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S. HRG. 111–401 

STICKER SHOCK: WHAT’S THE TRUE COST OF 

FEDERAL LONG-TERM CARE INSURANCE 

JOINT HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

AND

SUBCOMITTEE ON OVERSIGHT 

OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE, AND THE DISTRICT OF COLUMBIA 

OF THE

COMMITTEE ON HOMELAND SECURITY 

AND GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

WASHINGTON, DC 

OCTOBER 14, 2009 

Serial No. 111–13 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

BILL NELSON, Florida 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

BOB CORKER, Tennessee 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

GEORGE LeMIEUX, FLORIDA 

ORRIN HATCH, Utah 

SAM BROWNBACK, Kansas 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

PAUL G. KIRK, Jr., Massachusetts 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, THE 

FEDERAL WORKFORCE, AND THE DISTRICT OF COLUMBIA 

DANIEL K. AKAKA, Hawaii, Chairman 

CARL LEVIN, Michigan 

MARY L. LANDRIEU, Louisiana 

ROLAND W. BURRIS, Illinois 

PAUL G. KIRK, Jr., Massachusetts 

GEORGE V. VOINOVICH, Ohio 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

LISA M. POWELL, Staff Director 

KATA C. SYBENGA, Professional Staff Member 

JENNIFER A. HEMINGWAY, Minority Staff Director 

BENJAMIN B. RHODESIDE, Chief Clerk 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Opening Statement of Senator Daniel Akaka ....................................................... 2 

Opening Statement of Senator George Voinovich ................................................. 4 

Opening Statement of Senator Bob Corker ........................................................... 5 

Opening Statement of Senator Susan Collins ....................................................... 6 

Opening Statement of Senator Ron Wyden ........................................................... 8 

Opening Statement of Senator George LeMieux ................................................... 9 

Opening Statement of Senator Paul Kirk .............................................................. 9 

Opening Statement of Senator Roland Burris ...................................................... 10 

PANEL OF WITNESSES

Statement of Daniel Green, Deputy Associate Director, Employee Support 

and Family Policy, Office of Personnel Management, Washington, DC .......... 12 

Statement of Margaret L. Baptiste, President, National Association of Retired 

Federal Employees, Alexandria, VA ................................................................... 18 

Statement of Colleen M. Kelley, President, National Treasury Employees 

Union, Washington, DC ....................................................................................... 31 

Statement of Chester Joy, Individual Federal Long Term Care Policyholder, 

Washington, DC ................................................................................................... 41 

Statement of Mary Beth Senkewicz, Deputy Commissioner, Florida Office 

of Insurance Regulation, Tallahassee, FL .......................................................... 56 

Statement of Marianne Harrison, President, Long Term Care, John Hancock 

Financial Services, Inc., Boston, MA .................................................................. 67 

APPENDIX 

Dan Green’s Responses to Senator Voinovich Questions ..................................... 105 

Colleen Kelly Response to Senator Voinovich Question ....................................... 107 

Mary Beth Senkewicz Responses to Senator Voinovich Questions ..................... 107 

Marriane Harrison’s Responses to Senator Voinovich Questions ........................ 117 

Statement submitted by American Federation of State, County and Municipal 

Employees (AFSCME) ......................................................................................... 121 

Statement submitted by Daniel DeSimone ........................................................... 124 

(III) 

(1) 

STICKER SHOCK: WHAT’S THE TRUE COST OF 

FEDERAL LONG-TERM CARE INSURANCE 

WEDNESDAY, OCTOBER 14, 2009 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, SUBCOMMITTEE ON

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL

WORKFORCE, AND THE DISTRICT OF COLUMBIA, COMMITTEE

ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committees met at 2:35 p.m. in room SD–342, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Special Committee on Aging, presiding. 

Members Present: Senators Kohl [presiding], Wyden, Kirk, 

Corker, LeMieux, Akaka, Burris, Collins, and Voinovich. 

OPENING STATEMENT OF SENATOR HERB KOHL, RANKING 

MEMBER 

The CHAIRMAN. Good afternoon, everybody. We appreciate your 

being here. 

At this time we will commence with this hearing. 

We are glad to be joining forces today with Senator Akaka’s subcommittee to talk about the Federal long-term care insurance program. It is important that we begin this hearing with an understanding of the crucial role long-term care insurance can play for 

so many Americans both now and also as our country ages at such 

a quick and unprecedented rate. Planning for the long-term care 

needs of ourselves, our spouses, and our parents is a source of 

growing anxiety all across our country. 

Many people do not realize that our current public and private 

health insurance programs do not cover long-term care. Elderly individuals who cannot take care of themselves must exhaust nearly 

all of their savings and then, and only then, will Medicaid pay for 

their care. For the relatively few who have it, long-term care insurance allows them to avoid this scenario. It goes a long way toward 

alleviating the immense strain on State and Federal Medicaid 

budgets, so we do want this product to work. In fact, we do need 

it to work. 

This brings us to the topic of today’s hearing which is the Federal Long Term Care Insurance Program, the largest program of its 

kind. In 2003, OPM was trying to help Federal employees prepare 

for their long-term care needs when they rolled out their long-term 

care insurance program. Their intentions in providing this benefit 

were good, but 7 years later, red flags have been raised concerning 

2 

OPM’s role as a regulator of this insurance program and as a 

source of consumer education for its policyholders. One recent 

announcement from OPM has over 140,000 policyholders feeling 

extreme sticker shock. Come January, well over half of the program’s policyholders will face a 25 percent increase in their monthly premium payments. 

Today we hope to hear that OPM has a plan for avoiding such 

high increases in the future. Hindsight being 20/20, the best thing 

OPM can do is learn from its mistakes by ramping up consumer 

education and ensuring that all marketing materials accurately 

represent the coverage and the true costs of these policies. 

The fact is that the problems we are seeing with the Federal 

Long Term Care Insurance Program are occurring with long-term 

care insurance products nationwide. If State and Federal Governments are going to promote these products, then it is their duty to 

be sure that consumer interests are protected, that premium increases are kept at a minimum, that insurance agents use proper 

marketing materials, and that complaints and appeals are addressed in a timely manner. 

