Officials Say There Are No Easy Fixes To Skyrocketing Long-Term Care Insurance Costs

A highly anticipated congressional hearing Wednesday on the huge premium hikes for federal long-term care insurance enrollees offered these takeaways: the increases are here to stay, officials responsible for making the faulty cost estimates admit they screwed up, and there are few ideas for fixing what has become an industry-wide problem with long-term care insurance.

Witnesses and lawmakers largely agreed on what caused the 2016 average premium rate increase of 83 percent – or $111 per month – for those in the Federal Long-Term Care Insurance Program. News of the 2016 premium spike added insult to injury: In 2009, FLTCIP enrollees saw their premiums jump by as much as 25 percent.

Long-term care insurance costs, in FLTCIP as well as in the overall market, have increased significantly over the past decade because more claims are being paid out (people are living longer and require long-term care), interest rates have stayed lower than expected, and the pool of enrollees is relatively small. Many insurance carriers have stopped covering LTC because it’s too expensive; only about a dozen or so companies are still in the LTC insurance game. And long-term care insurance is a young product, one that has evolved in the past decade from nursing homes to include assisted living and home care, making price setting and future cost projection challenging, several witnesses said.

“Looking back, we clearly got it wrong. There’s no question about that,” said Michael Doughty, president and general manager of John Hancock Insurance, the FLTCIP contractor since the program’s creation in 2002, referring to the company’s actuarial projections on the cost of LTC coverage and premium rate increases for beneficiaries. Doughty said the company’s actuaries used the best information they had at the time to estimate future costs for a new program that didn’t have past history to draw from. “We weren’t alone in doing that. We vetted those with outside actuarial firms, OPM used their experts to look at them, and I know used outside actuarial firms.”

But that’s cold comfort to the roughly 264,000 FLTCIP enrollees hit by the premium hike, lawmakers and others pointed out. “The phone has been ringing off the hook” from concerned feds over the premium increases, said Rep. Don Beyer, D-Va., who asked why OPM and John Hancock didn’t let enrollees know sooner to avoid “sticker shock.” John O’Brien, senior health policy adviser at the Office of Personnel Management, said after reviewing John Hancock’s 2014 analysis of the FLTCIP which showed that it couldn’t be sustained long-term without the premium increases, the agency didn’t choose a phased approach for fear that if enrollees paid say 30 percent one year, they wouldn’t be able to absorb a 40 percent increase the next year, and end up losing the benefit altogether by dropping out.

OPM originally told enrollees back in 2002 that premiums would remain constant unless benefits increased, but since 2009, O’Brien said the agency has modified its information materials on LTC (that sentence is no longer in there), and has tried to educate the federal workforce about the long-term care insurance program, including that premiums can increase. “We think we’ve made extensive changes to the materials to make that clear,” O’Brien said.

“I confess that if you talk to the people that you serve, they don’t feel that way,” Beyer responded.

According to O’Brien, 3 percent of FLTCIP policyholders chose to drop coverage over the summer (federal employees had from July to Sept. 30 to make changes to their coverage before the changes took effect on Nov. 1). Of the 172,000 enrollees who made a decision regarding their LTC coverage, roughly half opted to reduce their benefit, O’Brien said.

Even with the jump in premiums, long-term care insurance still could be a financially sound option for people, considering out-of-pocket alternatives. “When you look at people who are on claim, it is true that right now even 22 years of premium payments would be made up in five, six months of actual long term-care expenses,” said Marc Cohen, clinical professor of gerontology at the University of Massachusetts (Boston) and director of the Center for Long-Term Services and Supports. “And so, I have to say that if even in the presence of rate increases, it’s closer to eight months. If you turn out to be one of the people who become disabled for a significant amount of time, meaning two to three years, you’re getting a lot of benefit out of your policy.”

National Active and Retired Federal Employees Association President Richard Thissen said NARFE “is extremely disappointed that we once again find ourselves in the position of encouraging our members to assume personal responsibility and plan for their future, yet we are hesitant to recommend a product with premiums that are neither predictable nor affordable.” Thissen and NARFE offered several suggestions for reforming the Federal Long-Term Care Insurance Program, including requiring the program to “offer hybrid long-term care policies that combine a whole life insurance policy with long-term care coverage,” mandating that FLTCIP offer options that would guarantee limits on premium increases “by utilizing reinsurance to limit losses and protect against the risk of inaccurate actuarial assumptions,” allowing the program to offer high deductible options, and having the government contribute to the cost of the benefit (which is now fully paid for by employees and retirees).

OPM’s O’Brien said he could not offer any recommendations to the committee now as to “how we move forward in terms of addressing the problems in long-term care insurance” adding that the agency is “wide open” to working with the panel and the other witnesses on coming up with solutions.

Rep. Gerry Connolly, D-Va., was not pleased with that response, saying the problems with FLTCIP are not new, and there’s been lots of feedback so far from feds on the premium rate increases. “And yet, you come here empty-handed,” Connolly said. “I am the ranking member of the subcommittee. I’m going to use every influence I’ve got to make sure you are summoned back to this subcommittee and at that point, we will expect specific proposals. You owe that to the federal employees and retirees who count on this product.”