If you have long-term care insurance—through the government-sponsored program or elsewhere—and you like it, hold onto it. If you don’t have such insurance and think that you may want to purchase it, know that waiting could be risky.
Those are the messages, just below the surface, of a recent audit of the Federal Long-Term Care Insurance Program by the inspector general at OPM.
The FLTCIP program—which covers living-assistance care, whether in the home or another setting—has several favorable features, including that it is open for all employees and retirees to apply at any time. And while enrollees pay the entire FLTCIP premium cost, coverage is provided at group rates, although through only one provider.
The audit examined events of several years ago around the end of the second seven-year contract between OPM and the carrier, the John Hancock insurance company. Under the contracts, premiums may increase during the course of a contract if premiums are not covering projected claim costs.
The first step was to increase rates for all enrollments after July 31, 2015. Then, after OPM and the carrier reached a new, third, contract in April 2016, rates increased in November of that year for almost all of those who had enrolled before August 1, 2015, with the same reason cited.
Those second increases were so steep—averaging 83 percent and ranging up to 126 percent—that OPM allowed those already enrolled to downgrade their benefits to keep them affordable or, if eligible, to stop paying premiums and elect much-reduced paid-up benefits. Coverage can be canceled at any time, and some enrollees did that.
The size of the hike raised questions from employees and retirees, their organizations and Congress about how OPM and the carrier could have been so far off in their projections and whether OPM did enough to encourage competition. In other words, whether OPM was asleep at the switch.
As an initial matter, the IG found no malfeasance by OPM, concluding that it “followed federal regulations related to procurement” when awarding the latest contract. Further, it found that OPM “is effectively monitoring the current FLTCIP program” through monthly meetings with the contractor and semi-annual reviews of the state of the program’s finances.
It recounted that the company first warned OPM in June 2014 of a potential shortfall. Within a year it had “performed a thorough analysis of the claims experience and updated its pricing assumptions (which included lapse rates, return on investment rates, and mortality and morbidity rates) and determined that a premium increase was needed” in the new contract.
As to the question of whether OPM could have done more to encourage competition, the IG noted that only John Hancock responded to OPM’s bid request.
When the FLTCIP program was enacted in 2000, it said, there were 125 insurers in the long-term care insurance marketplace. By 2014, there were only 12 insurers that were issuing at least 2,500 individual policies and only five sold group policies. Even John Hancock discontinued the sale of new group policies in 2010, and it ended the sale of individual policies in December 2016.
Instead, insurers more commonly are offering long-term care benefits—if they offer them at all—as riders to life insurance or annuities, it said. “The true group plan (like FLTCIP) is almost non-existent in today’s marketplace. However, John Hancock has stated they intend to continue to bid on and service the current FLTCIP contract,” it said.
If it doesn’t? The FLTCIP contract allows OPM to extend the contract beyond its expiration, requiring John Hancock to continue to service those already enrolled. During rate negotiations, OPM can suspend new enrollments temporarily.
“Considering the rapidly changing environment of the long-term care insurance industry, OPM should develop a formal contingency plan to prepare for future FLTCIP procurement challenges. Although some changes may require regulatory or legislative actions, OPM should be proactive in planning for any changes that could arise in the future,” it said.
OPM management disagreed, saying it is in regular contact with John Hancock and that it is “discussing new product and plan design ideas and will continue to assess an array of options to address rate stabilization concerns and to ensure that FLTCIP will meet the needs of its enrollees.”
The auditors were not so confident: “Our concern is with the fast-paced change in the market of the long-term care insurance industry . . . we would like to see more formal plans in place as to the implementation of future product changes. Although these are ‘what if’ scenarios, any potential changes to the product or discontinuance of the current product in the future would require significant planning and work with Congress to potentially change legislation.”
In particular, the report said, OPM “should position itself with the ability to permanently suspend enrollment to new enrollees should the need arise.”
In other words, you could be be hard-pressed to get long-term care coverage on the open market better than FLTCIP coverage because there is not much of a market out there. And even though the FLTCIP apparently always will be there, it’s far from guaranteed that the doors will always be open.