Louisiana Insurance Commissioner Jim Donelon

Commissioner of Insurance Jim Donelon announced Nov. 29 that he plans to take additional steps to protect Louisiana long-term policyholders of Senior Health Insurance Company of Pennsylvania from what Donelon believes to be “disastrous rate increases or benefit reductions.”

In January 2020, the long-term care insurer was placed into rehabilitation by the Commonwealth Court of Pennsylvania. The company is currently projected to have a $1.2 billion shortfall, but SHICP has not been placed in liquidation.

The life and health insurer was organized pursuant to the laws of Pennsylvania, even though its principal place of business is in Indiana, according to the amended complaint in a civil action brought in 2020 by Donelon in his capacity as Louisiana Commissioner against Jessica K. Altman, the insurance commissioner for the Commonwealth of Pennsylvania, in her capacity as rehabilitator of SHICP.

SHICP issued long-term care policies in 46 states and other jurisdictions, but Donelon believes that SHICP has not issued any new policies since July 2003, according to court documents.

In an attempt to rehabilitate the insurer, the rehabilitator has devised a plan that the Louisiana Department of Insurance believes will diminish the department’s authority to protect Louisiana policyholders.

As described in the lawsuit filed last year, the proposed plan of rehabilitation outlined a menu of policy changes for all of SHICP’s policyholders any of which would materially alter the rates charged to and paid by policyholders and/or the benefits accorded to the policyholders under their respective existing policies.

Ignoring longstanding principles of state regulation of insurance, the rehabilitator seeks to impose its plan without the approval of any of the departments of insurance in the states and other jurisdictions where the company does business without regard to whether the plan violates the laws of the respective states and jurisdictions, Donelon alleged in a lawsuit filed last year in United States District Court in the Middle District of Louisiana.

“The situation is untenable for Louisiana policyholders,” Donelon said in a news release. “Despite buying long-term care insurance to ensure their independence in advanced age and paying on their policies that are protected by state guaranty funds for decades, they now risk – at the average age of 86 – being forced into bankruptcy and put out of their current living situations. I will do everything in my power to protect these Louisiana consumers from having the guaranty fund protection rules changed at their hour of need by a Pennsylvania regulator.”

Joining with 22 other states that oppose Pennsylvania’s proposed plan, including South Carolina, Donelon will file in Louisiana court for an injunction against the plan in an ongoing attempt to protect consumers from this “insurance industry friendly proposal,” Donelon said in the news release.

Previously, in the lawsuit in federal court, LDI asked the judge to declare the Pennsylvania plan unconstitutional and block it from taking effect. That lawsuit was dismissed because, at the time, Pennsylvania had not yet approved the plan. The Pennsylvania court has now approved the plan, and that approval is being appealed to the Pennsylvania Supreme Court.

As the federal lawsuit describes it, long-term care insurance is designed to cover long-term services and support for individuals, including personal and custodial care in a variety of settings, such as a person’s home, community organization or other facility. The policies reimburse policyholders a daily amount, up to a pre-selected limit, for services to assist them with activities of daily living, such as bathing, dressing or eating. The policyholder can select a menu or range of care options and benefits. The cost of a long-term care policy is based on a number of factors, including the insured’s age at the time of issuance; the maximum amount that a policy will pay per day, and the maximum number of days, or years, that the policy will pay. The maximum amount per day times the number of days determines the lifetime maximum that the policy will pay.

As of Nov. 30, 2019, SHICP reported that it had 48,477 policies in force with annual premium payments of $62 million, according to the federal lawsuit. As of Dec. 31, 2019, SHICP had 373 policies in force in Louisiana with annual premiums amounting to $413,911, making the company subject to Louisiana laws and regulations regarding insurance.

In a nutshell, the rehabilitator’s plan proposes to impose universal changes to premiums paid by all policyholders and/or coverage benefits contractually accorded to policyholders regardless of their consent, bypassing Donelon’s regulatory authority over SHICP policies issued to Louisiana citizens.

Apparently, the Pennsylvania rehabilitator plans to submit rate increases and policy modifications to the Commonwealth Court of Pennsylvania for approval without seeking separate approval of rate increases or benefit reductions from insurance regulators in the states in which the policies were issued.