The Next Ponzi: $4.6BN Long-Term-Care Insurer To Liquidate In Pa; Biggest Healthcare Failure Ever

Tyler Durden's picture

We spend a lot of time talking about the various pension ponzi schemes that will inevitably wreak havoc on the global financial system at some point in the not so distant future.  That said, you should also be keeping an eye on so-called long-term-care (LTC) health insurance providers who, as Penn Treaty Network of America Insurance teaches us this morning, have been perpetuating a ponzi scheme of their own.

After eight full years of legal battles between state regulators, investors, and policyholders, Pennsylvania Court Judge Hannah Leavitt signed off on a plan Wednesday to liquidate Penn Treaty Network America Insurance and its affiliate, American Network Insurance, the largest such health insurance liquidation in history.  The decision leaves solvent insurers, their owners, and customers to pick up the cost for more than 70% of the up to $4.6 billion in projected long-term-care claims expected for 76,000 aging Penn Treaty customers nationwide.

Pennsylvania Insurance Commissioners Teresa Miller said that after a grueling eight-year legal battle the companies' financial difficulties were deemed "too great to be remedied."  Per the PA Insurance Department:

Insurance Commissioner Teresa Miller today announced the Commonwealth Court approval of petitions to liquidate Penn Treaty Network America Insurance Company and American Network Insurance Company, with policyholder claims to be paid through the state guaranty association system, subject to statutory limits and conditions.


"After a long and difficult eight-year legal process, the Court's decision to approve the liquidation recognizes the companies' financial difficulties are too great to be remedied, and that consumers are best protected through the state guaranty association system," Commissioner Miller said.

Penn Treaty


Just like their pension ponzi brethren, long-term-care health insurance providers take in premiums today and make a series of actuarial assumptions that justify a promise that they'll be able to satisfy a steady stream of payments at some point in the distant future.  Unfortunately, like with pensions, the math all works out beautifully when the insurance companies model 7.5% annual returns on assets, but, in the real world where global bond yields are hovering just above 0%, the math is slightly less rosy.

Over the past several years, long term care insurance has posed significant challenges to insurers on a national level. The pricing of these policies for many insurance companies has proved to be insufficient as a result of claims greatly exceeding expectations and low investment returns.  Claims have exceeded expectations due to incorrect assumptions concerning the number of policyholders who would drop their coverage and the number of policyholders who would utilize their policy benefits, as well as the cost of providing those benefits. The pricing deficiencies and resulting financial losses have resulted in many long term care insurers seeking large premium rate increases and some leaving the market.


In the case of Penn Treaty and American Network, the Pennsylvania Insurance Department determined that the magnitude of additional premium rate increases needed to remedy the companies' financial difficulties (exceeding 300% on average) would severely harm policyholders and would not be permitted by state regulators, leaving no alternative other than to place the companies into liquidation.

And while payments from other insurance companies will cover these abandoned Penn Treaty policyholders, only so many insurers can fail before taxpayers will be called upon to bail them out.

"Policyholder claims will continue to be covered by the state guaranty association system pursuant to law, and policy claims will be paid subject to the applicable state guaranty association coverage limit and conditions. Policyholders should continue to file claims as they have been in the past, and must continue to pay their premiums in order to be eligible for guaranty association coverage," Commissioner Miller said.  "State guaranty associations were created to protect state residents who are policyholders of an insolvent company that has gone out of business.  In each state, other insurance companies licensed in that state pay into a guaranty fund, and that money is used to cover claims when a company becomes insolvent and is liquidated."

But don't worry, there's only about $2 trillion worth of LTC claims that will need to be covered at some point in the future...should be fine.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Raffie's picture

Thought I heard something go pop today.

Looney's picture


Who needs insurers and healthcare when you have Snapchat?  ;-)


ParkAveFlasher's picture

I wonder if Obama's memoirs will include this.

Paul Kersey's picture

Speaking of ponzi schemes:

“To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital — creating millions of new jobs.”

"Financed through “both public and private capital” sounds a lot like a public-private partnership. Here’s how those hybrid creatures have worked out so far for the American people.

