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Life Health > Long-Term Care Planning

IRS Posts LTCI Issuer Rehabilitation Letter Ruling

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What You Need to Know

  • The letter ruling applies to Senior Health Insurance Company of Pennsylvania.
  • It resembles a letter ruling the IRS provided when Pennsylvania regulators took over the operations of Penn Treaty.
  • Some states are objecting to the SHIP rehabilitation plan, and the letter ruling notes that special provisions will apply to policies issued in the opt-out states.

The Internal Revenue Service has posted a private letter ruling weighing in on efforts by Pennsylvania insurance regulators and the regulators’ vendors to rehabilitate Senior Health Insurance Company of Pennsylvania.

The proposed rehabilitation strategy should not affect the federal income taxes of the affected policyholders, according to Daniel Phillips, a senior counsel in the IRS Financial Institutions & Products division.

Phillips does not name the insurer that asked for the ruling in the version posted on the IRS website, but a representative for the Pennsylvania Department of Insurance said in an email that the ruling was issued at the Pennsylvania department’s request.

What It Means

Any clients with long-term care insurance policies from SHIP may face higher LTCI premiums, reduced benefits or difficult decisions about giving up on their coverage altogether, but the changes should not increase their federal income taxes.


SHIP descends from American Travellers Life Insurance Company, a company that was a significant issuer of stand-alone LTCI policies in the 1980s.

A CNO Financial Group predecessor company acquired American Travellers in 1996.

Regulators let CNO cope with the financial problems in the block by setting up SHIP, a nonprofit company that was supervised by a trust, and moving the American Travellers-related LTCI policies there.

The business continued to do poorly.

Pennsylvania regulators put the company in rehabilitation in 2021. The rehabilitation plan includes a move to require the policyholders to accept higher premiums, reduced benefits packages or termination of the coverage.

Regulators from states, including Maine, South Carolina and Washington state, have gone to court to oppose Pennsylvania’s rehabilitation plan.

The Letter Ruling

A letter ruling gives the IRS interpretation of federal tax rules for a particular taxpayer facing one specified situation.

Other taxpayers may read letter rulings to see what IRS officials think, but they are not supposed to rely on letter rulings alone to guide their own activities.

Phillips writes in the SHIP letter ruling that a court-approved SHIP restructuring arrangement, which includes special provisions for policyholders in states that opted out of the rehabilitation plan, will not affect a SHIP policyholder’s policy issue date.

The restructuring will not be treated as a material change in the policy or policy exchange for income tax purposes, and it will not lead to an increase in the policyholder’s taxable income, Phillips adds.

Similarly, the policy owner’s adjusted basis will stay the same.

Phillips also gives instructions for how SHIP should handle the restructuring when it files its own federal income tax return.

The Context

Pennsylvania regulators also oversaw the rehabilitation of Penn Treaty’s failed LTCI operations.

The new SHIP letter ruling “resembles significantly one we got in Penn Treaty,” according to the Pennsylvania department representative.

Pictured: The Internal Revenue Service (IRS) headquarters in Washington (Image: Bloomberg)


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