House members may have just started a quiet new war over federal long-term care insurance policy.
Boston-based John Hancock Insurance recently increased premiums for most of the federal workers in the Federal Long Term Care Insurance Program by an average of 83 percent.
Federal employees asked Congress to organize a hearing on the rate hike. Democrats took up the cause. Rep. Mark Meadows, R-N.C., the chairman of the Government Operations Subcommittee, part of the House Oversight and Government Affairs Committee, scheduled a hearing on the matter for Nov. 30.
Republicans and Democrats got along well at the hearing, with only occasional, subtle flashes of partisanship.
Rep. Gerry Connolly, D-Va., the highest-ranking Democrat on the committee, thanked Meadows warmly for holding the hearing. The Republican members who spoke seemed to be at least as disappointed by the long-term care insurance program premium increases as the Democrats who spoke.
But the committee members used the hearing as a chance to talk about the U.S. private long-term care insurance system as a whole. Some Democrats, and Richard Thissen, the president of the Alexandria, Virginia-based National Active and Retired Federal Employees Association, seemed to be eager to continue that battle in the coming year, when the 115th Congress takes office.
Here’s a look at some of the highlights from the hearing, drawn from a video of the hearing posted on the committee website:
Rep. Barbara Comstock, R-Va., was one of several representatives who said she had received many calls about the Federal Long Term Care Insurance Program rate increase. (Photo: Screen capture)
1. Lots of calls
The Federal Long Term Care Insurance Program premium hikes took effect Nov. 1.
John O’Brien, a senior advisor at the U.S. Office for Personnel Management, the benefits agency for federal civilian employees, said at the hearing that 97 percent of the Federal Long Term Care Insurance Program enrollees who made a decision about their coverage chose to keep at least some of their long-term care insurance in place.
But about half chose to accept a lower level of benefits to hold down their premium bills, and lawmakers at the hearing said they had received many calls from federal employees and retirees in their districts about the increases.
Rep. Barbara Comstock, R-Va., who serves a district that extends from the border of the District of Columbia out west to Yellow Spring, Virginia, said that, when the many federal employees in her district heard about the increases this summer, “They were understandably concerned.”
“We certainly did hear a lot from them,” Comstock said.
Rep. Don Beyer, D-Va., who represents another district adjacent to the District of Columbia, said he believes he represents more federal workers and federal retirees than any other representative. “And, believe me, we heard from them,” Beyer said of the long-term care insurance premium hike. “The phone rang off the hook.”
Rep. Gerry Connolly, D-Va., seemed to want to make a general point about the role of the government in failed insurance markets. (Photo: Screen capture)
2. Talk about ‘the next Congress’
Gerry Connolly, a Democrat who represents another District of Columbia suburb in Virginia, made a point of suggesting that the private long-term care insurance market appears to be suffering from market failure, with the need for long-term care and long-term care financing vehicles obviously rising, but access to private insurance deteriorating.
“The market has not solved this problem on its own,” Connolly own.
The government has a role to play when an insurance market is not able to create a solution, he said.
Later, Connolly was talking to Marc Cohen, who was an executive at Waltham, Massachusetts-based LifePlans Inc. and is now a clinical professor of gerontology at the University of Massachusetts at Boston. Connolly pressed Cohen to agree that the federal government has been involved in insurance markets before, including the flood insurance market.
“I’m anticipating arguments in our next Congress on this matter,” Connolly said.
Rep. Don Beyer, D-Va. said his own long-term care insurance premiums increased 49 percent. (Photo: Screen capture)
3. Personal perspectives
Some members of Congress, and many congressional aides, may have first heard of long-term care insurance when they received information about the Federal Long Term Care Insurance Program.
Rep. Tim Walberg, R-Mich., and Beyer mentioned during the hearing that they themselves have long-term care insurance.
Beyer said that he bought his long-term care insurance through the federal program, and that his own monthly premiums have increased to $483 from $325.
Rep. Stephen Lynch, D-Mass., did not talk about owning long-term care insurance, but he said he can relate to providers of private long-term care insurance because of his experience with serving as a pension fund trustee.
