By Joe Davidson
Thursday, September 10, 2009
Greater consumer protection is in the works for the federal long-term care insurance program, but it won't help the many government workers who say they feel blindsided by surprising rate increases of up to 25 percent.
The Office of Personnel Management, under pressure from those employees and Congress to make the terms of the program it oversees more transparent, told Del. Eleanor Holmes Norton (D-D.C.) in a letter that the agency is requiring the program's insurance company to "mention the conditions under which premiums may increase in a more prominent manner."
That's nice for those who might want to buy the insurance in the future, but it does nothing for those who must now decide whether to pay more for the same level of service, pay the same for reduced benefits or flee the program, leaving their premiums behind like gold in a sinking ship.
The Confidence in Long-Term Care Insurance Act of 2009 would do more. Sen. Herb Kohl (D-Wis.), chairman of the Senate Special Committee on Aging, hopes it will be part of whatever health-care reform legislation that Congress manages to pass. It would include increased consumer safeguards for long-term care insurance customers, such as requiring improved marketing disclosures, standardizing the handling of claims and making it easier for consumers to compare plans offered by different companies.
"OPM has a responsibility to ramp up its outreach efforts in the coming months and carefully advise federal long-term care insurance policyholders on the implications to their benefits in years to come of avoiding rate increases," Kohl said. "The agency should also do everything it can to avoid any additional increases in the future."
Kohl said his committee "found that long-term care insurance products are severely lacking in terms of consumer protections, particularly when it comes to rate stability." Federal workers burned by increasing costs would agree.
Kohl and Sen. Ron Wyden (D-Ore.) told OPM Director John Berry that they were troubled to learn from the Federal Diary about the federal long-term care rate increases. "Such substantial increases, whether imposed on policyholders in the private or public sectors, can be devastating for retirees living on fixed incomes," they wrote in a letter.
At Kohl's request, OPM officials have briefed members of the Aging Committee's staff. Another briefing, for a House panel that includes Norton, is planned for this month.
In the letter to Norton, Laura J. Lawrence, a chief in the OPM's insurances services program, said that "the premium increase is based on revised assumptions that more accurately reflect expected future return on Program investments over the life of the enrollees and the number of individuals who remain enrolled in the program and are projected to be eligible for benefits."
She said that the OPM and John Hancock, the long-term care insurance company, "agree that the announced premium adjustment is necessary so that the rates will be sufficient to reflect the cost of the benefits provided."
Lawrence also said that despite complaints from customers who thought there would be no premium increase under the automatic compound inflation option, the benefits booklet says premiums may rise if it is determined they are "inadequate."
But that could be easily overlooked among the materials that emphasize rate stability. A federal long-term care insurance Web site, for example, says that "your benefits will increase year after year, without causing an increase in your premium."
A slide presentation on the program says that "premiums do not increase even though your benefits do."
And the transcript of an educational video on the program shows employees were told: "The automatic compound inflation option would automatically increase your daily benefit amount by 5% compounded every year with no corresponding increase in your premium for as long as you are covered."
But now, to keep that 5 percent increase, some customers will have to pay much more. Or they can keep their same premium for a 4 percent annual benefit increase. In 20 years, the 5 percent selection will provide $398 in daily nursing-home care, compared with $329 for the 4 percent option, said Nancy Kichak, an OPM associate director. Customers "are not going to be happy, but we think they're going to find that that's a reasonably good alternative," she said.
The 4 percent option "is a good alternative, because the [long-term care] inflation rate has been running at 4 percent or less," she said, although, she added, no one knows what could happen to inflation.
Kichak said during an interview that the "reasonably conservative assumptions" that led to the original rates did not prove to be good ones.
OPM officials, who will offer a richer, and therefore more expensive, long-term care program this fall, also said there had been no wholesale dropping of policies because of the rate increase.
Nonetheless, "we are extremely disappointed" with the increase, Kichak said. "This is not a situation we are happy with."
The letter from Kohl and Wyden and the letter from OPM to Norton can be found with this column at http://washingtonpost.com/fedpage.
Contact Joe Davidson at firstname.lastname@example.org