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Georgians on the hook for failure of long-term care insurance firm

A massive insurance company failure could cost Georgia millions of dollars. What's more, some of the 2,000 Georgia residents who purchased long-term care insurance from the company could eventually be left without enough money to pay nursing home bills.

Penn Treaty Network Insurance Company and its subsidiary American Network Insurance Company are short nearly $4 billion needed to cover promised long-term care insurance benefits to policyholders nationwide. Plans to salvage the Pennsylvania-based companies couldn't be worked out after years of legal battles, so early this month a court ordered the companies liquidated.

Now, the shortfall will have to be covered by insurance guaranty associations in states where the insolvent companies sold policies.

Georgia is on the hook for about $61.2 million. "This is clearly the largest health insurance insolvency ever," said Mike Marchman, executive director of the Georgia Life & Health Insurance Guaranty Association.

Penn Treaty policyholders must continue to pay their premiums to maintain coverage. Then, as they make claims in coming years, the association will have to cover them up to the limit set by state law. In Georgia, that cap is $300,000 per policyholder.

"When you surpass the $300,000, that would be up to the individual (to pay)," Marchman said. "We can only pay what the Legislature told us to pay, which is $300,000 in benefits."

Other Georgia health insurance companies will be assessed to cover the obligations of the Georgia guaranty association. Its board hasn't yet decided how it is going to assess the companies - whether to assess at once all the funds needed or to impose the assessments over a period of years, Marchman said.

Whichever method is chosen, Georgia law allows those insurance companies to receive state tax credits for the amount of the assessments, writing off 20 percent of the costs each year for five years from the tax on their premiums.

That write-off shifts the burden of liquidation to state taxpayers, some insurance experts note.

Georgia is not the hardest hit state from the company's failure. California's guaranty association faces a $382 million liability; Florida's, about $354 million; Virginia's, about $189 million; and Texas is about $117 million, according to estimates by the Long Term Care Group of the Guaranty Association.

Rates for long-term care insurance have soared in recent years as the cost of nursing home care has spiked and people are living longer. But Penn Treaty would have needed to raise rates an average of 300 percent to cover its shortfall, and state regulators wouldn't approve that increase. No other company would agree to take over Penn Treaty's long-term care line of business, Marchman said.

Penn Treaty has about 73,000 policies still in force nationwide, Marchman said. That includes about 1,800 in Georgia.

The average policyholder is in the late 70s, but many are still in their 40s, he said. That means some will make claims on their policies for decades to come.

Read more about problems facing those needing long-term care in Georgia by clicking here:

The National Association of Insurance Commissioners has a number of committees that are examining long term care insurance and regulatory changes that may be needed to address the issues in the marketplace, a member of the NAIC staff said. A number of insurers are struggling; among them is Genworth Financial, the largest seller of long-term care policies. To help deal with its massive debt, Genworth earlier this month agreed to be acquired by a Chinese investor, the Richmond Times-Dispatch reported. Some other insurers have stopped writing long-term care policies.




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About the Author

Lois Norder is Senior Editor for Investigations in the newsroom at The Atlanta Journal-Constitution.