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Questions About Senior Health Insurance Company in Rehabilitation

What is Senior Health Insurance Company of Pennsylvania?

Senior Health Insurance Company of Pennsylvania (SHIP) is a Pennsylvania stock, limited life insurance company that administers a closed block of long-term care insurance policies. SHIP has not sold new policies since 2003. SHIP’s corporate office is located in Carmel, Indiana. SHIP’s administrative office is located in St. Paul, Minnesota. 381 long-term care policies were issued in the State of South Carolina. Not all policies are subject to the Rehabilitation Plan that has been proposed by the Pennsylvania Rehabilitator.

When did the company go into rehabilitation? 

On January 29, 2020, SHIP was placed in rehabilitation by the Commonwealth Court of Pennsylvania. It is currently projected that the company has a $1.2 billion deficit. It is currently paying claims. 

I have heard there are lawsuits pending involving SHIP’s rehabilitation.  Is that true?

Yes. Three states, Massachusetts, Maine, and Washington state intervened in the rehabilitation action to protect SHIP policyholders. They challenged the authority of the Pennsylvania Rehabilitator to set rates and change policy forms in other states. The Pennsylvania Commonwealth Court approved the Second Amended Plan over their objection. Those states are appealing that ruling.

South Carolina and Louisiana took similar actions to prevent the implementation of the Plan in their states. Louisiana’s action was brought in Federal Court and South Carolina’s action is still pending in the Richland County Court of Common Pleas in Columbia, South Carolina. Other states have also expressed concerns about the court’s ruling because it impacts their ability to protect policyholders in their states.

Why did South Carolina file an action?

This is the first time an insurance company has indicated it planned to implement rates or modify benefits of policyholders without the approval of the Commissioner of Insurance in that state in which they are making changes. The Amended Plan of Rehabilitation does not comply with South Carolina law. South Carolina law requires review and approval by the South Carolina Director of Insurance not the Pennsylvania Commissioner of Insurance.

What is the Approved Rehabilitation Plan?

The Approved Rehabilitation Plan refers to the Plan of Rehabilitation that was approved by the Commonwealth Court in Pennsylvania on August 24, 2021. You can review the Approved Rehabilitation Plan here. 

The Rehabilitator is in the process of trying to implement the Plan. If the plan is implemented, SHIP policyholders will have to either pay higher premiums for their current benefits, reduce their benefits to keep their current premiums, or select benefit downgrades to a level determined by the Rehabilitator to avoid future rate increases or benefit reductions.  Unless the courts stop the implementation of this plan, SHIP policyholders may receive a form from the Rehabilitator asking them to choose from the previously listed options. If the consumer does not choose, the Rehabilitator will choose for them.

These options may affect you financially and legally. Please secure advice from your financial or legal advisor before selecting an option. You will not be able to change your mind after the election deadline passes.

What does the Approved Rehabilitation Plan do?

The Approved Rehabilitation Plan sets forth how the Pennsylvania Rehabilitator plans to handle the policies of this insolvent insurer. Basically, the Rehabilitator plans to administer the policies in three phases.

What happens to policies in Phase One?

Policyholders are treated differently depending on whether they live in a state that permits the Rehabilitator to set rates in that state(opt-in) or if they live in a state that wants to set premium rates under the laws of the state and not Pennsylvania’s law (opt-out). 

Opt-In States- Phase One

For opt-in states (those states that allow the Rehabilitator to set rates in that state), SHIP policyholders will have to choose among four options in Phase One:

• Keep your current premium but downgrade your LTC policy benefits to a level determined by the Pennsylvania Rehabilitator.
• Choose a Basic Policy endorsement. The Pennsylvania Rehabilitator will downgrade your benefits. This selection may mean no future rate increases or benefit changes for some policyholders.
• Select a Nonforfeiture Option. The selection of this option means you are getting a reduced paid-up policy. The benefits under the policy may be significantly less than the benefits under your current policy.
• Keep your current benefits but pay the If-New Premium. The Pennsylvania Rehabilitator’s proposed rate increases range from 0% to 500% depending upon the current premiums being paid.

