
As the Hochul administration presses for the creation of a “guaranty fund” to bail out failed health insurers, state officials are quietly moving to seize a small company that could become the fund’s first assignment.
The Department of Financial Services filed court papers on Feb. 22 seeking to take control of the American Independent Network Insurance Co., or AINIC, a long-term care insurance provider. The company has approximately 690 policyholders across the state, a portion of whom are drawing benefits as residents of nursing homes.
Last year, the company paid out $3.5 million in claims but collected less than $2 million in premiums and other income, according to its financial filings for 2022.
AINIC’s parent companies were recently closed down by regulators in Pennsylvania, leaving the company in “hazardous condition,” according to one of the court filings on behalf of DFS Superintendent Adrienne Harris.
With the cooperation of company officials, Harris asked a state Supreme Court judge to issue a “rehabilitation order” that would put AINIC under state control. If officials cannot find a way to bolster its finances, they would likely move to liquidation, which would leave its customers without coverage.
The court filing came three weeks after Governor Hochul proposed creating a guaranty fund for health insurance as part of her proposed budget for 2023-24. Under a guaranty fund, the state would be empowered to bail out a failing company such as AINIC by raising money through assessments on other health insurers, which could be as high as 2 percent of premiums.
Harris testified in favor of the proposal at a legislative budget hearing on Feb. 28. She did not specifically mention AINIC or the court filing six days earlier, but emphasized that the proposal would apply to the portion of long-term care insurance companies which, like AINIC, are licensed under health insurance laws.
“… [I]f a consumer purchases a long term care policy from a life insurer that becomes insolvent, she will be fully protected by the Life Guaranty Fund. However, if a consumer purchased the same policy from a health insurer, she will not be protected. New Yorkers with long term care plans purchased through these insurers would lose decades of investments or, if currently on claim, might no longer be able to afford their care,” Harris said in her written testimony.
She noted that New York is the only state that lacks a guaranty fund for health insurance.
Industry groups representing health plans are resisting the proposal, saying it would add to the state’s already heavy taxation of health insurance that ultimately falls on employers and consumers who pay premiums.
They say large employers and unions that self-insure would be exempt from the surcharges, leaving small employers and individual policyholders to shoulder most of the burden.
Critics further argue that DFS could use its other regulatory powers to stabilize troubled insurers before bailouts become necessary.
As detailed in court papers, the roots of AINIC’s current situation trace back to 2009, when its two parent companies were put under a rehabilitation order by regulators in Pennsylvania. They began liquidation proceedings in 2017, and shut down the companies completely late last.
This chain of events raises questions for DFS:
- What systems does DFS have in place to monitor the financial condition of insurance companies under its oversight?
- What warnings did it see about AINIC and what actions did it take?
- What information did it share with policyholders?
- What premium hikes has the company requested in recent history, and what rate hikes were approved by DFS?
- How much is a bail-out of AINIC likely to cost?
- What would be the consequences of a liquidation for policyholders, including those in nursing homes?
- What options other than a guaranty fund are available to protect the interests of AINIC policyholders?
- How many other companies, if any, are currently in jeopardy – and what is being done to stabilize them?
- What can be done to make long-term care insurance a safe and affordable option for more consumers?
Lawmakers should get answers to these and other questions – preferably at a public hearing – before agreeing to a plan that would add to the high cost of health insurance in New York.