Federal LTC Program Not So Attractive

By ALLISON BELL

Published 8/10/2011 

Demographic and administrative concerns are some of the factors that scare insurers away from bidding on the Federal Long Term Care Insurance Program contract, according to officials at the U.S. Government Accountability Office (GAO).

The GAO reviewed the federal long term care (LTC) program at the request of members of Congress who have concerns about the program, which started up in 2002.

The program offers LTC insurance to federal workers and their relatives on a voluntary, employee-paid basis. Active workers and spouses who apply during open enrollment face little underwriting; other applicants face underwriting similar to what they would face in the individual market, John Dicken, a GAO director, writes in a report summarizing the GAO’s findings.

The federal Office of Personnel Management (OPM) held one LTC program bidding process when the program started and a second one in 2009. John Hancock Life Insurance Company, Boston, a unit of Manulife Financial Corp., Toronto (TSX:MFC), started out sharing responsibility for the program with another company.

In 2009, after OPM ran another bidding process, Hancock took over full responsibility for the program. Hancock soon notified 66% of the enrollees that they would face a 25% rate increase to compensate for differences between program experience and actuarial projections, Dicken says.

GAO investigators reviewed the program by interviewing executives at 6 large LTC insurance carriers.

When the second bidding process came along, many insurers had concerns about the program’s history, the need for the premium increase, and the difficulties involved with shifting enrollees from one carrier to another, Dicken says.

Another concern was that OPM does not have a list of home addresses of active federal employees for a carrier to use in marketing the LTC program.

“All of the carriers we interviewed noted that not having this information significantly detracted from their interest in the program,” Dicken says. “These officials explained that marketing directly to eligible individuals at their homes is critical for ensuring that a large number of individuals—including a high proportion of healthy individuals—apply for coverage. As such, not having this list resulted in concerns that [federal LTC program] would attract a disproportionate share of individuals who knew they needed coverage, which would result in a higher risk for the program.”

A relatively high percentage of active federal employees are already disabled and eligible to apply for LTC benefits.

“Insurance carrier officials told us that the relatively large portion of disabled individuals increased the risk to [federal LTC program] because disabled individuals were more likely to seek coverage and submit claims sooner than nondisabled individuals,” Dicken says.

Insurance company executives said one thing they like about the LTC program is that the government does allow some underwriting for active employees, Dicken says.