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Opinion Costs skyrocket for feds’ long-term-care insurance

The U.S. Office of Personnel Management headquarters in Washington. (Andrew Harrer/Bloomberg News)

Federal employees and retirees who participate in the Federal Long Term Care Insurance Program (FLTCIP) are in for some serious sticker shock.

They pay the full cost of that insurance, and on Nov. 1, it will jump by up to 126 percent. The average increase will be 83 percent or $111 per month.

That leaves retirees livid.

“I am stunned at the extent of the increase and angry that this type of financial pressure is being placed on federal employees and retirees,” said Richard G. Thissen, president of the National Active and Retired Federal Employees Association (NARFE). “This situation should not have occurred and signals the need for change in the structure of the FLTCIP to prevent federal employees and retirees from ever facing such huge, unexpected increases again.”

Office of Personnel Management (OPM) officials said they worked with the John Hancock Life and Health Insurance Co., which provides the product, “to address the financial impact of the increases on affected enrollees.”

The result of that effort is unsatisfactory for enrollees who will face less coverage at the same price or the same coverage at a higher price. All but 10,000 of the 274,000 will see an increase.

But there is a little-known feature of the program that will allow most of them to stop paying premiums but still keep some coverage. The paid-up provision, formally known as a “contingent benefit upon lapse,” allows enrollees whose premium is increased beyond a certain percentage to stop paying premiums, with a cut in benefits.

“By choosing this option, the enrollee will keep their current daily benefit amount, but their maximum lifetime benefit will be reduced to total premiums paid through November 1, 2016, or 30 times the current daily benefit amount of the coverage, whichever is greater,” according to OPM.

Information from Long Term Care Partners, which administers the program, blamed the “significantly higher premiums” on a recent analysis of the program that indicated current fees “would not be sufficient to meet the future, projected costs of the benefits.”

That means “the actuaries got it wrong, and long-term care costs are rising faster than expected,” Thissen said. “That may be the case, but enrollees should not bear the financial responsibility for the mistakes of insurance actuaries.”

A NARFE statement added that OPM’s oversight of the program “has proven insufficient in providing predictable costs for federal employees and retirees…The result is premium increases for enrollees, who have no legal protection from this or future increases.”

Walton Francis, a health economist and an expert on federal health insurance programs, said “this never should have happened. The LTC (long term care) estimates should have been actuarially sound and accurate, taking into account far more carefully both the possibility of low interest rates, the low rate of return on premiums invested in bonds, and of adverse selection by persons most likely to need LTC.”

Adverse selection means the program “disproportionately attracted persons who were at high risk of needing expensive care after retirement,” Francis said.

Thissen said federal employees and annuitants and their spouses enrolled in the program “are now faced with difficult choices – pay substantially higher premiums; reduce coverage substantially; or, in the worst case scenario, drop the coverage some have paid into for more than 14 years” when the program launched.

How much individuals pay will vary greatly, according to OPM, depending on factors including a person’s age and the plan originally purchased.

In theory, competition can help keep price hikes in check. In this case, there was none.

“After nearly a year of seeking proposals, OPM received one bid, and subsequently awarded a new, seven-year contract to John Hancock Life and Health Insurance Company…which will continue to administer the program through its subsidiary, Long Term Care Partners,” OPM’s statement said.

Information is being mailed to enrollees now through July 27. They can make their decisions from Monday through Sept. 30.

The increased cost for some enrollees, Thissen said, means “the poorhouse is back in the picture.”

Francis said the increase is “beyond belief… Now, as they [enrollees] are aging into the highest risk years, they are hit with this increase, never included in their retirement budgets.”

But they should not be stunned into inaction. NARFE warns: “If you take no action, your current coverage will be extended at the increased premium rate.”

Staff writer Eric Yoder contributed to this story.

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[Most long-term insurance care enrollees are eligible for little-known benefit]