Court battle over elderly Iowans’ insurance coverage heats up

Elderly Iowans are being harmed by their state insurance commissioner in a fight over long-term care insurance, Pennsylvania officials told a federal judge this week.

In March, Iowa Insurance Commissioner Douglas M. Ommen filed a petition in Polk County District Court seeking to intervene in the state of Pennsylvania’s efforts to address issues at the financially insolvent Senior Health Insurance Company of Pennsylvania.

Under a plan put forth by Pennsylvania’s insurance commissioner, Ommen told the court, Senior Health would be allowed to “coerce vulnerable Iowans” into paying confiscatory rate increases of 400% or more, even while imposing “draconian” cuts to policyholders’ benefits.

Ommen is seeking a court order to block the plan from going into effect. Separately, insurance commissioners in North Carolina, North Dakota, and New Jersey are pursuing similar efforts.

Douglas Ommen is Iowa’s insurance commissioner. (Photo courtesy of Iowa Insurance Division)

Recently, Ommen’s lawsuit was transferred from state court to US District Court. Pennsylvania’s new, acting insurance commissioner, Michael Humphreys, along with Senior Health, asked the court Tuesday to dismiss Ommen’s petition, telling a federal judge that the Iowa’s insurance commissioner has no standing to pursue such a case on behalf of Iowa policyholders.

What’s more, Humphreys said, Ommen’s actions were not in Iowans’ best interests. Before the plan to deal with Senior Health’s financial issues was approved, Humphreys alleged, insurance regulators across the country, including Ommen, were given the opportunity to be heard on the matter and were invited to intervene in, and participate in, development of the plan . Three state regulators intervened, and others submitted formal comments, but Ommen elected not to do so, Humphreys argues.

Ommen, Humphreys claims, “allowed the risk of the harm — of which he now (wrongly) complains — to grow” as a Pennsylvania court considered the plan, approved it and then directed that it be implemented. He adds that Ommen waited six months after the plan was approved so as to “engage in blatant forum shopping.”

Ommen’s lawsuit “is designed, in theory, to protect 215 of Iowa’s 881 policyholders from being asked to pay rate increases,” Humphreys claims, but the action “can only cause damage to policyholders in Iowa and elsewhere.”

Ommen’s office has yet to file a response to Humphreys’ motion. The insurance commissioner’s office did not immediately return messages seeking comment.

‘Extreme’ increases in premiums planned

In March, a Pennsylvania judge reviewed Senior Health’s history and blamed the company’s financial woes on the “underpricing of policies.” The company also made poor investments and “overstated mortality” by banking on the fact that many policyholders would die before submitting any claims, the judge found. The company is now considered insolvent, the judge found, with $1.4 billion in assets and $2.6 billion in liabilities, resulting in a deficit of $1.2 billion.

With Senior Health foundering, court-appointed officials had the option of either liquidating the company or going through a process called “rehabilitation” in which 39,000 policyholders would retain some semblance of coverage. They opted for rehabilitation, arguing that “right-sizing” customers’ existing policies — increasing premiums or cutting benefits — was preferable to liquidation, which would result in taxpayers contributing hundreds of millions of dollars toward payment of policyholders’ claims.

The court-approved rehabilitation plan that Ommen is challenging is an attempt to partially close Senior Health’s funding gap by modifying the terms of the 39,000 long-term care insurance policies the company has in place. Without such a plan in place, Senior Health is expected to face $3 billion in claims in coming years while collecting only $230 million in premiums.

Humphreys’ office has argued that the rehabilitation plan is structured “around the core principle of policyholder choice” in that all policyholders will have the choice of either preserving their current coverage by paying more in premiums or preserving their current premiums by accepting reduced benefits.

In court filings, Ommen says choosing this approach over liquidation benefits large insurance companies at the expense of “policyholders who have paid premium for many years.” He says Senior Health has already begun contacting some of its 881 Iowa policyholders — most of whom are in their 80s and 90s — about “extreme” increases in premiums and potential cuts in benefits.

Iowa’s elderly policyholders “accepted the bargain” presented to them years ago by Senior Health’s sales team, Ommen says. “It is unfair and contrary to Iowa law for defendants to now change that bargain because of factors or events they wish the company had known or considered when the bargain was made, and to transfer that risk back to the policyholder,” Ommen has told the court.

States other than Pennsylvania where policyholders reside, including Iowa, were given the option under the rehabilitation plan to either opt in or opt out. Although Ommen chose to opt Iowa out of the plan late last year, Senior Health subsequently filed for approval of rate increases on 215 policies held by Iowans, stating that it plans to increase the average annual premium for those policyholders from $2,307 to $4,648 annually, an increase of 201%.

For some Iowa policyholders, “even more drastic premium increases” are planned, according to Ommen. For example, one Iowan is an 89-year-old woman who has been paying premiums since November 1990. The plan calls her premiums to increase by 234%, Ommen alleges.

A 91-year-old Iowa woman who has been paying premium since March 1991 would allegedly see her premiums increase by 256%. A 69-year-old Iowa woman who has been paying premiums since March 1990 will reportedly see her premiums increase by 403%.

In January, a South Carolina court issued an order granting that state’s insurance commissioner’s request for a temporary injunction that blocks implementation of Senior Health’s rehabilitation plan in that state. Last month, a Louisiana court did the same, blocking implementation in that state.

Although a Pennsylvania court’s order approving the plan is now under appeal, the Supreme Court of Pennsylvania has rejected requests that it place on hold the lower court’s order that the plan be implemented as quickly as possible.

Leave a Comment