Why did Penn Treaty fail, and what are our alternatives? We’re scared.
— G.R., Port Charlotte, Fla.
Dear G.R.: Years ago, when readers asked me about Penn Treaty Network America Insurance Co., I told them that management was a bunch of crooks.
The long-term care market has more of its share of crooks than aluminum siding salesmen, penny stock brokers and politicians. Penn Treaty, a dinky and horribly managed long-term care company in Allentown, Pa., has 79,000 LTC policyholders, who got skunked. I’ve tried wading through the laborious court documents, which read as if they were written in Shakespearean English, and it’s bloody disgusting. But here’s how it buries. Penn Treaty has $4 billion in claims that it’s unable to meet. The Pennsylvania insurance consortium has levied a $2.6 billion assessment on other insurers, reflecting the state cap. That means there’s a shortfall of $1.4 billion, or 35 percent, that’s not covered. Therefore, your benefits will be reduced by 35 percent. So if your LTC policy guaranteed payments of $180 a day, you’ll receive only $117 a day — maybe!
No and a thousand times no. Do not drop your current LTC policy in favor of a new policy this miscreant wishes to sell you. His ugly LTC company is rated BB and would pay a huge first-year commission that would be 50 percent of your premium. You’re each 18 years older today, so if you were to cancel your current policy and the examining physician discovered conditions you didn’t have in 1998, you might not be accepted by another carrier and you’d be out of coverage. But if your health is fine, you should be able to purchase an LTC policy that will pay the amount not covered by the assessment on the insurance industry in Pennsylvania.
The executives at Penn Treaty ran the company like a Ponzi scheme. Like many of our nation’s bankers, they should be jailed. They offered the lowest rates and highest coverage in the industry. Their rates were so low that tens of thousands of insureds were told to cancel their policies with other carriers to buy the cheaper Penn Treaty policies with better coverage. Those in management figured that they’d get customers trapped with low rates and, in a few years when cost exceeded their ability to pay benefits, they would petition the state for a rate increase. And they did numerous times — and those premium hikes were unsettling, frightening and hurtful. After numerous increases, Penn Treaty finally declared insolvency.
