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IG: OPM Needs Contingency Plan for Long-Term Care Insurance

The market of potential long-term care insurance providers has drastically shrunk since the federal program's establishment, auditors say.

The Office of Personnel Management inspector general recommended this week that the agency come up with a backup plan for the Federal Long Term Care Insurance Program after an audit of a bid process that produced only one application to administer the plan.

In 2015, OPM decided not to renew its contract with John Hancock Life and Health Insurance Co. after the company determined it needed to hike premiums to fully fund the FLTCIP, an insurance plan federal workers can opt into to defray the costs of chronic medical conditions and disabilities. But at the end of the bid process, John Hancock was the only bidder to administer the program, and it received a new seven-year contract.

In August 2015, John Hancock rolled out premium increases for new enrollees, which varied wildly depending on a participant’s age and choice of plan. And premiums for existing participants increased by an average of 83 percent in November 2016, after John Hancock was granted a new contract.

The OPM Office of the Inspector General said it found the agency followed all federal regulations during its year-long bidding process. But it concluded that in the intervening years since FLTCIP was founded in 2000, the market for long-term care insurance has all but evaporated.

“In 2000, there were 125 insurers in the long-term care insurance marketplace,” auditors wrote. “By 2014, there were only 12 insurers that were issuing at least 2,500 individual policies and only five insurers sold group policies.”

Additionally, only one firm still offers a group plan in the mold of FLTCIP. John Hancock discontinued the sale of new group policies in 2010, and it shuttered new individual long-term care plan sales in 2016. Instead, many insurance companies now offer a hybrid product that provides long-term care insurance along with either life insurance or an annuity.

As a result of the shifting marketplace, the inspector general recommended OPM come up with a formal contingency plan in case the program becomes unfeasible. John Hancock has stated it intends to “continue to bid on and service the current FLTCIP contract,” while OPM noted that a provision of the agreement allows the agency to extend the contract beyond its current expiration date and continue to provide service to existing enrollees.

“Considering the rapidly changing environment of the long-term care insurance industry, OPM should develop a contingency plan to prepare for future FLTCIP procurement challenges,” the inspector general wrote. “Although some changes may require regulatory or legislative actions, OPM should be proactive in planning for any changes that could arise in the future.”

But OPM officials pushed back against the idea of developing a formal backup plan for administering the FLTCIP, noting that the program is contractually guaranteed to continue and that agency staff are “in regular contact” with John Hancock to monitor the program and its funding status.

“In short, OPM continually monitors the performance of FLTCIP through standards agreed upon in the contract,” the agency stated. “OPM recognizes the evolving state of the long-term care industry and has been proactive in monitoring the program’s performance, while engaging in meaningful dialogue and analysis to best position the program for the future.”

The Office of the Inspector General said having a formal plan in place would ensure continuity for participants in case something unforeseen happens, especially given that Congress would need to sign off on any major change to the program.

“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,” the OIG wrote. “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.”