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Health insurers may pay for long-term care insurer failures

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The current U.S. health insurance guaranty fund system binds health insurers to the fate of private long-term care insurance issuers.

Regulators at the Receivership and Insolvency Task Force, part of the Kansas City, Missouri-based National Association of Insurance Commissioners, talked about that connection in October during a conference call meeting.

Related: Genworth says higher LTCI rates beat liquidation

Patrick Cantilo, an Austin, Texas-based lawyer, brought up the connection between health insurers and long-term care insurer insolvencies during the task force conference call, according to a summary included in a packet of materials for the NAIC’s upcoming fall meeting. The meeting is set to start Dec. 10 in Miami Beach, Florida.

Cantilo has been the special deputy receiver in charge of Penn Treaty America Insurance Company, a troubled LTCI issuer, since 2012. He told task force members that health insurers may end up paying about 75 percent of the guaranty fund costs for liquidating Penn Treaty.

In the United States, state guaranty fund associations, or groups of insurers, back insurance company obligations. The guaranty fund associations usually handle the cost of member insurer failures by imposing assessments on the surviving members, rather than by using regular dues collection to establish reserves.

Many insurance agents and brokers think of long-term care insurance as a product related to life insurance and annuities.

Because insurance regulators, and guaranty funds, classify long-term care insurance as a health insurance product, health insurers pay the guaranty fund assessments resulting from LTCI issuer failures, Cantilo said, according to the receivership task force call summary. 

The NAIC, a group for state insurance regulators, has no direct authority to change state insurance rules, but states often choose to base their insurance rules on NAIC models. 

Cantilo told members of the receivership task force that they should review the NAIC’s Life and Health Insurance Guaranty Association Model Act.

One issue to consider is the fairness of having health insurers pay the assessments for long-term care insurance issuer failures, Cantilo said.

Another issue to consider is how guaranty funds should handle long-term care insurance inflation benefits, Cantilo said.

States have developed “rollback” rules for handling the failures of issuers of annuity contracts with high minimum interest rate guarantees. Regulators could look into developing a comparable approach for LTCI inflation benefits, Cantilo said.


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