Penn Treaty liquidation presents potential shock to health marketplace: Report
The U.S. health industry is bracing for what further action in the possible Penn Treaty liquidation could hold for the sector, as managed care providers have argued that they should not be liable for the failure of a long-term care insurer. According to a new A.M. Best special report, any action in the Penn Treaty case could set a precedent, and any changes in favor of health insurers would likely come at the expense of the life insurance industry.
See previous stories on Penn Treaty here.
The Commonwealth Court of Pennsylvania had placed Penn Treaty into rehabilitation in 2009. The action was driven by the company’s projected insolvencies due to its inadequate reserving after assumptions used to price long-term-care business were found to be markedly incorrect. Findings evidenced that policyholders were living longer than expected, medical-related expenses were higher than anticipated and lapse assumptions were much lower than estimated during initial pricing of the products.
According to a new Best’s Special Report, titled, “Penn Treaty Liquidation Presents Potential Shock to the Health Marketplace,” estimates are that the Penn Treaty companies in liquidation (Penn Treaty Network America Insurance Company and American Network Insurance Company) had up to $4 billion in liabilities with just $700 million in assets. The failure of the companies would be passed on to solvent health insurers operating in each of the states/jurisdictions in which the liquidated companies operated as part of the insurance guarantee assessments.
However, given its exposure in these states, United Health Group, Inc., has partnered with many of its peers, including CIGNA Corporation, Anthem, Inc. and Highmark Health, among others, have lobbied that long-term care policies are more life insurance-like due to their long-tail structure and interest sensitive assumptions. Ultimately, these health insurers aim to impact how Pennsylvania would cover Penn Treaty’s liabilities if it goes into liquidation by creating a hierarchy for what different insurers would be required to pay into the pool, placing health insurers at the bottom of this hierarchy. As long-term care is currently viewed as a health insurance product, premiums derived from life insurance or annuities would not be included in guaranty fund premium assessments.
As the process remains ongoing and there are still many unanswered questions regarding the outcome, A.M. Best will continue to monitor any potential capital demands placed on insurers in these market segments, according to a statement.