Senator Wyden and I have introduced legislation to bring these 

and other improvements to all long-term care insurance policies. 

We are hopeful it will be enacted this year. 

We thank you all for being here today at this joint hearing, and 

after I finish, as I am now, I will turn to Senator Akaka for his 

statement, and after that, we will be turning to Senator Voinovich 

and to all the members on the panel for their statements. Thank 

you very much. Senator Akaka? 

OPENING STATEMENT OF SENATOR DANIEL AKAKA 

Chairman AKAKA. Thank you. Thank you very much, Chairman 

Kohl. I want to add my welcome to all of our witnesses and thank 

you so much for being here at our joint hearing of the Special Committee on Aging and the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia. 

It is fitting that these two committees would join forces to look 

into this program and the long-term care insurance market. It 

demonstrates just how concerned we are. My Federal Workforce 

Subcommittee takes great interest in the management of the Federal program, which is the largest in the country. Addressing the 

problems with the Federal program will guide reforms of other 

long-term care insurance programs. 

There is a great and growing need to help Americans provide dignified and appropriate long-term care for their families. At least 70 

percent of people over age 85 will require some services, such as 

the home health services or nursing home care, at some point in 

their lives. Health insurance generally does not cover, as was mentioned, long-term care. Medicaid provides some support, but many 

senior citizens are forced to spend their savings and other assets 

before they qualify for coverage. Long-term care insurance fills this 

important gap. 

Seeing this increasing need, Congress established the Federal 

Long Term Care Insurance Program in 2000. There are over 

275,000 Federal employees and retirees enrolled in this program. 

3 

More than half of enrollees chose the compound inflation option. 

With this option, participants paid more initially but they were told 

that their benefits would automatically increase by 5 percent every 

year, with no increase in their premiums. 

Yet, earlier this year, OPM announced premium increases of up 

to 25 percent for participants who selected this option. According 

to OPM, over 146,000 participants, including close to 2,500 in 

Hawaii, will have some increase in their monthly premiums. Many 

of the affected enrollees are angry because they feel they were misled when they joined the program. In these difficult economic 

times, this unexpected increase is unacceptable. 

OPM has told us it followed national standards in setting the 

rates for the program. I am puzzled by why such a large premium 

increase is necessary now. I hope the witnesses will address these 

rate standards and how to make sure that future increases will not 

occur. 

OPM is giving participants an option to keep their premiums 

steady, but their benefit amounts will increase by only 4 percent 

instead of 5 percent each year. Those who may be interested in the 

option have no way of knowing whether 4 percent increases will be 

enough. It is important that those paying for insurance year after 

year know whether the benefits will be sufficient to cover their 

costs when needed. I look forward to hearing from our witnesses 

about this issue. 

This program should serve as a model for the private sector and 

State and local governments. Right now, it is falling short of this 

goal. I hope that today’s hearing will help determine how to keep 

the program affordable and stable for our federal employee participants. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Senator Akaka follows:] 

STATEMENT OF CHAIRMAN DANIEL K. AKAKA

I want to join Chairman Kohl in welcoming our witnesses and thanking them for 

joining us today to discuss the Federal Long-Term Care Insurance Program. I also 

want to thank my friend Chairman Kohl for inviting me to conduct this hearing 

with him today. 

That these two committees would join forces to look into the Federal Long-Term 

Care Insurance Program and the long-term care insurance market demonstrates 

just how seriously we are concerned with its well being. My Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia takes great interest in the management of the federal program, which is the 

largest long-term care insurance program in the country. Addressing the problems 

with the federal program will guide reforms of other long-term care insurance programs throughout the country. 

The need for long-term care is great. In 2008, the average cost for one year of 

nursing home care was nearly $70,000. According to the U.S. Department of Health 

and Human Services, at least 70 percent of people over age 65 will require some 

long-term care services, such as home health services or nursing home care, at some 

point in their lives. Many Americans mistakenly believe that Medicare and their 

regular health insurance programs will pay for long-term care. They do not. Although Medicaid provides some long-term care support, it only covers eligible beneficiaries. Many senior citizens are forced to spend their savings and other assets before they qualify for coverage. Long-term care insurance fills this important gap. 

Throughout the country, there is a great and growing need to help Americans provide dignified and appropriate long-term care to their families. This unmet need is 

a particular concern in my home state of Hawaii, because we have a severe shortage 

of long-term care. 

4 

Seeing the increasing need, Congress established the Federal Long Term Care Insurance Program in 2000 to provide federal workers with an option for long-term 

care coverage. This program, overseen by the Office of Personnel Management 

(OPM), began in 2003. There are currently over 275,000 federal employees and retirees enrolled in the program. 

More than half of enrollees in the program chose the Automatic Compound Inflation Option. With this option, participants paid more initially but they were told— 

quoting from a previous version of the benefits booklet—that their ‘‘benefit will 

automatically increase by 5 percent compounded every year with NO corresponding 

increase in your premium’’ (emphasis in the original). 

Yet, earlier this year, OPM announced premium increases of up to 25 percent for 

participants in the program who selected this option. 

Many of the affected enrollees understood that if they chose the automatic compound inflation option, their premiums would never increase. They are angry because they feel they were misled when they joined the program. I understand that 

OPM acknowledges that it did not expect a future premium increase, so it did not 

emphasize that possibility, although some program materials did state that it was 

possible. 

According to OPM, over 146,000 participants will have some increase in their 

monthly premiums, including close to 2,500 enrollees in my home state of Hawaii. 

In these difficult economic times, this unexpected increase is unacceptable. 

The National Association of Insurance Commissioners, which is represented by 

one of our witnesses today, has developed standards to help ensure the stability of 

long-term care premiums over time. OPM has told us it used these standards in setting the rates for the federal program. I am puzzled by why such a large premium 

increase is necessary now. I hope the witnesses will address these rate standards 

and how to make sure that future increases will not occur. 

OPM is giving participants an option to keep their premiums steady, but their 

benefit amounts will increase by only 4 percent instead of 5 percent each year. 

