Long-Term Care Insurance:

Federal Program Compared Favorably with Other Products, and Analysis of Claims Trend Could Inform Future Decisions

GAO-06-401: Published: Mar 31, 2006. Publicly Released: Mar 31, 2006.

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The Long-Term Care Security Act required the federal government to offer long-term care insurance to its employees, their families, and others. The act also required GAO to conduct a study of the competitiveness of the Federal Long Term Care Insurance Program, which began in 2002, compared with individual and group products generally available in the private market. GAO compared the federal program's benefits, premiums, enrollment rates, and enrollee characteristics with other products over a 3-year period. GAO also compared the federal program's early claims experience with initial expectations.

Program offered benefits similar to those of other long-term care insurance products GAO reviewed. Most enrollees in the federal program and in individual and group products chose similar benefit amounts, elimination or waiting periods, and benefit periods. The federal program usually offered lower premiums than individual products for comparable benefits. Overall, annual premiums for the federal program averaged across three benefit plan designs were 46 percent lower for single people and 19 percent lower for married couples who were both the same age in comparison with similar individual products sold on March 31, 2005. The participation rate in the Federal Long Term Care Insurance Program for active federal civilian employees--5 percent--was comparable to the industry average in the group market, although enrollment in the federal program was lower than initially expected. The average age of all enrollees in the federal program was younger than the average age of enrollees in individual products and older than the average age of enrollees in group products. The Federal Long Term Care Insurance Program paid 39 percent of what it initially projected to pay for claims per enrollee. The number of claims paid per enrollee was also lower than initial projections. While the early claims experience was below expectations, it is still too early to determine whether this trend will continue or whether adjustments to the projected claims experience or premiums are indicated, because most claims are not expected to be submitted for many years.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OPM analyzed the reasons for the lower than expected early claims experience and projected premiums and notified Congress in a June 2007 correspondence that claims represented a small portion of the program's expected liabilities. In October 2009, OPM testified before Congress that premium increases would be necessary as of January 2010 due to differences in the program's actual and anticipated experience since the program's inception. Providing Congress with important information affecting potential premium changes was consistent with the intent of our recommendation.

    Recommendation: The Director of OPM should analyze the reasons for the lower-than-expected early claims experience and, as appropriate, use the results of this analysis to modify assumptions about the expected claims experience.

    Agency Affected: Office of Personnel Management

  2. Status: Closed - Implemented

    Comments: OPM analyzed the reasons for the lower than expected early claims experience and projected premiums and notified Congress in a June 2007 correspondence that claims represented a small portion of the program's expected liabilities. In October 2009, OPM testified before Congress that premium increases would be necessary as of January 2010 due to differences in the program's actual and anticipated experience since the program's inception. Providing Congress with important information affecting potential premium changes was consistent with the intent of our recommendation.

    Recommendation: The Director of OPM should analyze the projections for the amount of premiums to be collected to pay for claims, including an analysis of the assumptions made for the projections that are related to future claims experience and other factors affecting premiums. OPM should report both analyses to Congress prior to the next contract negotiations.

    Agency Affected: Office of Personnel Management

 

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