Insurer Conseco Transfers Many Long-Term Care Policies to Trust

Insurer Conseco has transferred many of its long-term care policies to Senior Health Insurance of Pennsylvania, a new state-supervised, not-for-profit trust, a move that will affect more than 140,000 Conseco beneficiaries, the Wall Street Journal reports. Conseco officials said the transfer was made so the company could concentrate on its core business. According to the Journal, the policies lowered company earnings because they were under-priced and needed continuing capital infusions to meet the long-term needs of policyholders. The trust will pay claims from a pool of funds transferred from Conseco, including $175 million in capital.

Pennsylvania Insurance Department Commissioner Joel Ario said, "There were no good choices here, only bad ones and worse ones." He said Conseco has put more than $900 million into Conseco Senior Health Insurance and its corporate board denied more money. "The likely result would have been either substantial rate increases or insolvency," he added.

Frank Darras, a California attorney who represents policy owners in disputes with insurers, said the transfer is "unfounded, unfair and unprecedented." He said, "The trust can't survive. It is on the ventilator right now." Insurance-rating firm A.M. Best said the trust might have to raise rates and reduce benefits because it has no access to additional capital.

Experts said that if the trust becomes insolvent, state guaranty agencies would be required to pay out claims, but limits set by state law would apply.

Possible Precedent
Critics of Conseco's transfer say it might set a precedent for other struggling insurance companies. According to the Journal, the transfer "comes at a time of growing concerns about whether many long-term care policies will pay off when needed, or will require drastic premium increases." The Journal reports that about eight million U.S. residents hold long-term care policies, mostly people in their 50s and 60s, in order to gain protection against "claims that may not occur for decades."

According to the Journal, the problem is compounded by the recession, because insurance companies are having difficulty raising funds through their investments to meet the reserve and capital demands of state regulators (McQueen, Wall Street Journal, 12/3).