Those who may be interested in this option have no way of knowing whether 4 percent increases will be enough. 

I understand that predicting the cost of long-term care into the future is an inherent problem within the long-term care insurance industry. However, it is critical 

that participants paying for this insurance year after year know whether the benefits will be sufficient to cover their costs when needed. I look forward to hearing 

from our witnesses about this issue. 

The federal government is the largest employer in the country, and the federal 

long-term care insurance program is the largest of its kind. This program should 

serve as a model for the private sector and state and local governments. Right now, 

the program is falling short of this goal. I hope that today’s hearing will help determine how to keep the program affordable and stable for our federal employee participants. 

The CHAIRMAN. Thank you, Senator Akaka. 

Senator Voinovich. 

OPENING STATEMENT OF SENATOR GEORGE VOINOVICH 

Senator VOINOVICH. Thank you, Chairman Kohl and Chairman 

Akaka, for holding this joint hearing. 

As is the case usually when Senator Akaka and I have hearings, 

he does such a good job of laying out the issues that anything I say 

right now would be redundant. So I am going to pass on a longer 

statement. I am anxious to hear the witnesses. 

[The prepared statement of Senator Voinovich follows:] 

PREPARED STATEMENT OF SENATOR GEORGE V. VOINOVICH

Chairmen Kohl and Akaka, thank you for calling today’s hearing to discuss the 

future of the Federal Employees Long-Term Insurance Program. 

More than a decade ago, Congress began exploring solutions to the growing problem of financing the cost of long-term care. With the support of the Administration, 

we enacted bipartisan legislation to give federal employees, including our men and 

women in uniform, a tool to finance their anticipated long-term care needs. 

Following a competitive bidding process, the Office of Personnel Management 

began marketing the long-term care insurance product to federal employees, retirees, and their families. OPM’s materials encouraged the purchase of long-term care 

5 

insurance by federal employees at younger ages when premiums were lower and 

more affordable. 

Although federal employees were offered a number of options, the materials emphasized the purchase of the automatic compound inflation option as a way to increase the daily benefit amount with no corresponding increase in premium. Employees were told ‘‘your benefits increase year after year, while your premium remains level.’’ 

Seven years after the initial enrollment period, OPM recently announced up to a 

twenty-five percent premium increase for a majority of enrollees, including those 

who selected automatic compound inflation protection. OPM subsequently modified 

its brochure by adding the phrase ‘‘However, premiums are not guaranteed.’’ 

The federal government set an example in 2002 by offering our nation’s civil servants an important benefit to safeguard their hard-earned savings and assets. Many 

federal employees were led to believe they were locking in affordable premiums for 

life. Others viewed the availability of the plan as the government’s Good Housekeeping Seal of Approval for this type of insurance product. 

While OPM exceeded enrollment projections in 2002, it underestimated the number of employees who would let their coverage lapse and failed to act on the information provided during the life of the initial contract of the need for possible adjustments to the product. 

Now, we have the potential for buyer’s remorse and confusion, leading to lapses 

in coverage or a significant reduction in allowable benefits at a time when enrollees 

are closer to needing long-term care. 

I’m anxious to hear and from OPM about the mistakes that have been made and 

so are the employees who believe they were misled. I also hope today’s hearing will 

help educate current and future enrollees on the options available to them so they 

can make informed decisions. We owe it to the roughly quarter of a million civil 

servants who have enrolled and the millions of eligible enrollees to ensure the product provides affordable, comprehensive coverage that meets the insurance needs of 

employees beyond the next seven years. 

Thank you. 

The CHAIRMAN. Thank you very much, Senator Voinovich. 

Senator Corker. 

OPENING STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. Yes, Mr. Chairman, both of you. Thank you for 

having the hearing. 

I think we are addressing a very important issue today that is 

not just important to Federal employees, but also people throughout the country. I think it is also interesting at this time when we 

are debating health care and talking about the public’s role in 

health care, we are seeing some frailties here, if you will, that exist 

within OPM, much of which exist in programs like Medicare where 

we are not honest with people about the true cost and some of the 

liabilities that are created over time. 

But I do say I really appreciate the authors’ desire to ensure that 

people around this country, when they buy long-term care insurance plans, they know that it is going to be there and that it is 

real. 

While I appreciate all the witnesses being here today, I find it 

hard to understand that the Director of OPM would not be here 

today. This is a pretty important issue and a very large problem. 

But notwithstanding that, I look forward to what the witnesses 

have to say and hopefully together we will figure out a way to deal 

with this in a very productive manner. 

The CHAIRMAN. Thank you very much. 

Senator Collins. 

6 

OPENING STATEMENT OF SENATOR SUSAN COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. I want to thank 

both chairmen for holding this important hearing this afternoon. 

I have a lengthy statement that I am going to submit for the 

record with the chairman’s permission. But I do want to make a 

few comments, given my long association with this program. 

As at least two of the witnesses are aware—the National Association of Retired Federal Employees and Colleen Kelley from the 

National Treasury Employees Union know—I worked very hard 9 

years ago to craft this law with Senator Grassley and Senator Barbara Mikulski. At that time, we said that the Federal Government 

should lead the way. The Federal Government should be offering 

a long-term care insurance policy that Federal employees and retirees would be encouraged to participate in. We were hoping that 

that would encourage more private sector employers to offer the 

same benefit because, as Chairman Kohl has pointed out, so many 

of our senior citizens have an alarming surprise when they need 

long-term care and they find out that the Medicare program does 

not cover it other than for very short stays. 

So I was very excited about this new law. I was so excited about 

it that I signed up myself very quickly, and I will tell you, having 

gone through the analysis, I too was under the impression, as 

Mr. Joy was—when I read your comments, they were exactly my 

own—that by signing up at a relatively early age and by paying a 

higher rate, that I would avoid premium increases down the road. 

