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Some federal employee life insurance rates to rise; others to see decrease

On the heels of an immediate premium hike in the long-term care insurance program for federal employees, some rates are going to increase in 2016 in their much more widely used life insurance program — although others will hold steady and still others will decrease — the Office of Personnel Management is about to announce.

OPM plans to publish a notice Friday of new rates to be effective in January in the Federal Employees Group Life Insurance program, affecting retirees under the basic form of coverage, as well as both active employees and retirees with add-on forms of coverage.

For the retiree basic coverage, premiums will rise upwards of 10 percent. The picture is mixed for the additional forms of insurance, though, generally with decreases at younger ages but increases at older ages.

The personnel agency will hold an open enrollment season in September 2016 to allow changes in coverage, although those choices won’t take effect until October 2017.

OPM announced Monday that premiums in the Federal Long Term Care Insurance Program had increased Aug. 1, with no prior warning.  That increase affects premiums only of those enrolling in that program since that date. The FEGLI changes will affect both existing and future enrollees.

According to OPM , 82 percent of federal employees have FEGLI coverage compared with only 7 percent in the long-term care program.

FEGLI provides optional term-type life insurance for federal employees which generally can be carried into retirement. Benefits are paid by the Metropolitan Life Insurance Company under contract with OPM.

The basic form of coverage is an amount equal to the employee’s salary rounded to the next $1,000 plus $2,000; employees pay two-thirds of that cost except that the U.S. Postal Service pays the full amount for its employees. Retirees pay the entire cost.

There are three optional forms of insurance in addition, which are paid entirely by the enrollee: a flat $10,000 benefit; a benefit of one to five multiples of the basic amount; and family coverage of up to $25,000 on a spouse and up to $12,500 per child. Premium rates vary according to five-year age bands.

In the notice, OPM says that premiums are based on claims experience and “are specific to the experience of the FEGLI group and are not based on mortality rates within the general population. Actuarial analysis of changing mortality rates makes periodic premium adjustments necessary.”

“OPM has completed a study of funding and claims experience within the FEGLI Program. Based on this updated actuarial analysis of actual claims experience, OPM has determined that changes are required. … These changes reflect updated mortality and claims rates from actual program experience within each FEGLI category,” it says.

For example, for someone continuing the full amount of basic insurance after retirement, each $1,000 of basic insurance currently costs $1.94 per month after turning age 65; under the new rates, that will rise to $2.13. Before age 65, the increase will be from $2.265 to $2.455 per month per $1,000.

Meanwhile, rates for the $10,000 add-on coverage will drop at all ages except for those age 60 and above. For an active employee ages 40 to 44, for example, it will fall from 60 to 40 cents biweekly.

Rates for additional coverage in multiples of salary similarly will decrease except for those ages 75 and above. For an active employee ages 55 to 59, for example, it will drop from 23 to 20 cents biweekly. Family coverage rates will remain the same up to age 35, decrease slightly for age ranges through 59, remain steady for those 60 to 69, and then increase for those 70 and up.

“The legislative structure of the FEGLI Program assumes that we set premium rates for each age band independently of the other bands so that each age band is financially self- supporting,” OPM says in the notice.

While the federal health insurance and vision-dental insurance programs hold open enrollment seasons every year, open seasons in the FEGLI program are rare, triggered either by a change in the law or by trends in claims. The most recent open season was in 2004, and before that, in 1999.

OPM said the effective date of the next year’s open season elections will be delayed by a year to mitigate the risk that “less healthy individuals” will use the opportunity to increase their coverage.

Other than in an open season, employees may enroll or increase existing coverage only if they experience certain life events or they undergo an underwriting process. Retirees generally cannot increase the coverage they carried into retirement.