From my column in Sunday's Inquirer, plus NEW material from policyholders whose insurance costs are doubling: Pennsylvania insurance regulators took over Penn Treaty American Corp., once the second-largest U.S. long-term-care insurer, and put it "in rehabilitation" back in 2009...
Seven years later, Penn Treaty is still "in rehabilitation." But the deficit has grown: The state's current actuarial estimate is $4 billion... At that size, Penn Treaty would be the biggest and most expensive health-insurance company failure in industry history, according to data from the National Organization of Life and Health Guaranty Associations.
Who pays? Penn Treaty's loss will be covered by solvent health-insurance companies, and passed on to their owners and policyholders, when a state plan to liquidate Penn Treaty is finally approved by Commonwealth Court. A Nov. 9 hearing is set before Leavitt.
Guaranty groups such as Pennsylvania Life & Health Guaranty Association pay costs from failures such as Penn Treaty's by assessing successful insurers a surcharge on their policies in states where the failed firms had customers.
Penn Treaty and its affiliates are so broke that their unpaid obligations for Pennsylvania are expected to top $500 million, "close to or at the 2 percent cap" for annual surcharges on Pennsylvania health-insurance policy premiums, said Sean McKenna, spokesman for the national life and health guaranty group.
More likely the state association, and those in more than 40 other states, including California and Florida, which have even more Penn Treaty customers, will spread payments over several years... More in my column in Sunday's Inquirer here.
NEW: It's not just Penn Treaty: A retired systems analyst who worked at the Philadelphia Naval Shipyard tells me his Federal Longterm Care Insurance Program monthly payments under a program for federal employees is zooming from $118/month, "where it's been for 20 years," to $260 a month. "Or I can stay at $118, but with the benefit reduced to $200,000. I guess the actuaries got drunk when they gave us the first rate and worked it all out on the back of a napkin."
Indeed, John Hancock, current operator of the federal program, has boosted rates between 26% and 118% this year: "Unfortunately," today's premiums "premiums are not sufficient to meet the program's future, projected claims costs," the government explains here. "The U.S. Office of Personnel Management... and awarded the contract to John Hancock Life & Health Insurance Company, the prior carrier and single bidder," with "significantly higher premiums..."
Program managers also blame U.S. monetary policy: "The historically low interest rates of recent years have reduced investment income and future projected investment returns, which do have an impact on premiums, along with our revised view of future, projected claims and mortality rates."
"My wife and I have longerm care with John Hancock, who raised our rates by 20% this year, and stated in the letter they are filing" for an second increase that put the total monthly cost 45% higher, Bucks County retiree Jack Murphy tells me. "They had a bad business model and we must now pay for their mistake."
John Hancock Life & Health Insurance Co., Murphy notes, is owned by Canada-based Manulife Financial Corp., which has averaged more than $200 million (U.S.) a month in aftertax profits over the past five years.
Murphy says he's written emails of complaint to Pennsylvania Insurance Commissioner Teresa Miller, but "she never acknowledges my e-mails. I think she is very generous to all insurance companies."
("Our priority when considering recent rate requests is to balance both consumer and company needs," Miller's spokeswoman Ali Fogarty told me when I was researching Penn Treaty last week.)
Murphy is shopping for cheaper insurance (not just for Longterm Care -- also Auto and Homeowners, which he says are rising double digits; he says he's studying cheaper alternatives.) "I would recommend everyone to review and put out for quotes their insurance needs every three years," Murphy concluded.
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