Now, Mr. Chairman, clearly I can afford—I do not like it, but I 

can afford—the premium increase that is coming my way, but 

many other Federal employees and retirees who chose to participate in this program cannot. I can tell you that just as it came as 

a shock to Mr. Joy and to me, it is coming as a shock to the nearly 

150,000 participants that all of a sudden are going to see their premiums skyrocket, in some cases as high as 25 percent, come next 

January. 

This is a real problem, and I must say I too think that the head 

of OPM should be here today. We need to know how OPM got it 

so wrong. We need to hear from the insurers what happened 

because I too went through all the disclosures, and clearly the impression that was left is that if you signed up early and paid more 

in the early years, there would not be a hike in premiums. 

So I am very glad that we are having this oversight hearing. 

Let me say that OPM has pointed out that an alternative to the 

higher premiums is to downgrade the coverage. Again, that was not 

the deal that more than 100,000 Federal employees thought they 

were signing up for. So I do not see that as a great alternative. We 

know how expensive nursing home care is, and we encourage participation in this program. So this failure is certainly no model and 

it is no way to set an example for private sector employers to follow. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Collins follows:] 

PREPARED STATEMENT OF SENATOR SUSAN M. COLLINS

I want to thank Senators Akaka and Voinovich and Senators Kohl and Corker for 

holding this important hearing this afternoon. This hearing will give us an opporVerDate Nov 24 2008 12:34 May 07, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 H:\DOCS\55905.TXT SAG PsN: JOYCE
7 

tunity to determine why the Office of Personnel Management got it so wrong when 

the agency originally calculated the premiums for the Federal Long-Term Care Insurance program. 

Long-term care is the major catastrophic health expense facedby older Americans 

today, and these costs will only increase with the aging of the baby boomers. That 

is why I joined Senators Grassley and Mikulski nine years ago in introducing the 

legislation to make affordable long-term care insurance available to federal employees, members of the uniformed services, and civilian and military retirees. The intent of our legislation, which was signed into law, was to have the federal long-term 

care insurance program serve as the model for private employers whose workforce 

will be facing the same long-term care needs. 

It is alarming that today, despite earlier assurances by OPM, more than 147,000 

federal long-term care insurance enrollees will be facing soaring premium increases, 

in many cases as high as 25 percent, in January. 

This is simply unacceptable, particularly given the fact that OPM began to recognize the real possibility of increases as early as 2003. Yet, the agency gave little 

warning to federal workers and retirees that there would be an increase. 

To be aware of this possibility, plan participants would have had to search the 

fine print in their policy documents. There was no straightforward disclosure. To the 

contrary, the implication was that by signing up at a relatively early age and by 

paying a higher rate, one could avoid premium increases. OPM made absolutely no 

effort to educate participants. This failure is certainly no model; no way to set an 

example for others to follow. 

An alternative offered by OPM to avoid paying these higher premiums is to downgrade coverage—substantially reducing the daily benefits provided under the plan. 

For example, a participant who enrolled at age 55 and stayed in the program for 

40 years was supposed to receive $1,056 in daily benefits. Now, if that same participant can’t afford the higher premiums and is forced to downgrade coverage to pay 

the same premium amount, the daily benefits would be reduced by $336. This represents a cut of nearly 33 percent in coverage. It is a decrease that no plan participant who thought they were locking in at a stable, long-term rate should have expected. 

Seventy-eight million baby boomers are approaching retirement, and most are 

concerned about whether they have sufficient savings and retirement income to 

cover all of their daily needs. Few, however, have planned for the very real possibility that they may develop a chronic illness or cognitive impairment like Alzheimer’s that will require long-term care. In fact today, fewer than ten percent of 

individuals age 50 and older have long-term care insurance. 

Americans need to plan for their future long-term care needs just as they plan 

for their retirement or purchase life insurance to protect their families. This is particularly true given that, in 2009, the annual cost of a nursing home stay is between 

$66,000 and $75,000. Furthermore, the cost of care in the home can range from $19 

an hour for personal unskilled care to $46 an hour for skilled care from a visiting 

nurse. Moreover, these costs will inevitably continue to rise, which makes planning 

for the future even more important. 

Most Americans mistakenly believe that Medicare or their private insurance policies will cover the costs of long-term care. A 2006 survey by AARP showed that only 

one in five respondents between the ages of 45 and 64 knew that Medicare does not 

cover an extended stay in a nursing home. Unfortunately, far too many Americans 

discover that they do not have coverage until they are confronted with the shocking 

realization that, without long-term care insurance, they will either have to spend 

down to Medicaid eligibility levels or cover the costs themselves. 

How can we expect Americans to invest money and plan for their future needs 

when programs like the Federal Long-Term Care Insurance Program cannot be 

trusted from one year to the next? 

I look forward to hearing from the witnesses on how OPM can more effectively 

educate and assist federal employees and retirees with their long-term health care 

planning so that the federal program can become the model for the nation that we 

intended it to be. 

The CHAIRMAN. Thank you, Senator Collins. 

Senator Wyden. 

8 

OPENING STATEMENT OF SENATOR RON WYDEN 

Senator WYDEN. Thank you, Mr. Chairman. Let me commend 

you for your good work and particularly you, Chairman Akaka, and 

Senator Voinovich, for tackling these issues in a bipartisan kind of 

way. 

It seems to me seniors, when they get ripped off, they are not 

interested in politics. They are not interested in Democrats and Republicans. They are interested in results. 

I will tell you, Mr. Chairman, having been involved in these 

issues now for almost 3 decades since I was Director of the Gray 

Panthers back when I had a full head of hair and rugged good 

looks, one of the issues that I think you look at first, with respect 

to these kinds of problems, is the way insurance policies are written and particularly the fact that there continually seems to be a 

difference between the promotional materials and then what you 

get in the small print. 

So I have got one of the promotional materials, and in fact, I 

think you have got that up there, Mr. Chairman. The last sentence 

states in the promotional materials—and this is for the Automatic 

Compound Inflation Option. It states—and I quote—‘‘Your benefits 

increase year after year without causing an increase in your premium.’’ So that reflects the comment that Senator Collins just 

made very eloquently. People went into this thinking that their 

premiums were going to be flat. That was what was promoted, and 

it looks like they put a big effort into trying to send that impression out. 

