The Inspector General for the Office of Personnel Management recently issued a report on the Federal Long Term Care Insurance Program. In the report, it recommended that OPM have a contingency plan in place to address future risks within the program. OPM, however, disagrees with this suggestion.
The risks the IG identified are with respect to the growing lack of insurers that offer long-term care insurance. In 2000, there were 125 insurers; by 2014, there were only 5 that sold group policies. Today, the IG report notes that there is only one that offers a “true group” plan similar to FLTCIP.
John Hancock, the current contractor, has said it will continue to bid on OPM’s FLTCIP contract. But what if that doesn’t happen?
Here’s what the report says:
When we approached the Healthcare and Insurance Office about contingency planning in the event it receives no bidders on its next Request for Proposal, it stated that the law ensures the continuance of the FLTCIP. Specifically, in the event that John Hancock does not bid on future Request for Proposals, OPM does have a provision in the current contract, which allows it to extend the contract beyond its expiration, requiring John Hancock to continue to service Federal employees previously enrolled. During rate negotiations, OPM can suspend new enrollments temporarily, if necessary. The Healthcare and Insurance Office informed us that any other changes to the FLTCIP would require legislation enacted by Congress.
Considering the rapidly changing environment of the long-term care insurance industry, OPM should develop a formal contingency plan to prepare for future FLTCIP procurement challenges. Although some changes may require regulatory or legislative actions, OPM should be proactive in planning for any changes that could arise in the future.
The IG recommended that OPM develop and put a contingency plan in place well in advance of the next FLTCIP bid process. “The plan should take into consideration the risks in the long-term care insurance market that adversely affect the continuance and feasibility of the program,” stated the report.
OPM, however, disagrees:
OPM states that as part of its monitoring of the program, many of its departments are in regular contact with John Hancock. They meet with John Hancock monthly to discuss operational matters, and semi-annually to review the funded status reports. OPM further states it is discussing new product and plan design ideas and will continue to assess an array of options to address rate stabilization concerns and to ensure that FLTCIP will meet the needs of its enrollees.
The IG says, however, that it feels OPM is downplaying the risks in the insurance industry:
Our concern is with the fast-paced change in the market of the long-term care insurance industry. While we are encouraged that OPM is discussing new product and plan designs with John Hancock, we would like to see more formal plans in place as to the implementation of future product changes. Although these are ‘what if’ scenarios, any potential changes to the product or discontinuance of the current product in the future would require significant planning and work with Congress to potentially change legislation. OPM should position itself with the ability to permanently suspend enrollment to new enrollees should the need arise. Preplanning and road-mapping potential future changes will ensure continuity for the FLTCIP enrollees.
Federal employees participating in FLTCIP will undoubtedly recall the substantial premium increases that hit the program just a few years ago. That led to outcries from Congressmen with many federal employee constituents wanting to ride to the rescue, but John Hancock representatives said in testimony that the premiums just reflected the reality of the situation: funding shortfalls meant that projected liabilities were expected to exceed available assets to pay claims, resulting in the necessary premium increase to make up the difference.
The IG’s report made note of this situation:
Because of the price increase proposed, OPM decided not to extend the current contract. In September 2015, OPM issued a new Request for Proposal in an effort to attract competitive bidders and better rates. However, John Hancock was the sole bidder and was awarded the seven-year contract, effective from May 1, 2016, through April 30, 2023.
John Hancock has since stopped selling individual long-term care insurance policies. “Today there are far fewer outlets through which individual LTC insurance is sold, impacting the growth potential for the product. Also, consumer demand for individual LTC insurance has fallen and remains stagnant,” a company spokesperson said at the time the decision was made.
This trend in the market is what is driving the decline of insurers in this space. That fact, combined with the history of premium increases, does not bode well for the future of the program.
The IG raised the question, what happens if John Hancock does not bid on the contract again? OPM essentially said, not to worry about it because we meet regularly with the insurance company to “discuss operational matters,” plus the law ensures continuance of the FLTCIP anyway. Anyone insured under the program should hope that it all works out that way.
Life often doesn’t go the way we expect it to. As the saying goes, “Failing to plan is planning to fail.”