Michael Consedine

The Pennsylvania insurance commissioner is seeking court permission to rehabilitate Penn Treaty Network America Insurance Company in ways that could lead to big cuts in benefits, or big increases in premium rates, for the company’s long-term care insurance (LTCI) policyholders.

The commissioner, Michael Consedine, is seeking court approval for a rehabilitation plan that could lead to similar changes for the holders of policies from Penn Treaty’s sister company, American Network Insurance Company.

Consedine is acting as the rehabilitator for both companies.

The results of an actuarial analysis show that Penn Treaty “faces a deficit of approximately $2 billion, so that it has less than $1 in assets for every $3 that it should hold as reserves for its policies and other liabilities,” Consedine has told the court in an introduction to a proposed Penn Treaty rehabilitation plan.

If the rehabilitator simply tries to increase LTCI premiums enough to make up for the deficit, the increases “would average 300 percent and would vary significantly based on policy form, issue state and issue era,” according to the draft rehabilitation plan.

Instead, Consedine is proposing to make changes in benefits, such as giving all in-force policies an elimination period of at least 90 days (meaning that each policyholder would have to use long-term care for at least 90 days before getting benefits); capping the number of years of benefits policyholders can get; and reducing compound inflation protection.

For policies already on claim, the rehabilitator wants to reduce compound inflation protection; cap benefit periods; and make a “modest reduction” in the benefit period for policies with a benefit period below the cap.

Consedine also is calling for Penn Treaty to suspend payment of agent commissions, premium taxes and guaranty fund assessments; sell some assets; and create a fee-generating administrative services business.

In addition to LTCI policies, Penn Treaty and American Network sold disability income, Medicare supplement and accidental death and dismemberment policies. Consedine has not proposed changing the costs or benefits associated with the non-LTCI policies that remain in effect.

The proposed rehabilitation plans are subject to a public comment period and state court approval, officials in Consedine’s office said.

Consedine said in a statement that he asked the court for permission to set up a committee for policyholders, to give policyholders a voice over the approval of the rehabilitation plans.

“The rehabilitation plans attempt to minimize the amount of financial hardship to policyholders,” Consedine said. “Policyholders who pay their premiums will continue to have coverage.”

If Penn Treaty’s assets and future revenue streams perform well, the rehabilitator could reverse some of the benefits changes, officials said.

Representatives for Eugene Woznicki, the chairman of Penn Treaty and American Network, were not immediately available to comment.

Penn Treaty and American Network helped create the modern U.S. LTCI industry, then ran into financial turbulence when regulators concluded that the companies’ policy sales had outstripped the ability of company assets to support policy obligations.

Penn Treaty lost the right sell LTCI coverage in Florida and some other states from late 2001 through mid-2002.

When the company resumed selling LTCI coverage, it sold notes in an effort boost its capital levels, and it missed some financial statement filing deadlines. It later had trouble getting state regulators to approve LTCI rate increases in some states.

Pennsylvania insurance commissioners received state court approval to put Penn Treaty and American Network in rehabilitation in January 2009.

Pennsylvania regulators had asked for court permission to liquidate the companies. The court denied the liquidation request in May 2012. 

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