Dear Mr. Berko: In the late 1990s, my wife and I bought a Penn Treaty long-term care insurance policy to pay for future costs of nursing home care, which so far we haven’t needed. Our parents needed home health and nursing home care, and twice we borrowed money to pay for my wife’s father’s care. This policy gave us a feeling of security, knowing we would have protection when we needed it so our children wouldn’t have to be burdened and come to our financial aid.
About a year after we bought the policy, Penn Treaty raised our premiums, and over the years, the company raised our quarterly premiums by four times the initial amount. Those increases hurt our retirement budget.
Now, even though the company is going out of business, we still have to make quarterly payments. We don’t know whether we have coverage and are concerned that we could be throwing good money in a hole. If a sickness were to happen, we might be in limbo. It’s as if the bottom has dropped out of our lives.
An insurance agent we called told us that Penn Treaty will dissolve and nothing will be left. He advises us to stop making payments and buy the long-term care policy his company sells.
Why did Penn Treaty fail, and what are our alternatives? We’re scared. — GR, Port Charlotte, Fla.
Dear GR: Years ago, when readers asked me about Penn Treaty Network America Insurance Co., I told them that management was a bunch of crooks.
The long-term care market has more of its share of crooks than aluminum siding salesmen, penny stock brokers and politicians. Penn Treaty, a dinky and horribly managed long-term care company in Allentown, Pennsylvania, has 79,000 LTC policyholders, who got skunked. I’ve tried wading through the laborious court documents, which read as if they were written in Shakespearean English, and it’s bloody disgusting. But here’s how it buries. Penn Treaty has $4 billion in claims that it’s unable to meet. The Pennsylvania insurance consortium has levied a $2.6 billion assessment on other insurers, reflecting the state cap. That means there’s a shortfall of $1.4 billion, or 35 percent, that’s not covered. Therefore, your benefits will be reduced by 35 percent. So if your LTC policy guaranteed payments of $180 a day, you’ll receive only $117 a day — maybe!
No and a thousand times no. Do not drop your current LTC policy in favor of a new policy this miscreant wishes to sell you. His ugly LTC company is rated BB and would pay a huge first-year commission that would be 50 percent of your premium. You’re each 18 years older today, so if you were to cancel your current policy and the examining physician discovered conditions you didn’t have in 1998, you might not be accepted by another carrier and you’d be out of coverage. But if your health is fine, you should be able to purchase an LTC policy that will pay the amount not covered by the assessment on the insurance industry in Pennsylvania.
The executives at Penn Treaty ran the company like a Ponzi scheme. Like many of our nation’s bankers, they should be jailed. They offered the lowest rates and highest coverage in the industry. Their rates were so low that tens of thousands of insureds were told to cancel their policies with other carriers to buy the cheaper Penn Treaty policies with better coverage. Those in management figured that they’d get customers trapped with low rates and, in a few years when cost exceeded their ability to pay benefits, they would petition the state for a rate increase. And they did numerous times — and those premium hikes were unsettling, frightening and hurtful. After numerous increases, Penn Treaty finally declared insolvency.
There are excellent LTC companies, such as New York Life, Mutual of Omaha, MassMutual, GoldenCare and Northwestern Mutual. Each of those is a blue chip insurer, but in my opinion, Northwestern Mutual is the bluest of all. It’s never raised its LTC premiums. Its underwriting is strict. Its representatives are true professionals. And A.M. Best gives it the highest rating in the industry. Unlike Penn Treaty, Northwestern has people in management who care about their clients.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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