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Regulation and Compliance > Federal Regulation

Feds May Try To Cut Employee LTC Profit Levels

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A voluntary long term care insurance program is having a hard time mailing promotional letters to federal employees, but the insureds appear to be good risks.

Officials at the U.S. Government Accountability Office have presented those observations in a report on the performance of the Federal Long-Term Care Insurance Program.

Units of MetLife Inc., New York, and Manulife Financial Corp., Toronto, have teamed to form Long Term Care Partners L.L.C., Portsmouth, N.H., a joint venture that manages the LTC insurance coverage for 214,000 program enrollees.

The program, which began enrolling federal employees in March 2002, is now the largest private LTC insurance program in the United States, John Dicken, a GAO director, writes in the report, which was sent to a number of Republican and Democratic congressional leaders who have oversight over federal civilian and military employees and retirees.

The current program contract expires at the end of 2008, and the U.S. Office of Personnel Management has the right to replace LTC Partners with another vendor.

One difference between the federal program and ordinary voluntary LTC benefits programs is that the government itself owns the program and the assets backing the program, Dicken writes.

Because the program is so new and because the structure is so different from an ordinary private voluntary LTC program, the OPM agreed when it negotiated the program contract in 2001 to allow LTC Partners to set up an unusual compensation arrangement, Dicken writes.

Profits at most insurers selling voluntary insurance depend on the experience of the programs they insure, Dicken writes.

LTC Partners gets a performance-based based payment that amounts to up to 3% of LTC program premium revenue.

The OPM itself can consider factors such as customer service when allocating that payment, Dicken writes.

LTC Partners also gets a guaranteed, premium-based payment equal to 3.5% of the premiums collected during the year, and it gets a guaranteed, asset-based payment equal to 0.3% of the average annual assets of the federal LTC program, Dicken writes.

“Now that we have more operating experience with this program, we intend to reexamine the formula when we either renegotiate or re-bid the contract to make sure that it continues to serve the best interests of enrollees and the government,” OPM Director Linda Springer writes in a response to the GAO report.

But Dicken notes that LTC Partners faces an unusual challenge when it manages the federal LTC program: The OPM has no central database of federal employees’ home addresses and no practical way to create such a database.

“OPM did not request federal employees’ home address information from other federal agencies because they felt it would be too burdensome to comply with certain Privacy Act requirements and gather accurate information from each of the agencies in a timely fashion,” Dicken writes.

Because of the federal employee address database weakness, LTC Partners was able to send mailings to only about 40% of core federal employee prospects, and it had to try to make up for that challenge with electronic mail campaigns and other promotional efforts, Dicken writes.

Although barriers to reaching federal employees, dependents and retirees might be relatively high, the employees and others who did sign up for the program filed only about 50% of the expected number of claims during the fourth year that the program was in effect, Dicken writes.

Claims tend to be low during the early years of an LTC insurance program, but LTC Partners is not yet sure why claims are so much lower than expected, Dicken writes.

A copy of the GAO LTC program report is on the Web at Document Link


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