(The Center Square) – Louisiana Insurance Commissioner Jim Donelon said he will file a lawsuit to stop a “rehabilitation” plan for an insolvent out-of-state insurance company that sold long-term care policies to elderly Louisianans.
Donelon said the plan presents an unreasonable choice for vulnerable residents who paid their premiums: “potentially disastrous rate increases or benefit reductions.”
The Senior Health Insurance Company of Pennsylvania (SHIP) was taken over by Pennsylvania insurance regulators last year after it posted a $466 million loss and could no longer meet its mandatory capital requirement.
“When that happens, insurance regulators are required to take control of an insurer for the protection of policyholders and creditors,” the Pennsylvania Insurance Department said.
Donelon said Monday the company has a $1.2 billion deficit.
Rather than face liquidation, where a defunct company’s assets are sold and policy claims are bailed out, Pennsylvania regulators chose to rejuvenate the troubled insurance carrier in accordance with a state-court-approved plan.
The recently approved 195-page proposal aims “to narrow or eliminate” SHIP’s funding gap with respect to most of its 39,000 policies.
Donelon, however, called the plan an “insurance industry friendly proposal” that would either increase rates as much as 500% or substantially reduce benefits for people who need them most.
“The situation is untenable for Louisiana policyholders,” Donelon said. “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.”
Twenty-two other states also oppose the Pennsylvania-brokered plan, which circumvents state insurance departments that once had authorized SHIP to sell long-term care and home health care insurance products.
Donelon said he will seek an injunction in Louisiana state court to stop the rehab plan from taking effect.
“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,” he said.
The Louisiana Department of Health previously sued for an injunction in federal court, but the case was dismissed because the plan was not yet approved.