Now, what the staff has just picked up—and I commend the staff 

for their efforts, Mr. Chairman—is OPM noted that the fine print 

of the contract later is really quite different, and it states—and I 

will quote here—‘‘Your premium will not change because you get 

older or your health changes for any reason related solely to you. 

We may only increase your premium if you are among a group of 

enrollees whose premiums is [sic] determined to be inadequate. 

While the group policy is in effect, OPM must approve the change.’’ 

So obviously, people thought that they were going to get the level 

of premiums when down in the small print there was a very real 

prospect of people’s premiums being increased if someone down the 

road determined that the premium level was inadequate. That was 

not disclosed in the promotional material. 

I will tell you, Mr. Chairman, this is a very important hearing, 

and certainly going into this, I think that the agency, the Office of 

Personnel Management, ought to be changing their marketing policies so as to be straight with Federal workers with respect to what 

they are actually getting into when they purchase a long-term care 

policy. 

So, Mr. Chairman, I look forward to working with you. We are 

going to push very hard to get your legislation into the health reform package that comes before the Senate. It deserves bipartisan 

support, and I look forward to working with you on it. 

The CHAIRMAN. Thank you very much, Senator Wyden. 

Senator LeMieux. 

9 

OPENING STATEMENT OF SENATOR GEORGE LeMIEUX 

Senator LEMIEUX. Thank you, Mr. Chairman. Thank you, Chairman Akaka. I appreciate the opportunity to be here. 

Representing a State that has the oldest population in the country, this is certainly a concern. Long-term care is an essential component of our citizens planning out their future. We have a large 

percentage of Federal employees who I know will be affected by 

this. 

I am not going to belabor the point because we are going to go 

through these questions, but what Senator Wyden and Senator Collins have spoken about, Senator Corker, concerning the information 

that was provided to these employees is right there in that chart, 

and it is the last sentence that Senator Wyden just read from. 

‘‘Your benefits increase year after year without causing an increase 

in your premium.’’ 

The chart shows two options. So we gave our Federal employees 

the chance to do the right thing, which was to buy at a higher price 

now and have a locked-in premium over time. The chart shows the 

flat line going forward as opposed to the steep increase on the left 

side. This looks like the typical example of the large print giveth 

and the small print taketh away. I have just been looking at the 

document that Senator Wyden referenced where there can be this 

other amorphous way where your premium can go up. Well, you 

know what? This is what the chart is that the people relied upon. 

They do not read the small print. They read the big print, and they 

look at the graph. 

They should not have a 25 percent increase. We should not let 

them have the increase. If we got it wrong in the Government, they 

should not have to pay more. It is not their fault. They did the 

right thing. 

So I look forward to hearing from the folks here on the panel, 

explaining why the people, the employees, who went by the language that was given to them, are going to have to suffer for the 

mistakes that were made by the Government. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. LeMieux. 

Senator Kirk. 

OPENING STATEMENT OF SENATOR PAUL KIRK 

Senator KIRK. Thank you, Mr. Chairman, Chairman Akaka. 

Thank you very much for convening this hearing. 

This is basically, in my view, a question of fundamental fairness. 

There would be tens of thousands of Federal workers and retirees 

who will be hit with a major increase here, believing that that 

would not happen. Two thousand of those are from my State of 

Massachusetts, and we are living in a time when budgets are 

squeezed. People on fixed income measure every dollar. They plan 

ahead. They plan prudently so that they balance what their needs 

are, and this is a situation, as has been mentioned, where people 

relied on the written word and the spoken word and find that the 

group that pays a higher premium today to protect against inflation tomorrow are the very people who now are going to pay the 

harshest price. 

10 

So I associate with those who are really not only disappointed 

but outraged at what are misleading statements about these policies and what their future portend for the folks on retirement or 

on fixed income who are looking ahead. 

I look forward to the testimony of our witnesses and the questions from this panel. I thank you for the opportunity to be here, 

Mr. Chairman. 

[The prepared statement of Senator Kirk follows:] 

PREPARED STATEMENT OF SENATOR PAUL KIRK

Chairman Kohl and Chairman Akaka, I commend you both for holding today’s 

hearing. It is extraordinarily important to the tens of thousands of federal employees enrolled in the Long Term Care Insurance program who face a sharp hike in 

their premiums next year. We need to get to the bottom of this issue. 

In coming days, nearly 2,000 federal employees and retirees in Massachusetts will 

learn that the choice they made to enroll in this program- and join the group that 

pays higher premiums today to protect against inflation tomorrow- will cost them 

even more, despite assurances by OPM and the insurer that enrollees wouldn’t face 

premium increases. 

For persons on fixed incomes, this increase will mean an especially difficult 

decision- either accept the rate increase by cutting elsewhere in their family budget, 

or abandon the investment they’ve made in this program over the years. The news 

is certainly not a good advertisement for their Long Term Care Insurance, which 

was supposed to make such care affordable if they have severe health needs in retirement. 

I commend Chairman Kohl for sponsorship of the ‘‘Confidence in Long-Term Care 

Insurance Act,’’ which will give consumers the support they need to navigate the 

jungle of different plans with varying benefit levels and conditions. It will also give 

greater oversight to the states of insurers’ marketing materials. 

Long Term Care Insurance is obviously an essential part of bringing health costs 

under control. As many as two-thirds of Americans who are 65 today will spend 

some time at home in need of long-term care services in the years ahead. These expenses can quickly exhaust a family’s savings, and drive them into poverty and onto 

Medicaid. 

Senator Kennedy was the chief sponsor of pending legislation, the CLASS Act, 

which will establish an alternative to Medicaid and make Long Term Care more affordable. It would be a voluntary program paid for by payroll withholding, and I’m 

optimistic that it will be enacted this year. 

In the meantime, for federal employees and retirees facing this surprise rate increase, it is clear that reform cannot wait. Again, I commend our colleagues for 

holding this hearing, and I look forward to the testimony of our witnesses. 

The CHAIRMAN. Thank you very much, Senator Kirk. 

Senator Burris. 

