December 4, 2008
The hazards of selling insurance across state lines
Health insurance policies are currently regulated on a state-by-state basis. North Carolina can require that all policies sold within its borders meet certain basic coverage requirements. For many years free marketeers have pushed the idea of allowing insurance companies to sell policies across state lines without adhering to local regulations.
Long term care insurance is sold across state lines and policies are only subject to regulations imposed by the state where the insurance company is located. That has led to a great deal of pain and uncertainty for those seniors who bought policies from Conseco, a company based in Pennsylvania.
Conseco struck a deal with the insurance commissioner in Pennsylvania that allowed it to transfer a chunk of policies into an independent trust. The move will likely result in increased premiums and reduced benefits for policy holders across the country.
A Raleigh woman, Kitty Spillman, tells the reporter in the article that she is afraid benefits will run out for her 86-year-old mother. So what can North Carolina’s insurance commissioner do to help Ms. Spillman? Nothing. The policy is regulated by Pennsylvania’s commissioner.
If market fundamentalists have their way, health insurance will work in a similar fashion. Companies will move to the state with the least number of regulations and the most lenient insurance commissioner and start selling stripped down policies. And if the insurer wants to dump you — you’re on your own.
Although this proposal is dead in the short term with the election of Bev Perdue and Barack Obama, we should make sure it never rears its head again.
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I can’t tell you how many times I have heard people say that health insurance is affordable and everyone can qualify. Just look at the ads on TV, the internet, and of course the far too many “offers” sent via fax. They all show affordable health insurance with little to no disqualification clauses. I’ve never fallen for that simply because I know how difficult it is dealing with companies that are not regulated by the state I live in. For the average low to moderate income family, health insurance is far from affordable. If a family has a chronic health condition then insurance is priced up to 7 times the normal rate with a list of exclusions that make it all unaffordable. I’ve said it for years now, NC needs to regulate the insurance industry better than what it does now and the companies that offer policies that are definately too good to be true should be banned from doing business in NC.
I believe that the Pennsylvania Insurance Commissioner concluded that it was in the best interest of the Conseco LTCi policyholders to set up this trust, with the goal of more effectively serving the current and future claimants.
The PA Dept of Ins. is facing a very difficult situation with a different insurer that might need to go into conservatorship next month. I think the PA DOI’s conclusion regarding the Conseco policies, is that a well-managed trust now is better than trying to mop up a big mess through conservatorship later.
At least by putting the policies into a trust, the Pennsylvania Insurance Commissioner can do a better job administering the policies, cutting costs, and paying the claims than Conseco Senior Health had been doing.
It is true that the PA DOI had the authority to do this and approved it and they did it for the benefit of all present and future claimants holding the Conseco policies. They did it because Conseco Senior Health was on the road to insolvency.
However, it is NOT true that the policies are not regulated by NC law. Each policy that was purchased by a NC resident is still regulated by the NC insurance regulations. The only difference is that now the policies are being administered by a non-profit trust, run by the PA Insurance Commissioner. Any future premium increases would still need to be approved by the NC DOI.
As with any insurance purchase, it’s very important to check the financial ratings of the LTC insurers you are considering.
Sure, nothing against the PA insurance commissioner. But he is making a decision that might hurt NC policy holders and he’s not accountable to the voters of this state.
Of course LTC insurance is subject to NC laws, but it’s not regulated in the same way as health insurance b/c it is sold across state lines. The NC insurance commissioner can’t do anything about the formation of the trust. If a health insurer tried a similar move our commissioner would be able to act.