Fannie Mae and Freddie Mac were, effectively, public-private partnerships. (The government preferred to call them “Government Sponsored Enterprises” or GSEs.) Each company traded on the New York Stock Exchange and each company had private shareholders. Because Fannie and Freddie had a line of credit from the U.S. Treasury and the market’s perception that the U.S. government would never allow them to default, their bonds carried a triple-A rating. Wall Street played that public-private partnership for all it was worth. The big Wall Street banks sold Fannie and Freddie hundreds of billions of dollars of junk residential mortgages, which they knew from internal reviews were likely to default, while representing to Fannie and Freddie that these were good mortgages. Then Wall Street, with inside knowledge of the house of cards it had built, sold the debt issued by Fannie and Freddie to public pensions and university endowments as triple-A investments.

On September 9, 2008, one week before the collapse of Lehman Brothers, the U.S. government took over Fannie and Freddie as it became clear to the markets that the assets backing their bonds were a pile of toxic sludge."

NotApplicable's picture

Maybe they'll use some Haliburton shell companies and then get the money from the ExIm Bank?


scraping_by's picture

Nah. set up an Enron-like exchange and let the magic of the market make us all wonderful.

MalteseFalcon's picture

"Just like their pension ponzi brethren, long-term-care health insurance providers take in premiums today and make a series of actuarial assumptions that justify a promise that they'll be able to satisfy a steady stream of payments at some point in the distant future.  Unfortunately, like with pensions, the math all works out beautifully when the insurance companies model 7.5% annual returns on assets, but, in the real world where global bond yields are hovering just above 0%, the math is slightly less rosy."

Don't stop there.

How about annuities or variable life insurance with guaranteed investment returns?

Or stock insurers that have added tons of debt while buying back their stock?

Insurance companies are not like consumer product companies.

Insurance companies have a fiduciary responsibility.


scrappy's picture

This is how you can finance it. Learn from Real Financial History.

After the Napoleonic War, the Island of Guernsey needed to build infrastructure.

They had the men, the materials, but no "money."

The Guernsey Experiment.(Video)

I have a funny feeling we might just have to do this here one day...


WillyGroper's picture

"financed through both public and private capital"

that is the A21 communist manifesto.

they'll own it all.

RozKo's picture

Yea, how many Billions is it worth for people to post smiley pictures and video to each other?

NotApplicable's picture

It seems you've forgotten about the value added with snapchat filters!

Raffie's picture

Could this be a the start of the dominos falling?

Giant Meteor's picture

In the immortal words of Joe "the pro" Biden, this is a really big deal folks!"

Shit is unraveling faster than Chinese sweatshop t-shirts ...

lolmao500's picture

2 trillion? Some estimates put it in the 3.5 trillion range.

scv's picture

deputize the people

its long overdue. would be hard to choose bama|bush

Chief Wonder Bread's picture

Support the deputizing power and its empowerment of the people.

sodbuster's picture

Another casualty of the criminal fed reserve enterprise known as ZIRP.

pods's picture

Just another casualty of ZIRP.  There are more plans (LTC, pensions, etc) based upon 5-8% returns in bonds ready to die too.


Offthebeach's picture

Fukn financiers thought when they got into bed with Fedgov that they would be the pitcher, now they are bighting the pillow until their crowns crack.(not to mention the insulating lack of a courtesy reach around)

Hohum's picture

No worries. Medicaid will cover those needing LTC (and TLC presumably).

scraping_by's picture

Given the age group, probably Medicare. Which isn't all bad; the feds are known for driving a hard bargain when they're allowed. That's why doctors hate it, its price point isn't maximum return. Now if LTC industry bribes enough Congresscritters to get Big Pharma's no-negotiation rule, we taxpayers are hosed.

Hohum's picture

FYI.  It's actually Medicaid.  Medicare provides very little nursing home/assisted living coverage--no more than 100 days.

Iconoclast421's picture

Chump change. Janet will print that up in an instant.

Bastiat's picture

Only if there are some crony banks that stand to lose money.

ersatz007's picture

as long as we don't have a doomsday gap it's all good...

GRDguy's picture

While the Baby Boomer were paying in, it was easy money.