OPENING STATEMENT OF SENATOR ROLAND BURRIS 

Senator BURRIS. Thank you, Mr. Chairman, Chairman Kohl, 

Chairman Akaka. 

I would like my opening statement to be placed in the record. I 

will not make it. 

But I just want to set the tone in reference to what my colleagues have said. I am not so sure that I want to see the employees pay higher premiums. I want to see the Office of Personnel 

Management and John Hancock figure out a way how they can follow what they told these persons that they would not see increases 

in premiums. That is what I want to hear. If we do not hear it, 

I am going to try my best to get the Senate to come up with something that will not put this burden on those policyholders. This is 

not their fault. They were misled. OPM and evidently John Hancock, you all did not communicate. Evidently OPM cannot read the 

fine language that is in a contract, and they misled the individuals. 

11 

I do not want to see a senior citizen, a person who holds a longterm policy, have to pay one dime under this ACI program. I do 

not want to see them to have to pay one dime. You all have to eat 

it and still give them the coverage. Take it out of the dividends 

that Hancock would pay. I do not want to see one policyholder pay 

an extra increase in their premiums. You are already trying to 

lower their coverage. It should be restored to its original contractual agreement in your brochures that you put out to the public. 

So OPM, you and Hancock get together and figure out how you 

are going to help these policyholders. If not, we are going to find 

out how Congress can deal with you all for such a mistake that you 

are going to put a burden on these policyholders of this magnitude. 

It is unconscionable. It is unacceptable, and I do not see how we 

can allow this to take place. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Burris. 

We will turn now to our witnesses. Our first witness today will 

be Dan Green, the Deputy Associate Director of Employee Support 

and Family Policy at the Office of Personnel Management. Mr. 

Green is responsible for developing Federal employee benefit policy 

relating to the multi-billion dollar retirement and insurance programs administered by OPM and for promoting important employee and family support programs. 

Our next witness today will be Margaret Baptiste, who has been 

an active member of the National Association of Retired Federal 

Employees. Having served the organization in a number of capacities, she was reelected as the organizational National President in 

2008. 

Next we will be hearing from Colleen Kelley, National President 

of the National Treasury Employees Union. As the organization’s 

top elected official, she is an advocate for fair treatment of employees across the Federal Government. 

Fourth, we will be hearing from Chester Joy. Mr. Joy worked as 

a Senior Natural Resources Analyst with the Government Accountability Office for over 30 years. He is a nationally recognized expert 

on wildland fire and ecosystem management and has lectured on 

these topics across the country. He is also a policyholder with the 

Federal Long Term Care Insurance Program. 

Our next witness will be Mary Beth Senkewicz, the Deputy Commissioner for Life and Health with Florida’s Office of Insurance 

Regulation. Ms. Senkewicz formerly served as Senior Health Policy 

Counsel and Legislative Advisor at the National Association of Insurance Commissioners for over 11 years. In April, she appeared 

before the Aging Committee to testify about life settlement issues, 

and we welcome her back. 

Then we will be hearing from Marianne Harrison, who is the Executive Vice President and General Manager of Long-Term Care 

Insurance for the John Hancock Life Insurance Company. In this 

role, she is responsible for all facets of the long-term care insurance 

business for John Hancock. 

We welcome you all here today, and we will start with you, Mr. 

Green. 

12 

STATEMENT OF DANIEL GREEN, DEPUTY ASSOCIATE DIRECTOR, EMPLOYEE SUPPORT AND FAMILY POLICY, OFFICE OF 

PERSONNEL MANAGEMENT, WASHINGTON, DC 

Mr. GREEN. Chairman Kohl, Ranking Member Corker, Chairman 

Akaka, Ranking Member Voinovich, and members of the committee 

and subcommittee, thank you for the opportunity to testify today 

on behalf of OPM Director John Berry about the Federal Long 

Term Care Insurance Program. 

I am not only an official at the Office of Personnel Management. 

I am also an enrollee in the Long Term Care Insurance Program, 

as is my wife. We are both subject to the upcoming premium increase. So are many of the OPM employees who work on the longterm care insurance contract. None of us are pleased about the rate 

increase either in our professional or personal capacities. I am here 

today to address this issue and to talk about the changes coming 

this year and next. 

This program is designed to help protect enrollees against the 

high costs of long-term care. Enrollees pay the full premiums for 

insurance coverage, and all applications for coverage are underwritten with either abbreviated or full underwriting requirements. 

The Long Term Care Insurance Program offers flexible benefit options to meet the diverse needs of the Federal family. 

The established framework provides for a 7-year contract. The 

initial contract was awarded to a consortium arrangement between 

Metropolitan Life and John Hancock Life & Health Insurance Company. The initial contract term expired this year, and OPM has selected John Hancock as the insurer for the second contract term, 

which began October 1. The new contract includes new benefit options with increased home health care reimbursement, new benefit 

periods, higher daily benefit amounts, increased payment limits on 

informal care provided by family members, and new premium 

rates. 

After a careful and considered evaluation of the program, we determined premium increases would be necessary for most current 

enrollees beginning January 2010. The enrollees affected by the increase are those who have the Automatic Compound Inflation Option, or ACI. Long-term care premiums are age-based, and the 

amount of the premium increase will depend on the ages of the enrollees when they first purchased coverage. Premiums will increase 

for ACI enrollees who were under age 70 when they purchased the 

coverage and who choose to keep the same coverage. 

Of the almost 225,000 total enrollees, about 144,000 have the 

ACI option and will be subject to the premium increase. Of those, 

about 133,000 enrollees will see the maximum 25 percent increase 

in premiums. The remaining enrollees will receive somewhat lower 

increases depending on their ages at purchase. While we are not 

pleased with these premium increases, they will be the first since 

the program began 7 years ago and are consistent with increases 

in other public sector long-term care insurance programs. 

