Senior Health Insurance Company of Pennsylvania (“SHIP”) was placed in rehabilitation in Pennsylvania in January 2020. On August 24, 2021, the Commonwealth Court of Pennsylvania approved the Rehabilitation Plan (the “Plan”), which includes a nationwide premium increase and several benefit modification options that will be presented to policyholders to avoid or mitigate the rate increase. The Plan includes an opt-out for state regulators who elect to review the proposed rate increase, but if an opt-out state does not approve the full rate increase the options available to policyholders of policies issued in that state would not include an option for the policyholder to retain the full benefit amounts set forth in their policy. Because of the novel strategy to pursue a rate increase/benefit modification through the rehabilitation court, the Plan has proven to be controversial. For example, the chief insurance regulators in Massachusetts, Maine and Washington have filed an appeal in the Supreme Court of Pennsylvania to challenge and block the Plan (and a group of 27 other state insurance regulators filed an amicus brief in support of this challenge). The Pennsylvania Supreme Court recently denied an application for a stay of the approval of the Plan while the appeal is pending.
Senior Health Insurance Company of Pennsylvania (“SHIP”) was placed in rehabilitation in Pennsylvania in January. As required by the Order of Rehabilitation, the Rehabilitator filed a Proposed Plan of Rehabilitation (the “Plan”) in April.1 Several interested parties, including three state insurance regulators, intervened in the rehabilitation proceedings in the Commonwealth Court of Pennsylvania (the “Court”). Other interested parties filed formal comments with the Court, generally expressing concerns about or opposition to the Plan. On October 21, the Rehabilitator filed an Amended Plan of Rehabilitation (the “Amended Plan”). When filing the Amended Plan, the Rehabilitator stated that it “addresses most or all of the material and substantial concerns raised in response to the initial Proposed Plan.”
The core of the Plan is charging policyholders the “If Knew Premium” for the benefits under their policies. The If Knew Premium is the rate that, if charged since inception, would have produced the greater of the initial target loss ratio or the minimum loss ratio applicable to the policy form. Policyholders would be offered options to increase premiums or reduce benefits so that they are paying the If Knew Premium for the benefits provided. Many objections to the Plan asserted that the Rehabilitator does not have the authority to implement rate increases without seeking approval from state insurance regulators. Under the Plan as originally filed, no such approval was contemplated.