Penn Treaty Saga Summarized

Brian Anderson

Executive Editor
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Philadelphia Inquirer article gives a short history of the Penn Treaty "rehab" debacle and where it stands now...

Seven years later, Penn Treaty is still "in rehabilitation." But the deficit has grown: The state's current actuarial estimate is $4 billion. Losses grew as customers aged and actuaries recorded costs that might have passed quietly to reinsurance - a sort of insurer underworld of risk-swapping - if Penn Treaty had been liquidated when it was first taken over.

At that size, Penn Treaty would be the biggest health-insurance company failure in industry history, according to data from the National Organization of Life and Health Guaranty Associations.

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.


Pa. braces for largest health insurance failure in U.S. history
 
Philadelphia Inquirer article gives a short history of the Penn Treaty "rehab" debacle and where it stands now...

Seven years later, Penn Treaty is still "in rehabilitation." But the deficit has grown: The state's current actuarial estimate is $4 billion. Losses grew as customers aged and actuaries recorded costs that might have passed quietly to reinsurance - a sort of insurer underworld of risk-swapping - if Penn Treaty had been liquidated when it was first taken over.

At that size, Penn Treaty would be the biggest health-insurance company failure in industry history, according to data from the National Organization of Life and Health Guaranty Associations.

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.


Pa. braces for largest health insurance failure in U.S. history




For every 1,000 people who currently own LTCi, approximately 17 are effected by this liquidation.
 
A little more on this from the PA Insurance Commissioner statement:

In the case of Penn Treaty and American Network, the Pennsylvania Insurance Department determined that the magnitude of additional premium rate increases needed to remedy the companies' financial difficulties (exceeding 300% on average) would severely harm policyholders and would not be permitted by state regulators, leaving no alternative other than to place the companies into liquidation.

Under Pennsylvania law, claims of policyholders residing in Pennsylvania [about 9,000 of the 76,000] are paid up to the maximum amount provided for by the policy, subject to the guaranty association cap of $300,000. The liquidator and the court will determine whether any payments for claims above the cap can be made from the companies' remaining assets to any policyholders who may have claims in excess of the cap. Actuarial models show about 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association covering their policies.
 
A little more on this from the PA Insurance Commissioner statement:

In the case of Penn Treaty and American Network, the Pennsylvania Insurance Department determined that the magnitude of additional premium rate increases needed to remedy the companies' financial difficulties (exceeding 300% on average) would severely harm policyholders and would not be permitted by state regulators, leaving no alternative other than to place the companies into liquidation.

Under Pennsylvania law, claims of policyholders residing in Pennsylvania [about 9,000 of the 76,000] are paid up to the maximum amount provided for by the policy, subject to the guaranty association cap of $300,000. The liquidator and the court will determine whether any payments for claims above the cap can be made from the companies' remaining assets to any policyholders who may have claims in excess of the cap. Actuarial models show about 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association covering their policies.



This statement is misleading: "Actuarial models show about 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association covering their policies."

I read in one of the reports that 90% of the policyholders have lifetime maximums that are less than the guaranty association cap. That would mean that only 10% of policyholders might have claims that exceed the guaranty association cap.

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I'm sure that is great comfort to those 17 people.

The point is that the experience of Penn Treaty's policyholders is not representative of the industry as a whole.

To say that someone should not buy LTC insurance because of Penn Treaty's demise is like saying you should not buy a car because the Yugo was a lousy car.

The lesson is NOT "don't buy a car."
The lesson is "don't buy a Yugo."
 
Any agent who knew ANYTHING about the LTC industry knew this was going to happen. Penn Treaty's business model was "give us your sick people," and agents did exactly that. And this is what happens.
 
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