For enrollees who selected the Future Purchase Option, there 

will be no premium increase. Under this option, increases in the 

cost of living are included in a rate change that occurs every other 

year. By contrast, enrollees with the ACI option are eligible for a 

5 percent compounded increase in benefits each year. The preVerDate Nov 24 2008 12:34 May 07, 2010 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 H:\DOCS\55905.TXT SAG PsN: JOYCE
13 

miums for this option were intended to be structured to prefund 

their future benefit increases. However, that means any changes in 

the underlying assumptions about those premium levels have a direct effect on the amount of funds needed in advance to support the 

future benefits. 

Without this adjustment, the long-term care program faces a projected shortfall in funding for the enrollees in the ACI option. The 

actual and projected program experience differs from the assumptions used when the original premiums were established 7 years 

ago. Projections are sensitive to certain assumptions about future 

program experience, mostly enrollee persistency and investment return, and the original estimates are now deemed inadequate. In 

order for sufficient funds will be available to pay benefits to enrollees in the future, we believe it would be irresponsible not to increase premiums at this time. 

We recently announced a Special Decision Period for current enrollees from October 1 to December 14. Enrollees will receive a personalized options letter that will outline their insurance choices 

during this period. One of the options for affected enrollees will 

allow them to keep their premiums approximately the same as they 

now pay by making an adjustment to their long-term care insurance benefits. For example, they can change their current 5 percent 

ACI rate to 4 percent and keep their premiums about the same. 

Making this change would not decrease current benefit levels, but 

would cause the daily benefit amount to increase more slowly, by 

4 percent per year rather than 5 percent. Other options open to 

these enrollees include moving to the plan under our new contract 

with John Hancock, which has new benefits, but at new rates. 

Thank you again for the opportunity to testify before you today. 

I will be glad to answer any questions. 

[The prepared statement of Mr. Green follows:] 

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The CHAIRMAN. Thank you, Mr. Green. 

Ms. Baptiste. 

STATEMENT OF MARGARET L. BAPTISTE, PRESIDENT, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES, 

ALEXANDRIA, VA 

Ms. BAPTISTE. Thank you. Chairman Kohl, Chairman Akaka, 

and members of the committees, I am Margaret Baptiste, President 

of the National Active and Retired Federal Employees Association. 

We are proud of the leading role NARFE played in creating the 

Federal Long Term Care Insurance Program, and those efforts 

make even deeper our disappointment with the 25 percent premium increase announced for thousands of enrollees. 

Before FLTCIP’s creation, we took a dim view of long-term care 

insurance. It was very expensive, offered limited coverage, and premiums often increased. But the group insurance industry asserted 

that the marketplace had all changed and that their product had 

matured. Indeed, when the program was launched, OPM and Long 

Term Care Partners said that a rate hike would be unlikely because in setting premiums, they used the conservative assumptions 

of the National Association of Insurance Commissioners about benefit claims, premium and investment income, and lapse rates. In 

fact, consumers would have to wade through 20 pages of the 38- 

page benefit booklet to find an explanation about the possibility of 

rate hikes. 

After reviewing the program’s history, we are concerned that 

early warning signs within the program were not heeded. Indeed, 

GAO’s 2006 report on the program cited trouble beginning in 2003 

regarding lower-than-expected lapse rates and low interest rates. 

If these problems started in 2003, we have to ask when did low 

lapse rates and low interest rates in FLTCIP become apparent. 

When did either Long Term Care Partners or OPM consider whether rates should be adjusted to address the shortfall? 

While OPM used the 2000 NAIC model to set premiums, such 

standards are meant to be a floor. Nothing prevents either States 

or OPM from requiring more protective standards. NARFE has to 

wonder if the premium increase could have been avoided or minimized had OPM required more stringent standards. We would like 

to believe that the more protective standards that have been included in the second contract will better safeguard FLTCIP enrollees from future rate hikes. But this year, the very people who prudently selected the Automatic Compound Inflation Option have 

been singled out to shoulder a 25 percent premium increase or 

trade it away for reduced coverage. 

I do not have to imagine their outrage because I hear their anger 

every day from our members. Many of them have invested tens of 

thousands of dollars in their policies and are confronted with 

choices that go from bad to worse. 

We believe that enrollees should have been given the option to 

trade their ACI for a higher benefit amount. Indeed, when coverage 

was first offered, some financial planners suggested to certain clients that they buy a benefit amount in excess of current costs as 

an alternative to the ACI’s hedge against inflation. In fact, those 

who took this advice are not facing a rate hike. 

19 

We think its wrong to expose workers and annuitants to additional underwriting if their coverage changes result in an overall 

benefits increase. Why should enrollees who played by the rules 

through no fault of their own be penalized for the decisions of others? 

We do not believe that there will be enough time for participants 

to consider all of the benefit options during the Special Decision Period. The materials we sent to enrollees must be clear and easy to 

understand if we are to make informed decisions. A long-term care 

insurance program with a 25 percent rate hike, where premium increases were marketed as unlikely, is a much tougher sell. No one 

wants to be burned again. 

NARFE is put in the position of wanting to encourage our members to plan for their future, while having great difficulty recommending a product whose premiums are not necessarily predictable 

or affordable. 

To start, we must restore confidence in our program. 

For instance, it is our understanding that fewer insurance carriers competed for the FLTCIP contract this year. Many of us are 

concerned that the downturn in the industry and further consolidation could make matters worse in 2016 when the contract is re-bid. 

Consolidation means there is less competitive pressure on carriers 

to offer the best possible product. For that reason, now may be the 

time for Congress to consider whether the FLTCIP should self-insure. 

If the committee finds that OPM and Long Term Care Partners 

could have mitigated the premium increase by acting sooner, then 

more oversight is needed. 

With regard to the broader industry, we commend you, Chairman Kohl, for introducing Senate 1177. Your legislation would enhance consumer protections, including more stringent regulatory 

authority to require plans, including the FLTCIP, to price their 

product appropriately. We commend you for your interest in restoring the Federal Long Term Care Insurance Program’s stability. 

Thank you for inviting us to testify. 

[The prepared statement of Ms. Baptiste follows:] 

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The CHAIRMAN. Thank you very much. 

Ms. Kelley. 

