Long-term care has been a troubled insurance product for well over a decade, causing financial pain to many insurers and their customers. Now, one executive’s plan to make money where others have failed has backfired.
Serious pricing mistakes loomed from the start. For policyholders, this has meant double- and even triple-digit premium-rate increases over the years. Insurers have collectively taken tens of billions of dollars of charges against earnings as they bolstered their reserves.
The difficult situation in long-term care provided an opening five years ago for Philip Falcone, a former hedge-fund manager looking for redemption. Mr. Falcone had admitted wrongdoing in 2013 for borrowing $113 million from his hedge fund to pay his taxes, even as investors weren’t allowed to withdraw their money. He agreed to an $18 million civil settlement with the Securities and Exchange Commission that included a five-year ban from the securities industry.
In 2015, Mr. Falcone started his long-term-care plan.
Over the next couple of years, the diversified conglomerate he was running obtained regulatory approvals to acquire two small insurance carriers that were no longer selling the insurance but had policies being wound down. Tied to the acquisitions, insurance departments in at least three states—Florida, Ohio and South Carolina—restricted Mr. Falcone from involvement in day-to-day operations.