A former unit of Conseco Inc. is raising rates 20% to 35% on a closed block of long-term care insurance business in California.
Senior Health Insurance Company of Pennsylvania, Carmel, Ind., insists the rate hikes are needed to keep its business afloat.
SHIP began notifying its 7,000 California policyholders in April that they would see a rate hike of up to 20% in July and another 20% in September.
In a follow-up mailing, however, the company notified the policyholders the July rate hike would be the last this year, although another one was planned for next year.
SHIP was formed in 2008 as a nonprofit by the Pennsylvania Department of Insurance to run off a closed block of unprofitable LTC insurance that Conseco wanted to spin off into an independent trust. The new entity covers a total of 140,000 LTC policies throughout the U.S. This includes servicing the LTC obligations issued by Transport Life Insurance Company, American Travelers Life Insurance Company, United General Life Insurance Company and Continental Life Insurance Company.
SHIP officials argue that because the company is operated without a profit, policyholders themselves will bear the brunt of any future rate increases or policy changes.
In California, SHIP announced the increases for nine different policies. The letters offered policyholders the option of keeping their existing coverage at the higher premiums, taking a policy with fewer benefits to keep their premiums down, or taking a one-time lump-sum payment equal to the total amount of premiums they had paid, less any claims paid.
The rate increase in July has been approved by state regulators, SHIP says.
According to SHIP officials, the California Department of Insurance required the company to disclose all future rate increases that were possible. SHIP, however, does not plan to raise rates above the increases already announced, says Holly Bakke, president and chief executive officer.
“We won’t be filing for any more after 2011,” says Bakke, a former commissioner of New Jersey’s Department of Banking and Insurance.
Brian C. Wegner, executive vice president and chief operating officer for SHIP, says the company projects it has adequate reserves to cover claims for at least the next 50 years. But those projections do include the announced rate increases, he said.
“We look at the overall performance of the business and projections on claims and investments,” Wegner explained.
“We are trying to manage to the last dollar,” says Bakke. “We are a solvent runoff.”
The company has policyholders in 46 other states and has asked for increases in most of them, she says.
“Some have given us rate increases, some are a little behind on our requests,” Bakke says.
Wegner estimates that about two-thirds of California policyholders will see increases of 25% or less, and one-third will see increases between 25% and 35%.
Based on forms returned by policyholders so far, about 20% have been choosing to cash in their policies for the value of premiums paid, reports Wegner.
Some of those may have based their decision on the letter telling them that SHIP would impose an additional rate increase in September, Wegner notes. So SHIP is advising policyholders it will not impose any additional rate increase this year and anticipates that rate adjustments will end in 2011. It is also telling those who elected to cash in their policy that they will be given a chance to keep their policy and take one of the other options, he adds.