The funds started out expecting investment returns of about 7 percent to 8 percent per year on their assets, and now, because of low interest rates, returns have fallen to about half of what was expected, Lynch said.
Familiarity with other federal insurance programs also appeared to shape how lawmakers at the hearing look at long-term care insurance and other types of insurance.
Connolly mentioned the National Flood Insurance Program as a possible model for having the federal government play a role in long-term care insurance.
Marc Cohen, the University of Massachusetts gerontology professor, talked about the possibility of standardizing long-term care insurance plans the same way Medicare supplement insurance plans have been standardized, and possibly of developing some kind of federal catastrophic reinsurance for long-term care insurance arrangements.
No one at the hearing talked in terms of building universal long-term care insurance into Medicare.
Michael Doughty, the John Hancock general manager, says soft demand was the top reason the company suspended U.S. individual long-term care insurance sales. (Photo: Screen capture)
4. Insurer view
Michael Doughty, John Hancock’s president, said that problems with cost, complexity and consumer demand all played a role in his company’s recent decision to suspend sales of individual long-term care insurance.
But he said weak consumer demand was the most important reason.
The key question was, “Can you sell enough of it to cover the infrastructure for your sales teams, for negotiating with each state, all those kinds of things,” Doughty said.
He said he believes demand has been weak partly because of consumers’ lack of understanding of long-term care cost risk, but more because of high, rising prices.
If some change in policy got 50 million prospects interested in buying long-term care insurance, that would certainly change the way John Hancock looks at the market, Doughty said, in response to a question from Gerry Connolly.
Laurel Kastrup, an actuary, pointed out that most long-term care insurance policy designers assumed they could raise the rates. (Photo: Screen capture)
5. Past regulatory projects
Laurel Kastrup, an actuary who appeared on behalf of the Washington-based American Academy of Actuaries, made a sideways reference to one challenge facing long-term care insurance issuers, rapid regulatory changes, in a comment about one reason issuers have had so many problems with getting product prices right.
Consumer groups and regulators gradually decided that long-term care insurance policies should have premiums that rarely change.
But the policies usually state that the issuers can increase the premiums, and the teams that designed the typical policy assumed that the policy would be guaranteed-renewable, meaning that the issuer could increase the price, Kastrup said.
“If it had been priced with levels premiums that couldn’t be changed, the prices would have been a lot higher to start with,” Kastrup said.
Richard Thissen, who appeared on behalf of federal employees, suggested that Congress should consider creating a long-term care insurance premium tax exclusion. (Photo: Screen capture)
6. A man with a plan
Richard Thissen, the head of the National Active and Retired Federal Employees, presented detailed ideas for improving the performance of the Federal Long Term Care Insurance Program.
Thissen suggested one idea that insurers might not like: Creating an oversight board staffed with actuaries. Thissen said the board could track the performance of the program and warn workers of any problems that might lead to big future rate increases.
But Thissen also suggested some ideas that insurers might like. He proposed:
Requiring the Office of Personnel Management to add a life insurance-long-term care benefits hybrid product to the long-term care program.
Requiring or allowing the program to offer different types of stand-alone long-term care insurance products, such as high-deductible long-term care insurance products.
Having the federal government lower employees’ out-of-pocket costs, and possibly increasing participation enough to improve the quality of the risk pool, by providing an employer contribution toward the long-term care insurance coverage.
Providing a broad federal income tax exclusion for long-term care insurance premiums, to replace the current, tightly limited long-term care insurance premium tax breaks.
Related: LTCI Watch: Breaking Into the FSA
John O’Brien declined to talk about his agency’s ideas for improving the Federal Long-Term Care Insurance Program. (Image: Screen capture)
7. A man with no (public) plan
John O’Brien, director of health care and insurance at the U.S. Office for Personnel Management, was careful not to offer any proposals in his written or spoken testimony, even when Connolly blasted him for failing to provide proposals.
“The options and discussions that have been offered around here go in a number of different directions,’ O’Brien said. “We would like to evaluate those possibilities and come to this committee and this group with a proposal where we’ve weighed all the pros and cons, and we have not yet done that.”
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