Jim Donelon: Bipartisan regulators go to court to protect insurance policyholders
Last fall, I filed suit in federal court to protect hundreds of elderly long-term care insurance policyholders in Louisiana and to defend the state-based system of insurance regulation.
It’s a critical legal battle in the national long-term care insurance crisis that could have broad and devastating consequences for how insolvent insurers’ policyholders are protected.
Decades ago, insurers underestimated longevity and the cost of care, resulting in grossly underpriced long-term care insurance. One particularly egregious case is the Senior Health Insurance Co. of Pennsylvania, or SHIP, which had 646,000 long-term care customers before it stopped selling such policies in 2003. It now faces a $1.2 billion funding gap after years of poor management, failed regulation, regrettable investment decisions and bad actuarial assumptions.
Debacles like these are handled by guaranty funds in every state. Our guaranty fund in Louisiana is particularly well-equipped to help Louisiana SHIP policyholders because it can pay up to $500,000 in benefits per policyholder, a higher limit than in most states.
Nonetheless, the insurance regulator in Pennsylvania is attempting to bypass that system by unilaterally imposing from Harrisburg draconian rate increases and benefit cuts on 30,000 aging policyholders nationwide. This move overrides states’ authority to set the premium and coverage terms charged to their residents, in violation of the U.S. Constitution.
Pennsylvania’s novel approach is also unwise. An estimated $837 million in guaranty fund benefits from states are available to support SHIP policyholders nationwide, which would replace two-thirds of the shortfall. SHIP customers, with an average age of 86 for policyholders and 89 for claimants, did nothing worse than pay the premiums required, yet they now face financial ruin in their hour of need from a tortured rehabilitation proposal that will fail to restore SHIP to solvency.
If an insurance commissioner from another state can unilaterally impose rate hikes and benefit cuts across the country, I can’t do what the people of Louisiana elected me to do.
If adopted, the precedent of the SHIP rehabilitation plan would jeopardize the system of insurance regulation by individual states that is lauded by consumer advocates and insurance executives alike and enjoys widespread support across the national partisan divide. Pennsylvania’s proposed action opens the door to federal action, which would make insurance regulation less transparent, less accessible, and less responsive to local conditions.
While I press my complaint in federal court seeking a declaratory judgment that the SHIP rehabilitation plan is illegal, my counterparts in Maine, Massachusetts and Washington have gone to battle in court in Pennsylvania. Six other states have written to the Pennsylvania court in opposition to the SHIP plan. More recently, the South Carolina insurance director filed suit over the SHIP proposal in his state’s court, but the Pennsylvania regulator removed that suit to federal court.
We five regulators are both Republicans and Democrats who are senior members and three past presidents of the National Association of Insurance Commissioners. We all believe that the policyholders of our states and the state-based system of insurance regulation are worth fighting for.
Jim Donelon is Louisiana insurance commissioner.
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