Policyholders paying at or above the IF-Knew premium rate will not have to make a choice in Phase One.  However, these policyholders will have to make a choice in Phase Two; they will have to choose an option with a benefit downgrade or pay a self-sustaining premium for their benefits.

In Phase Two, policyholders who did not select Options 2 and 3 in Phase One will be presented with additional options. In this Phase, policyholders will have to pay a self-sustaining rate which will likely be higher than the IF-Knew premium rate, or select a benefit downgrade.

Opt-out States-Phase One

For states that elect to opt-out of the Plan, the Plan provides the state may set rates for the policies. However, the benefits for policies in those states will be reduced if the state does not implement the rate the Rehabilitator has established.  For example, if the Rehabilitator wants to implement a rate increase of 500% for a policy and the Insurance Commissioner in that state will not approve an increase of that amount because the state’s law will not allow it, the Rehabilitator will reduce the benefits under the policy to correspond to the rate approved by the state.

These policyholders are also given four options to choose from:

• Pay the rate approved by the state. If that rate is different from the rate proposed by the Rehabilitator, the policy will be downgraded by the Rehabilitator to what the approved rate will buy at the IF-Knew rate. 
• Choose a benefit downgrade based on the IF-Knew premium rate. 
• Select the state-required or policy nonforfeiture option that existed prior to the plan.
• Keep your current benefits and pay the IF-Knew premium even if the state has approved a different rate.
  
  

What is the IF-Knew premium rate?

The Plan defines IF-Knew premium as means the premium that if charged from inception would have produced the greater of the initial target loss ratio or the minimum loss ratio applicable to the policy form. Simply stated, the Rehabilitator is saying: "If we knew then, what we know now, we would have charged you this for your policy. We will charge you that now."

If all SHIP policyholders pay the IF-Knew premium, will that stop this insurer from going into liquidation?

No. Even if all SHIP policyholders paid the higher If-Knew premium, SHIP would not collect enough in premiums to cure its $1.2 billion deficit. Many states, including South Carolina, believe this company should have been placed into liquidation a long time ago and that all the Pennsylvania Rehabilitator is doing is wasting the assets of the insurer.

How does the Approved Rehabilitation Plan affect me?

It depends on the following factors: a.) Do you have a paid-up policy or have you selected the nonforfeiture option? b.) Are you paying the IF-Knew premium now? c.)  Are you “on claim” or currently receiving benefits? If you are currently paying premiums, and your premiums are below the IF-Knew level, you will be affected by the Plan in Phase One unless you choose an option that significantly reduces your benefits.

• Paid-up Policies: Paid-up policies are not affected by the Plan.  These policyholders do not have to do anything according to the Plan.  
• Policyholders Currently Paying the If-Knew Premium: Policyholders who are paying premiums are at or above the If-Knew premium rate do not have to make a choice in Phase One. They will have to make a choice in Phase Two. 

What will happen to my benefits?

It depends on the option you choose.  Option 4 which requires you to pay the IF Knew premium to keep your current benefits is the only Phase One option that does not include a benefit downgrade of some type. 

There are eleven possible benefit reductions outlined in the Plan. They include:

• Eliminating Lifetime benefit provisions
• Eliminating Restoration of benefit provisions
• Eliminating Return of Premiums provisions
• Eliminating all Waiver of Premiums provisions
• Eliminating Extension of Benefit provisions
• Converting policies from reimbursement policies to indemnity policies
• Increasing the elimination period to a minimum of 90 days
• Reducing the maximum benefit period from lifetime to 2.5 years or 4 years depending on the option selected.

We are here to help. If you are a South Carolina SHIP policyholder or have a family member with a SHIP policy, please:

• Email the Office at Consumer Services at consumers@doi.sc.gov or call our Office of Consumer Services at 803-737-6180
• Or send us a letter at P.O. Box 100105 Columbia, SC 29202