Publisher's Perspective

The FLTCIP always has been the Zeppo Marx of the four federal insurance programs, its presence acknowledged but never playing nearly as much of a role as the other three. Image: nelzajamal/Shutterstock.com

Imagine the uproar from federal employees and their organizations if one day the OPM announced that it was going to disallow any new enrollments or changes in existing coverage in the Federal Employees Health Benefits program for, say, two years or so. We’ll let you know exactly later.

Less of an uproar, but still a loud one, if it did the same with the Federal Employees’ Group Life Insurance program or the Federal Dental and Vision Insurance Program.

Now consider that OPM already has done that with the Federal Long-Term Care Insurance Program and the sound has been crickets.

The FLTCIP always has been the Zeppo Marx of the four federal insurance programs, its presence acknowledged but never playing nearly as much of a role as the other three. In the sporadic surveys OPM conducts of employee views of their benefits, the FLTCIP consistently comes in last place.

That’s shown in enrollment levels, too. For example, 8 million people are covered by the FEHB, about equally split between enrollees and covered family members, with more than 90 percent of those eligible enrolled. Many who aren’t enrolled get health coverage elsewhere, such as through a spouse.

In contrast, only about 270,000 have FLTCIP policies even though the FLTCIP program has a much larger potential enrollee pool, including family members of federal employees and retirees beyond those eligible under the FEHB, plus the military community. That population has been estimated at above 20 million, making the take-up rate around 1-2 percent.

And it’s not like it’s a new program that people still are learning. It’s been around for two decades and actually predates FEDVIP. The enrollment numbers have been about flat for the second half of that time; it’s reached its level state.

In other words, the FLTCIP is mainly there to introduce Groucho at a party.

The FLTCIP meanwhile has imposed several unexpected benefit reductions over the years, for example ending for those enrolling after certain points an option for lifetime coverage and lowering the available inflation protection. The program also has abruptly increased premiums several times—some affecting only prospective enrollments but some also affecting current enrollees with certain coverage designs. All in the name of putting the program’s books in balance.

So it was not surprising that OPM last year announced—on short notice, like the premium increases and benefit reductions—that it was suspending new enrollments and request to increase benefits already elected while it conducts another such review.

To be fair, the FLTCIP program is not an outlier in its market. Given the growing costs of providing long-term care—which can involve many highly expensive years of in-home, assisted living and/or nursing home care—companies are less willing to offer such policies. And the cost of coverage that is available dissuades potential customers.

The result is that even as the American population has aged—10,000 Baby Boomers a day are turning 65—the number of people covered by traditional long-term care insurance such as the FLTCIP has declined. In 2020, it was 6.4 million, having eroded from 7.4 million in 2012.

Here’s how the Congressional Research Service put it in a recent report:

“Over the past two decades, annual LTCI premiums in the stand-alone market have increased significantly for both current and new policyholders. Higher average premiums reflect increased demand for more comprehensive benefit packages (including inflation protection) and higher daily benefit amounts. Premium increases have also been driven by inadequate medical underwriting, premiums that were initially set too low, and insufficient growth in investment funding or reserves to cover future claims.

“LTCI market stability depends largely on the ability of insurers to adequately predict future claims. Most policies issued before the mid-2000s had incorrectly predicted claims, necessitating changes to key pricing assumptions. For example, rising claims, lower mortality rates, lower-than-predicted voluntary termination (lapse) rates, and lower-than-predicted rates of return on investments have been cited as key reasons for premium increases. Such increases may continue to affect consumer confidence.”

As for the FLTCIP specifically, it noted that the application suspension period “began December 19, 2022, and is scheduled to remain in effect for 24 months unless OPM decides to end or extend the suspension period.”

Which leaves the question of what happens afterward. OPM already has signaled that it will no longer offer shortened underwriting for newly hired employees and their spouses. History suggest that won’t be all, that further premium increases and benefit restrictions are ahead. Which could lead to the classic vicious cycle—fewer new enrollees on the front end while current enrollees age and file more claims, causing still fewer new enrollees, and on and on.

The program—specifically, its underwriter the John Hancock company—still would have to honor existing enrollments because that is a contract with the enrollee. It’s clear that the enrollment rate will not go higher with the current pool of eligibility. Why not open the program to the general public on the same terms?

And since insurance is regulated by the states, why then should OPM continue to have a role? That is, why would it have to be the “federal” long-term care insurance program anymore?

Zeppo Marx gets much less respect than he deserves. He had proved on stage that he was a sharp comedian too, and he went on become a theatrical agent, business owner and inventor. But after he left the act, the movies that followed proved that three was enough.

 

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