Now that the reason they were paying in comes due,

Wall Street has already stolen the money, with not much left.

JackMeOff's picture

All Democratic societies implode from within...

GRDguy's picture

"Rot" is a better description.

Delaware Dick's picture

"No one had any idea health insurance could be so complicated."


To Hell In A Handbasket's picture

Only in the USSA, where the locals are happy and begged to get fleeced by health insurance. "They call it choice" Brainwashed fucks.

Vardaman's picture

Yes.  This is why letting each state "regulate the insurance industry in their state" (read: turn into a piggy bank for the state's corrupt politicians) is a practice that needs to be killed off once and for all.  

CRM114's picture


So it can be a 'piggy bank' for Federal politicians?

gregga777's picture

Another fabulous success story courtesy of the Goldman Sachs Feral Reserve Systems (GSFRS) policy of making the rich richer, eliminating the middle class and making the poor poorer.  The GSFRS enriches its owners by taking from those least able to afford it and giving to those least deserving.  Everyone should give a big round of applause to Alan Greenspan, Benjamin Shalom Bernanke, Janet Yellen, the Rothschilds and others of their ilk.

Scooby Doo's picture

Unfortunately, this will affect my family.  My parents have Penn Treaty LTC. Hopefully, there is enough in the contingency plan to pay claims.

Doctor Faustus's picture

They should be fine. The Insurance Guaranty Association in Pennsylvania is, at this moment in time, solvent. The concern will increase if more LTC companies end up like Penn Treaty. 

gunsnmoney's picture

Scooby, they should be fine. They have you, Ben Dover.

Doom Porn Star's picture

It is not possible to defy the laws of thermodynamics.

An insurance company is purposefully designed to extract wealth from dupes.    These companies never make more money for their customer/policy holders than is extracted by investors, creditors, staff and management...

Negative sum game.   -Unless you are pocketing the premiums for years without a care for it all being clawed back when the scheme inevitably collapses.

aqualech's picture

They were expecting some sort of historically normal, market-dictated interest rates.   Thanks, FED.

John_Coltrane's picture

There's lots of details you are told you must understand about insurance. But there is only one thing you must keep in mind before paying your premium:


Best long term health plan. Have relatives and family who love you and will care for you because that's what they did for you when you were a helpless infant. A society which warehouses its elders to be cared for by strangers gets exactly what it deserves.

But some elders did treat their children like shit and will reap what they sowed. But in either case:

Exercise everyday and eat a healthy diet with lots of fruits and vegetables so you don't lose your independence.

But don't forget that great truth, "life is short, eat dessert first".

metanoic's picture

I think the real question is who the hell can run a long-term succesfull insurance company in a country full of people who do everything they can to destroy their health 24/7 ? Look at disease rates of the new generation, all insurers are doomed.

scrappy's picture

Ding Ding Ding.

Don't forget all of the "help" people get healthwise nowadays.

Crap Pharma, Crap GMO Food, Crap Education, snapchat will save them.

Dr. Associates 52% Subway Chicken, Because they Care for their customers...

MalteseFalcon's picture

"I think the real question is who the hell can run a long-term successful insurance company in a country full of people who do everything they can to destroy their health 24/7 ? Look at disease rates of the new generation, all insurers are doomed."

The actuaries will tell you that the disease decrement is built into the assumptions underlying the pricing model, but really actuaries have always relied on mortality and morbidity improving over time.

A reversal in these long term trends will upend their models.

metanoic's picture

"A reversal in these long term trends will upend their models."

Exactly. This cannot end well. I highly recommend gaining some skills in the natural medicine realm, that is if the FDA/Big Pharm don't outlaw the whole lot of it first.

bsdetector's picture

If bad debt was allowed to remain bad when first exposed we would not be dealing with this kind of situation today. The holders of all the bad debt lobbied for lower rates and the creditors were allowed to refinance... pawning off the bad debt to another party... primarilly taxpayers.

barysenter's picture

If the pimps just held on a little longer the soviet klintonista would have Fannie Mae'd this onto the backs of the last free men in the NAU.

sinbad2's picture

There will be a lot of bankruptcies this year, and even more next year.