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Senators Hit Federal LTC Rate Hikes

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Senators are looking into changes that will increase Federal Long Term Care Insurance Program premiums as much as 25% for some enrollees.

The Senate Special Committee on Aging held a joint hearing on the program Wednesday together with the government management oversight subcommittee of the Homeland Security and Governmental Affairs Committee.

The program provides voluntary, enrollee-paid LTC coverage for about 224,000 government employees and retirees. The program has been managed by Long Term Care Partners L.L.C., Portsmouth, N.H., since it was established in 2001.

John Hancock Financial Inc., Boston, a unit of Manulife Financial Corp., Toronto, once owned Long Term Care Partners together with MetLife Inc., New York. Hancock now runs Long Term Care Partners on its own.

In May, the federal Office of Personnel Management announced that premiums for current LTC program enrollees whose policies include automatic compound inflation protection would increase between 5% and 25% Jan. 1, 2010.

“Many of the Federal Long Term Care Insurance Program enrollees whose premiums have increased by up to 25% are angry because they feel they were misled when they joined the program.” Sen. Daniel Akaka, D-Hawaii, chairman of the government management oversight subcommittee, said at the hearing. “If state and federal governments are going to promote these products, it’s our duty to be sure that consumer interests are protected.”

Representatives from the OPM and Hancock said premiums are going up because the actuarial assumptions underlying the original rates turned out to be wrong.

Enrollees have been given a choice between accepting higher premiums on their existing policies or reducing benefits and keeping premiums level, the OPM and Hancock representatives said.

Sen. Roland W. Burris, D-Ill., called the rate hikes “unconscionable” and suggested that Hancock absorb some of the rate increase out of its profits.

Burris and others at the hearing accused Hancock and the OPM of failing to warn federal employees clearly when the LTC program was introduced in 2001 that premiums could rise.

Chester Joy, a retired federal worker, said he and his wife bought a policy with an automatic compound inflation feature that increased benefits by 5% each year.

When Joy and his wife bought the policy, in 2001, Long Term Care Partners literature indicated that premiums would be locked in at a flat rate, Joy said.

“Every other policyholder we’ve talked to in the last few months believed the same,” he said.

A federal union official called Hancock’s early miscalculation of premium levels “disturbing.”

“Even more disturbing was the quality of advertising–or lack thereof–of the [automatic compound inflation] option,” said the official, Colleen Kelley, national president of the National Treasury Employees Union, Washington.

Kelley showed the committee sales literature saying the federal LTC program inflation protection feature would increase benefits every year “with NO corresponding increase in your premium.”

In her testimony, Marianne Harrison, president of LTC insurance for Hancock, said, “I really regret that some of the documentation was confusing” to federal employees.

“The original pricing … in 2001 was done by John Hancock and MetLife with the services of a nationally recognized actuarial consulting firm,” she said. “The pricing assumptions were validated by an independent actuarial firm and approved by OPM.”

It became obvious over the first 7 years that the program was in place that some of the assumptions used in setting premiums were “inconsistent with actual experience,” Harrison said. “In particular, enrollee persistency had been significantly higher than expected.”

In addition, investment income was worse than expected, largely due to an unexpected decline in interest rates, she said.

In 2007, the Federal LTC Insurance Program suffered from a funding deficit of about $1 billion, Harrison testified.


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