What happens with bankrupt health insurance companies?
The slow economy and highly publicized accounts of major businesses closing their doors has many people worried. What if their health insurance company goes out of business? What happens to their health insurance policy? All states have provisions in place to protect consumers if this does happen.
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Health insurance companies are regulated and monitored by your state’s Department of Insurance. The North Carolina Insurance Guaranty Association explains that because of this many federal statutes do not apply to insurance companies. This includes the right to file for bankruptcy.
If a health insurance company is failing they will be deemed insolvent by the states court and ordered to liquidate. The State Commissioner of Insurance will oversee the sale of all company assets. They will also notify you that your insurance provider has become insolvent and what you need to do.
The handling of assets will be handled by a non-profit guaranty association set up by your state. Every state, Puerto Rico, and the District of Columbia has a guaranty association in place. An insurance company must be a member of a state’s guaranty association in order to be licensed to sell policies there.
Will a state’s guaranty association pay my claims if a company is ordered to liquidate?
States set the regulations for how these associations will be run and the benefits provided to consumer but do not run them directly. Typically they will provide health insurance benefits up to $100,000 according to the National Organization of Life & Health Insurance Guaranty Associations.
Assets seized from the liquidation will be used to pay any covered health insurance claims and outstanding bills the health insurance company was legally obligated for. If the money received from the liquidation does not cover these costs the excess is distributed among the other members of that state.
Guaranty associations will pay any unpaid claims from before a company was order to liquidate up to the maximum benefit per policy. Depending on your state’s regulations they may pay claims dated up to 30 days after the order to liquidate is issued.
Are all health insurance policies covered by Guaranty Associations?
Guaranty associations were set up to protect consumers but they do not cover all types of health insurance policies. Health maintenance organizations (HMOs) are exempt under the Life and Health Insurance Guaranty Association Model Act. They are viewed as not having a consumer risk because these policies negotiate and pay providers directly. Some states have started separate funding associations to cover these policies. Illinois and Wisconsin are two states that will cover HMO policies.
Medicare Advantage and Part D policies may also not be covered. Many states have revised their regulations to no longer include these policies. Self insured employer plans and policies written under your membership to an organization or fraternal unit may also not be protected by your state’s Guaranty Association.
How do I find out if my health insurance policy is protected?
State laws prohibit health insurance companies from using their guaranty association membership as part of a sales tactic. If they are licensed to sell policies in that state they will have to be a member though. You can contact your state’s Department of Insurance for a list of all companies licensed by them.
Every state’s guaranty association has a detailed publication of the types of policies covered as well as their regulations and exemptions. The National Organization of Life & Health Insurance Guaranty Associations provides support for state associations and also oversees cases involving the liquidation of a company with policies in three or more states. They also provide consumers with information concerning their rights.
Do I still have to pay my health insurance premiums if the company had become insolvent?
Many people think that if they receive a notice that their insurance company has become insolvent and ordered to liquidate they no longer have to pay. This is false. If you stop paying your health insurance premiums your policy will be canceled and you will lose benefits under your states guaranty association.
Guaranty associations use these premiums to pay for claims as part of the liquidation process. They will pay all new claims made during this time period as long as they were covered by your policy. You will be notified of how long your health insurance coverage will continue and how to file claims. During this time period you will need to find a new health insurance policy. If you have premiums paid that extend past your coverage date the money will be refunded to you.
Your states guaranty association does not sell or write policies. Some states may work with other members that offer similar policies to help consumers avoid a lapse in coverage. Any products offered would through the health insurance company writing the policy and you have the right to refuse.
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