Opinion
Nov 07, 2016 | By Arthur D. Postal
Editor's Note: Due to inaccurate information provided by
a source, details within this column regarding CNO Financial Group, Inc.
and Beechwood Re have been corrected.
WASHINGTON —
There was a time when small business owners and
middle-income wage earners of the baby boomer generation who were concerned about
the potentially searing impact on family finances of an unexpected catastrophic
illness deemed long-term care insurance to be a must-buy.
But declining
consumer interest in LTCI has been noticeable in the new century.
Researchers say
people who seek coverage tend to be much healthier than other Americans.
There are 11
carriers today offering LTC coverage, down from 70 in 2000, according to Jesse
Slome, executive director of the American Association for Long-Term Care
Insurance. And only 105,000 new LTC contracts were sold in 2015, Slome says,
down from a peak of approximately 700,000 new contracts sold in 2000, including
those involved in group contracts.
Of greater
concern, however, is the fact that a host of factors converged over the past
few months to place in doubt the ability of LTC issuers to pay off current
commitments. These developments also confirm the doubts of naysayers who have
for years questioned the ability of insurers to sustain product sales.
Consider these
recent comments by Joseph M. Belth, professor emeritus of insurance at Indiana
University, who said: “For 25 years I have been saying that the problem of
financing LTC cannot be solved through private insurance because the LTC
exposure violates important principles necessary for the private functioning of
insurance.”
While problem solving
around LTC has yet to emerge as a public policy issue, the
industry’s problems have become so intense that many industry veterans,
including state insurance regulators,
are concerned about the potential impact on the viability and credibility of
state guaranty funds as well as the future of state insurance regulation
itself.
The issue was
the subject of a hearing held in August by the Federal Insurance Office, a
hearing prompted by the fact that health insurers are on the hook for LTC
industry losses, as far as state regulators are concerned, and have been crying
foul, not only to state regulators but to the White House.
Also in August,
Maryland Democratic senators Ben Cardin and Barbara Mikulski wrote to the U.S. Office of Personnel
Management to “convey the shock and anger of federal employees who have been
informed of a dramatic increase in premiums for the federal LTC program.”
The senators
also asked for public hearings on the issue, a plea that was ignored by Senate
leadership. They acted after John Hancock Life and Health Insurance Co. said
rates for federal employees and retirees enrolled in the program will jump up
to 126 percent, with the average increase being 83 percent, or $111 a month.
At the same
time, during an American Council of Life Insurers
meeting in October, officials of the trade group discussed the formation of an
“interstate compact” that would allow LTC policy premiums to be approved by
state regulators at “actuarially sound levels.” This would limit the ability of
guaranty funds to assess life and health insurers to make up for the inability
of LTC insurers to pay their claims in full.
Insurers also
want to insulate themselves from the political storm that would accompany huge
increases imposed on policyholders if they are forced to either pay up or lose
the entire investment in their policies. And, the ACLI is developing a public
relations strategy to deal with the potential fallout of regulators or state
legislators approving such a policy.
To those who
discount the intensity of regulators' concern about the impact of the
crisis on state insurance regulation, and point out the crisis has so far taken
place under the radar, I point to the conference call Tom McInerney, chairman
and CEO of Genworth Insurance Co. had with analysts Friday regarding its
proposed deal to be acquired by a Chinese insurer, China Oceanwide Holdings
Group, Ltd.
During the
call, McInerney disclosed that the company had recently participated in a
conference call with all 50 state insurance regulators where the deal was
explained in detail. He also addressed analysts’ concerns about prior comments
by McInerney that it has the support of Delaware insurance regulators
for the deal even though the state’s insurance commissioner, Karen Weldin
Stewart, was defeated in a primary election. Ergo, a new commissioner will be
ruling on the deal.
Genworth has apparently been
negotiating with China Oceanwide since March, when it also announced
a plan to “separate and isolate” the company’s LTC business. It had hoped to
complete this deal in the first half of 2017, but has since backed off, saying
only a portion of the isolation plan would be completed by then, and further
action would be taken to separate the LTC operations only as the LTC operations
improve.
Separately,
when it announced the merger deal, Genworth also took an after-tax charge of
$535 to $625 million linked to its LTC claim reserves and taxes.
But Genworth’s
problems are not the only issue. As the economy soured starting in 2008, several
insurance companies started placing their LTC operations in runoff. The first
to do so was Conseco, Inc., now CNO Financial Group, Inc. According to Belth,
Conseco has poured $915 million of capital into that unit, called Conseco
Senior Health Insurance Co., in order to keep it solvent.
The plan of
separation, according to Belth, provided for Conseco to create an independent
trust in Pennsylvania, transfer CSHI to the trust, and rename the company
Senior Health Insurance Company of Pennsylvania. The plan was approved by the
Pennsylvania insurance commissioner. He later testified that he approved the
plan because Conseco had threatened to allow CSHI to become insolvent if he'd
rejected the plan.
Last year, in
another sign of financial trouble, SHIP borrowed $50 million by issuing a
five-year surplus note to Beechwood Re. SHIP has not made an interest payment
on the note, and Belth said whether SHIP will remain solvent “remains to be
seen.”
And in July,
Beechwood Re was linked to Platinum Partners, a hedge fund that is under
investigation by the Securities and Exchange Commission
and two sets of federal prosecutors.
A year after
Conseco spun off its troubled LTC unit, in 2009, Penn Treaty, an LTC based in
Pennsylvania, became insolvent. Most recently, in July, the Pennsylvania
insurance commissioner sought to place the company in liquidation after
determining that, “As of May 2016, [Penn Treaty] has admitted assets of less
than $454 million, liabilities exceeding $4.28 billion, and a resulting surplus
deficit of more than $3.82 billion,” said Teresa D. Miller, the state’s
insurance commissioner, in a court filing. Miller added that the
insolvency will “deepen over time,” and that the firm is projected to run out
of assets in 2018.
It is unclear
what will happen, including whether the problems grows so bad and the public
outcry is so great that Congress and the incoming president will be forced to
become involved.
Belth says
state insurance regulators, who approve premium increases on LTC insurance
policies, are caught between a rock and a hard place.
“When they
approve increases requested by the companies, policyholders are furious because
of the financial burden placed on them,” he says. On the other hand, Belth
says, when the regulators deny requested increases, companies may be forced
into insolvency. “Regulators often compromise by allowing part but not all of
the increases, and require companies to offer policyholders the option of
benefit reductions instead of increased premiums.”
For his part,
Slome sees the issue as a national problem.
“Americans are
getting older, every single day the American population is aging and the
government has no plan in place even though it is clear that individuals have
fewer dollars saved for retirement," Slome says. “Someone needs to address
this matter in a comprehensive way.”
He notes that
individuals are buying life insurance products
that pay an LTC benefit. But, he says, selling policies to a few hundred
thousand people helps a few hundred thousand people, “but you are dealing with
a global issue... Something else has to be done; stakeholders have to sit down
and come to some sort of agreement as to what the choices are, and what the
solution is.”
http://www.lifehealthpro.com/2016/11/07/we-know-ltci-will-implode-the-question-is-how-bad?eNL=5821df93140ba0b72b1d8bd7&utm_source=LHPro_NewsFlash&utm_medium=EMC-Email_editorial&utm_campaign=11082016&page_all=1
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