Despite rate hike, many federal long-term care enrollees hold on to benefit

Nearly half of those enrolled in the federal long-term care insurance program did not change their benefit when premium rates increased in 2009, according to a new report from the Government Accountability Office.

Forty-six percent of the 146,415 enrollees who faced premium hikes made no change to the benefit, which was the default option for those participants, the report said. In 2009, the Office of Personnel Management announced a new seven-year contract for the federal long-term care insurance program that boosted premiums for some enrollees by as much as 25 percent, outraging consumers and some lawmakers. At that time, OPM officials said the contract with John Hancock -- which has insured the government's long-term care program since it was created in 2002 -- contained premium increases that followed industry trends.

GAO noted that the federal long-term care insurance program "was not unique" in increasing premiums for enrollees. "Long-term care insurance is a relatively new product, and carriers throughout the industry have struggled with setting premiums at a rate sufficient to cover future costs," the report stated. A key feature and selling point of long-term care insurance, however, is that premiums are designed to remain level over time, though that is not guaranteed. Premiums vary based on the benefits selected and the age of individual enrollees. Carriers have cited lower-than-expected returns on investments and the fact that enrollees are living longer as reasons for the premium hikes. FLTCIP is the largest privately funded long-term care insurance program in the country, with 268,204 enrollees as of June. Participants must pay the full cost of their premiums.

The watchdog interviewed officials from the country's six largest long-term insurance carriers: Genworth Financial, John Hancock, MetLife, Prudential Financial Inc., Transamerica Life Insurance Co. and Unum.

"This report shows that while we're heading in the right direction with federal long-term care insurance, there is still work to do to guarantee that consumers have adequate protections and that premiums won't skyrocket down the road," said Sen. Herb Kohl, D-Wis., chairman of the Special Committee on Aging.

GAO also found that the business interests of insurance carriers often determined their decision to participate in the program or offer insurance. For example, some carriers told GAO that gaining name recognition in the marketplace and expanding sales of their nonfederal long-term care insurance policies attracted them to FLTCIP. On the other hand, carriers expressed concern over the damage premium hikes could do to their reputation. All the officials GAO interviewed were worried about the high number of disabled federal employees eligible for FLTCIP coverage.

"Insurance carrier officials told us that the relatively large portion of disabled individuals increased the risk to FLTCIP because disabled individuals were more likely to seek coverage and submit claims sooner than nondisabled individuals," the report said.

Carriers also told GAO that their interest in offering FLTICP was stoked in part by the fact that companies are not required to guarantee coverage for all eligible individuals. They noted that if that provision changed, their interest in offering the insurance would diminish.

The management and oversight of the federal long-term care insurance program has improved since premium rates increased, GAO said. Key changes include: a new benefit plan for enrollees, an inflation protection option for participants, modifications to the program's investment strategy and tweaks to the formula used to calculate the carrier's profit payment.

"I am pleased that this report shows a renewed commitment at OPM to effectively oversee this program and to make sure federal employees have accurate information about their benefits and the strength of the program," said Sen. Daniel Akaka, D-Hawaii, chairman of the Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia.

OPM and John Hancock provided technical comments to GAO, which the watchdog incorporated into the report.