of putting HMOs in the life and health guaranty associations, and he said some states already do that.

Ferguson said that the ACLI would like to see commercial HMOs be part of the associations, but that Medicare and Medicaid HMOs stay out of the associations.

Procedural nuts and bolts

The NAIC is a Kansas City, Missouri-based group for state insurance regulators.

Many states use NAIC models as the basis for their insurance laws and regulations, but the percentage of states that adopt a given model varies from model to model.

The Receivership Model Law Working Group says in guaranty association model revision request form that it thinks there's a high likelihood that the working group can draft a new model within one year, and that at least two-thirds of NAIC members would vote to adopt the model.

The working group also predicts that many states would adopt the model in a uniform manner within three years of the NAIC approving the model.

Broad, uniform state adoption is likely because the "recent insolvency of a large LTCI insurer has emphasized the need for revisions to the model," the group says.

--- Read Health Insurers May Pay for Long-Term Care Insurer Failures on ThinkAdvisor.

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