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Federal workers cling to long-term care insurance

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The enrollees in the Federal Long Term Care Insurance Program may hate the recent round of rate increases, but most are continuing to pay their premiums.

The program has about 274,000 enrollees. Premiums for most of the enrollees increased sharply Nov. 1: The average increase originally proposed for the enrollees affected was 83 percent.

The affected enrollees were paying an average of $134 per month for coverage this summer. If all of the affected enrollees had accepted the proposed increases as is, that would have pushed the average monthly premium by $111 to $245.

About 172,000 of the affected enrollees made active decisions about their long-term care insurance benefits by the Sept. 30 decision deadline.

About 96,000, or 56 percent, chose to keep their monthly premiums the same by accepting a lower level of long-term care insurance coverage.

Another 40 percent agreed to pay higher premiums to keep their long-term care insurance coverage the same.

Just 3.3 percent chose to stop paying premiums for long-term care insurance coverage. Many of those enrollees still have some coverage from the long-term care insurance program, because they received paid-up “nonforfeiture” coverage when they decided to stop paying the premiums.

John O’Brien, a senior advisor for health policy at the U.S. Office for Personnel Management, and Michael Doughty, president of Boston-based John Hancock Insurance, gave those figures to the U.S. House Oversight and Government Reform government operations subcommittee today in written hearing testimony.

The subcommittee was starting a hearing on the Federal Long Term Care Insurance premium increases at press time.

Here’s a look at more of what O’Brien and Doughty said about the program, drawn from written versions of their testimony posted on the subcommittee website:

Biggest voluntary LTCI program

The Office of Personnel Management is the human resources office for most federal employees.Seal of the United States Office of Personnel Management.svg

OPM started the Federal Long Term Care Insurance Program in 2001, in response to the idea that federal workers needed more help with protecting themselves against long-term care risk.

Related: LTC Program Chief Says OPM Got Good Deal

The program, which has a seven-year contract renewal cycle, is open to both federal employees and many of those dependents and relatives.

Originally, John Hancock, which is now a unit of Toronto-based Manulife Financial Corp., worked with a unit of New York-based MetLife Inc. to run the benefits fund at the heart of the program. MetLife dropped out of the program when the program went through its first contract renewal cycle.

Related: Feds: LTCI enrollment rises 20%

A John Hancock affiliate was the sole bidder for the current program contract.

Doughty, the John Hancock executive, notes in his written testimony that the program provides unusual benefits, such as the lack of a war exclusion, a generous benefit for family members and other loved ones who act as informal caregivers, international benefits, and a care coordination program run by registered nurses.

Doughty says the program now has 266,000 premium-paying enrollees and is paying $14 million in claims per month for about 4,500 enrollees who are currently in claim.

Those figures imply that the program has one enrollee getting long-term care benefits for every 59 enrollees, and that the average active claimant is getting about $32,000 in benefits per year.

The program has paid a total of $750 million in claims for 11,700 enrollees, or about $64,000 per claimant, since the program came into existence, Doughty says.

The program needed to ask for big premium increases this year because more enrollees are filing claims, claims are lasting longer than expected, the amount of bond interest income coming from the program’s assets is much lower than expected, and the enrollees appear to be on track to live longer than originally expected, Doughty says.

Doughty says the program has been, and will be, financially secure, in spite of the need for the premium increase.

“There was no current liquidity or solvency issue,” Doughty says. “On the contrary, the program had ample funds to reimburse projected claims for many years to come … . The funding shortfall reflected the results of projected liabilities exceeding projected assets, based on new assumptions about future claims usage and investment returns. The 2016 premium increase was, in effect, a course correction that addresses this shortfall.”

Biggest LTCI buyer

John O’Brien, who is now an advisor at the Office for Personnel Management, previously was OPM’s health care and insurance director. He was, in effect, the manager of one of the biggest employee benefits program in the world.

O’Brien says in his written testimony that he believes the Federal Long Term Care Insurance Program is the biggest employer-sponsored LTCI program in the United States.

He notes that, after the first program renewal cycle, in 2009, OPM made sure to include prominent warnings that program premiums might increase.

Recent program enrollees, enrollees who bought their coverage when they were 80 or older, enrollees already eligible for benefits, and enrollees awaiting decisions on paid claims were exempt from the 2016 wave of premium increases, O’Brien says.

O’Brien says Long Term Care Partners, the John Hancock affiliate in charge of administering the program, provided good customer service during the period when the enrollees were considering how to respond to the premium increases.

Long Term Care Partners handled about 86,000 enrollee calls about the increases, and the average speed to answer was just 12 seconds, O’Brien says.

O’Brien says in a section about the future of the program that the number of long-term care insurance issuers is now much smaller than it was when the first program contract was awarded.

“As the industry continues to evolve, OPM will continue to assess plan benefit and design options to ensure [Federal Long Term Care Insurance Program] enrollees are receiving an array of options to meet their long-term care needs,” O’Brien says.


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