Collapse of Long-Term Health Insurer Forces Commercial Plans To Pick Up the Tab

Development sends shockwaves through the industry

Penn Treaty American, of Allentown, Pa., and its two subsidiaries — long-term care insurers — are in liquidation and possible ramifications for the entire health insurance industry are ominous, Kaiser Health News (KHN) reports.

It’s complicated, but under organizations called state guarantee associations, commercial plans have to ante up to protect policyholders when a long-term plan collapses. For instance, Anthem will have to pay about $254 million; and Aetna about $231 to cover Penn Treaty’s policyholders.

KHN reports that, “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.’”

Health insurers left on the hook “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.”

Health insurers, of course, are questioning the fairness of the situation. Some “such as UnitedHealth and Aetna, have challenged the assessment process, arguing that long-term care is more like life insurance.”

Health insurers worry about other long-term care companies going under and saddling them with additional losses.

Source: Kaiser Health News