The federal Office of Personnel Management (OPM) recently announced that over half of U.S. government employees participating in the federal long-term care insurance program will face up to a 25 percent increase in their monthly premium payments in 2010. That’s left some senators concerned about the way the program was promoted and managed, and asking whether the same problems affect policies offered in the private sector.
A joint hearing of the U.S. Senate’s Special Committee on Aging and the Homeland Security and Governmental Affairs Committee was held on Oct. 14, 2009. “It’s important that we begin this hearing with an understanding of the crucial role long-term care insurance can play for so many Americans, both now and as our country ages at an unprecedented rate,” said Sen. Herb Kohl, D-Wis., chairman of the Special Committee on Aging. “The problems we are seeing with the federal long-term care insurance program are occurring with long-term care insurance products nationwide. If state and federal governments are going to promote these products, it’s our duty to be sure that consumer interests are protected.”
“The problems we are seeing...are occurring with
long-term care insurance products nationwide."
-- Sen. Herb Kohl
“Many of the federal long-term care insurance program enrollees whose premiums have increased by up to 25 percent are angry because they feel they were misled when they joined the program,” added Sen. Daniel Akaka, D-Hawaii, chairman of the Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia. “They understood that if they chose the automatic compound inflation option, their premiums would never increase. In these difficult economic times, this unexpected increase is unacceptable.”
Policyholders testified that the sharp increase in premiums left them facing unappealing options: to pay the increased premiums; to accept reduced benefits to keep their premiums from skyrocketing; or to let their policy lapse, leaving them with no coverage if they ever need care and forcing them to forfeit payments they have made.
When the federal long-term care insurance program began in 2003, OPM launched a major campaign to educate federal employees and encourage them to participate. In 2009, about 5 percent of federal employees and retirees participated in the program.
Margaret Baptiste, president of the National Association of Retired Federal Employees (NARFE), and Colleen Kelley, president of the National Treasury Employees Union (NTEU), questioned OPM’s use of aggressive marketing materials to promote the program and questioned the agency’s plan to inform current policyholders and help them weather the rate increase. They testified that many policyholders are angry as they think back to the aggressive push made by OPM for the program. OPM distributed slick marketing materials that led them to believe that their premiums would not rise if they bought policies with inflation protection, they said.
No Rate Guarantee
Marianne Harrison, president of Long-Term Care at John Hancock Financial Services, the underwriter for OPM’s policies, testified on the reasons for the premium increase. Fewer people joined the plan since its launch than expected, she said, and the money John Hancock invested didn't bring in the return on investment that had been predicted. “To cover future claims, it was necessary to increase premiums, which on average is an increase of $29 per month," Harrison explained. "We developed an option that allows individuals to avoid an increase altogether by lowering their compound benefit from 5 percent to 4 percent. We believe this allows enrollees to maintain the core values of their coverage."
Daniel Green, OPM’s deputy associate director for employee and family support policy, concurred in his testimony. “The actual and projected program experience differs from the assumptions used when the original premiums were established seven years ago. Projections are sensitive to certain assumptions about future program experience—mostly enrollee persistency (the number of people who enroll and continue to remain insured) and investment return—and the original estimates now appear to have been inadequate.” He added, “While we conducted our own actuarial analysis and reviewed the financial projections by John Hancock, we also obtained an independent actuarial consultant to review the proposed premium increases. The consultant confirmed the premium increases would be necessary. So that sufficient funds will be available to pay benefits to enrollees in the future, we believe it would be irresponsible not to increase premiums at this time.”
Better Communication, Proposed Legislation
Harrison noted that there could be additional rate increases should current, revised assumptions prove wrong, while Green added that OPM is spelling out that notion clearly across its literature on the plan. "All of these materials are outlined on the web site at www.ltcfeds.com and available on request by long-term care partners," he told the committee. "All the new materials disclose that the insurance company reserves the right to increase premiums” and that the current premium costs are not guaranteed.
Senators called on OPM to ensure that policyholders have adequate time to consider their options, that counseling is available to help them make a decision, and that it is understood that this is likely not the last rate increase that they will face.
In June 2009, Kohl and Sen. Ron Wyden, D-Ore., introduced the Confidence in Long-Term Care Insurance Act of 2009 (S. 1177), which seeks to strengthen consumer protections with respect to premium rate stability, market disclosures and training and certification of agents across the long-term care insurance market. The legislation is intended to make it easier for consumers to compare policies from different insurance carriers accurately, particularly with regard to what benefits are covered and whether the plan offers inflation protection. The bill would require reciprocity across state partnership plans.
Stephen Miller is an online editor/manager for SHRM.
Planning for the Future: Long-Term Care as an Employee Benefit, SHRM Online Benefits Discipline, October 2008
Long-Term Planning, HR Magazine, May 2007
Voluntary Employee Benefits Series: Long-Term Care Insurance, SHRM Research, December 2005
Long-Term Care: Why HR Should Care, SHRM Online Benefits Discipline, May 2004
SHRM Online Benefits Discipline