In its first three years, the Federal Long Term Care Insurance Program has had less participation than originally projected, but claims submitted under the program also have been lower than forecast, a new report says.
Only 5% of eligible federal employees have taken the insurance, or about 219,000 people, which is roughly the same rate in the private sector, according to the report from the Government Accountability Office released March 31.
Long Term Care Partners LLC, the consortium that runs the program for the Office of Personnel Management, originally projected federal participation 36% higher than actually achieved.
Partners had estimated enrollment would reach more than 343,000 for new policies sold from March 25, 2002, through March 31, 2005.
Partners is a joint venture formed by John Hancock Life Insurance Company, Boston, a unit of Manulife, and Metropolitan Life Insurance Company, New York.
On the other hand, the federal program paid out only 39% of the claims that Partners originally projected. But GAO noted most LTC claims are not submitted for many years after the initial signup.
Paul Forte, CEO of Partners, says he considers enrollment acceptable and predicts it will climb.
“We write about 1,000 policies a month, and I don’t think that’s poor or unsatisfactory. If you net out the young people in the military for whom long term care insurance is not appropriate and also postal workers, who are not accustomed to voluntary benefits because they’re unionized, 5% is in the ballpark,” he says.
[Looking solely at active federal civilian employees, the percentage of enrollees was 10% of those eligible, the study found.]
Average premiums received were actually higher than expected, Forte adds.
“We got 68% of people electing the automatic compound increase [inflation protection] option,” he says. “That’s never been done in group enrollment before. It suggests people understood what they were doing and were making a serious commitment.”
The GAO report suggested the Office of Personnel Management might want to update claims experience and premium-setting information when its contract with Partners expires. The contract, signed in December 2001, runs until December 2008.
In the first year of the program, the amount paid for claims per enrollee was 40% of what Partners expected, while the number of claims per enrollee was 4% of projections. By the third year, the amount paid for claims per enrollee had remained level, while the number of claims per enrollee had increased to 48% of what was expected.
The report raised the possibility OPM might want to negotiate lower premiums later. However, it also noted that claims experience is just one aspect of premiums charged. In fact, insurers often project claims on the high side rather than risk underestimating them and then having to raise premiums later, it noted.
Annual premiums for the federal program averaged 46% lower for single people and 19% lower for families than in comparable private-sector plans, the GAO found.
The federal program offers enrollees a choice of four prepackaged benefit plans or of customizing benefits, all 100% employee-paid. Some applicants who are denied comprehensive coverage have another option available that offers nursing home-only coverage, called the alternative insurance plan.
Each prepackaged plan offers different options for the daily benefit amount, coverage period, elimination period and maximum lifetime benefit. Enrollees also must choose inflation protection.
Nearly two-thirds of those enrolled in the program through March 31, 2005, chose one of the four prepackaged benefits. Another 35% customized their benefits, and less than 1% enrolled in the alternative plan.
The federal application approval rate was 74%, about the same as for individual products but lower than the average approval rate of 84% for group products, many of which offer guaranteed issue during open enrollment.
The average age at enrollment in the federal program was 56, compared to an average age of 60 for individual LTC products and 52 for group products, the GAO found.
The federal program projects spending a higher share of collected premiums on claims than do individual and group products, while spending a lower share on administrative costs. The expected lifetime loss ratio was 75%, compared to 59% for individual and 68% for group products, the GAO found. This ratio is the part of the premium expected to be used to pay claims.
The federal program was inaugurated by the Long-Term Care Security Act of 2000.
Forte notes the program was rolled out right after 9/11, when most Americans were preoccupied with terrorism and an uncertain stock market. “A new voluntary program was not first and foremost in people’s minds,” he says.
He also points out that over 40% of federal workers will be eligible to retire in the next five to seven years and predicts many who didn’t sign up for LTC benefits will have second thoughts as time passes.
A spokesman for America’s Health Insurance Plans says legislation now before Congress could give a further kick to participation in the federal LTC plan as well as in the private sector.
“Five percent participation is good but could be boosted if the pension bill before Congress is enacted,” says Mohit Ghose, the spokesman.
The legislation would permit the purchase on a pretax basis of LTC insurance through employer-based cafeteria plans or flexible spending accounts.