Bad News for Long Term Care Insurer

The Wall Street Journal ran an article earlier this month, Collapse of Long-Term Care Insurer Reflects Deep Industry Woes. The article focuses on "[t]wo insurance units of Penn Treaty American Corp., which have combined assets of about $600 million and projected long-term-care claims liabilities topping $4 billion,[which]  are on track to be liquidated early next year, according to filings in a state court in Harrisburg." The article explains that "a liquidation is likely to be the second-largest life-health-insurance insolvency in U.S. history by assessments, according to officials with a network of industry-funded guarantee associations. An assessment is the amount other insurers are required under state laws to pay to cover policyholders of a defunct firm."

Why do long term care policies have issues? According to the article, "most actuaries badly underestimated costs, and the insurers then met resistance in many state insurance departments when trying to push the pricing miscalculation onto policyholders through steep rate increases. Some states did allow double-digit-percentage increases, distressing the often-elderly policyholders. Sales have collapsed amid the turmoil, and fewer than a dozen insurers sell any significant volume today."

The state has been working on the problem since 2009, seeking resolution through the courts, including, ultimately, liquidation of the companies., on which agreement was reached this year.

The assessments in this case will be primarily assigned to health care companies since "long-term care is considered a type of health insurance under most state laws." The article also offers some reactions from policyholders.