Among all the reasons for rising health insurance premiums, this one might be the most obscure: A long-term care insurer in Pennsylvania just went belly-up.
Health insurers across the country are on the hook for hundreds of millions of dollars in losses stemming from the recent insolvency of Penn Treaty American Corp., of Allentown, Pa., and its two subsidiaries.
Insurance company failures are rare, but when they happen, other companies are responsible to help pay off the company’s claims and protect policyholders through groups known as state guarantee associations. Those industry assessments are typically based on market share, so larger insurers pay more.
In these situations, long-term care coverage is treated as health insurance so health insurers are liable for the payments — and some are disputing that.
Penn Treaty’s liquidation poses a “potential shock to the health marketplace” as the losses pile up, according to the A.M. Best credit rating firm. Industry analysts estimate the parent company has long-term claims liabilities approaching $4 billion, but only about $700 million in assets.
This is one of the largest insurance failures in U.S. history, and “the impact of this situation on the insurance industry is huge,” said Joseph Belth, a professor emeritus of insurance at Indiana University. “Companies will try to pass it on in some fashion to policyholders.”
California may be hardest hit. Its guarantee association faces a liability of $400.6 million, according to estimates prepared by Long Term Care Group for the National Organization of Life & Health Insurance Guaranty Associations. Florida is next at $360.4 million, followed by Pennsylvania at $269.9 million, Virginia at $197 million and New Jersey, with projected liabilities of $144.6 million.
Health insurers can pass along those unforeseen costs by imposing premium surcharges on customers, or they can shift the burden to taxpayers by paying less in state premium taxes. The rules vary by state. In California, insurers can levy a surcharge on policyholders.
Insurers have recently begun revealing their initial cost estimates, often buried deep in company securities filings and financial statements.
Anthem Inc., the nation’s second-largest health insurer, estimates it will pay $253.8 million to cover its portion of Penn Treaty claims. In a securities filing last month, Anthem said, “payment of the assessments will be largely recovered through premium billing…