STATEMENT OF COLLEEN KELLEY, PRESIDENT, NATIONAL 

TREASURY EMPLOYEES UNION, WASHINGTON, DC 

Ms. KELLEY. Thank you very much, Chairmen Kohl and Akaka 

and committee members for this hearing. 

Federal employees and retirees face the same issues as others in 

the workforce. They want an opportunity to make financially sound 

decisions and planning for their later years in life. Many have witnessed the challenges facing aging parents and grandparents and 

the enormous emotional and financial drain that can occur, and 

they want to be prepared. 

As Senator Kohl has noted, NTEU supported the creation of the 

Federal Long Term Care Insurance Program and we worked with 

Congress on a bipartisan basis and with our friends in the Federal 

retiree community to help enact it. Those who purchased policies, 

many in the baby boomer generation who witnessed the economic 

challenges of the previous generation, made smart decisions to plan 

ahead for their long-term care needs, and they signed up. As we 

know, those who paid more for policies with the Automatic Compound Inflation protection option were told that their premiums 

would not increase. 

I am submitting, along with my testimony, four different pieces 

of literature from 2002 that mischaracterized OPM’s program. Two 

of these brochures have headers on them that say, ‘‘Act Smart’’ and 

‘‘Be Smart.’’ That is what these enrollees thought they were doing. 

These brochures describe the two different inflation protection options, the Future Purchase Option and the ACI. These brochures 

make clear there will be no corresponding increase in the premium 

of ACI, and it says no in capital letters in both of these brochures. 

Of course, you have the graphs added it to, which people relied 

on, and these materials all came from OPM and its partners, John 

Hancock and Met Life Insurance Companies. 

NTEU was as surprised as all of you when 7 years later OPM 

announced a future premium hike of 25 percent for those very people who bought ACI. It is not an exaggeration to say that Federal 

employees were stunned. After all, these employees intentionally 

chose the ACI option because it prefunded future benefit increases 

in a sensible and a forward-looking way. While it was more expensive, it was worth it because it would protect against inflation. ACI 

was considered the wise choice by many, including savvy financial 

planners. Enrollees, as we have heard, spent tens of thousands of 

dollars on it, and now they are all 7 years older and they do not 

want to lose that money. 

It should come as no surprise that many NTEU members feel 

misled and mistreated by their Government. I urge your committees to find a way to correct these wrongs, and NTEU pledges to 

work with you on that. 

Now, in a matter of weeks, OPM will mail personal packets of 

information presenting options for enrollees. I understand the 

choices that the enrollees will have when they receive those packages. But OPM’s website says that the Special Decision Period is 

now open, October 1st through December 14th. But the packages 

32 

have not even been mailed yet. I believe enrollees need more time 

to study their options. NTEU supports extending the early decision 

period beyond December 14th for current enrollees. This would give 

enrollees additional time to study and to absorb their various options. 

OPM should also examine the current relationship between 

claims and assumptions that were used in the program to determine premiums. In its December 2006 report, GAO reported that 

OPM and its long-term partners experienced a less-than-expected 

number of claims. GAO recommended twice that OPM analyze the 

claims experience and assumptions affecting premiums. I am not 

aware if that analysis has been done by OPM, and NTEU would 

like to know that. OPM needs to reexamine this in terms of future 

premium projections. 

NTEU does support additional consumer protections and transparency and better marketing standards, and we do support your 

bill, Chairman Kohl, S. 1177, the Confidence in Long-Term Care 

Insurance Act, to ensure that plans like OPM’s will provide consumers with a better understanding of their policy’s coverage and 

cost. 

Finally, if I leave the committees with one message today, it is 

this: OPM can never let this happen again. The Federal Long Term 

Care Insurance Program needs to remain viable and it should be 

a model in this new field of long-term care as it was originally envisioned. 

The Government’s long-term care insurance program has experienced a very rocky beginning. Hundreds of thousands of Federal 

families deserve better treatment. OPM and its partner, John Hancock, must get it right this time and never let a premium fiasco 

like this occur again. 

I would be glad to answer any questions you have. 

Thank you. 

[The prepared statement of Ms. Kelley follows:] 

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The CHAIRMAN. Thank you very much, Ms. Kelley. 

Mr. Joy. 

STATEMENT OF CHESTER JOY, INDIVIDUAL FEDERAL LONGTERM CARE POLICYHOLDER, WASHINGTON, DC 

Mr. JOY. Good afternoon, Chairmen Kohl and Akaka and Ranking Members Corker and Voinovich and other distinguished committee members. I thank you for inviting me here today to discuss 

the OPM Federal Long Term Care Insurance Program. 

I will summarize my statement submitted for the record. 

In 2002, before retiring from GAO, I, together with my wife, purchased Automatic Compound Inflation, or the ACI, policies under 

this program. We have paid over $60,000 in premiums since then, 

much more than we would have otherwise, because we believed 

this policy was special. We were told premiums would be locked in 

at a flat rate, while benefits increased at 5 percent. Every other 

policyholder we have talked to understood and believed the same 

thing. Probably the only exception is at the end of the table here. 

Here is why we believed this. On the application form, you 

checked the box indicating your choice between this policy and the 

Future Purchase Option one that did not do that. Above the box, 

it said, ‘‘If you have any questions regarding Inflation Protection, 

please refer to your Inflation Protection Options Brochure in your 

kit.’’ That is this one here, and that is shown up there. So that is 

the last thing you saw. 

That is the text of it right up there, and as you can see, it says 

if you buy the ACI Option, you will pay now more but lock in a 

flat rate. Three lines down it does have the ‘‘no increase’’ language. 

OPM now contends—and Senator Wyden, Senator LeMieux, you 

pointed out about small print. Senator LeMieux, the point is this. 

We did not miss the small print because what you have not heard 

today is this. We have another document that we were given that 

you are supposed to be given, and it is called an outline of coverage. In that document, the very language that OPM is citing is 

contained. But it is only referred to with respect to the Future Purchase Option, the other option, not this option. That is very crucial 

to understand. It was probably a mistake on the part of the insurance companies, but that does not matter. It was not connected to 

this. 

Now, let me put this in a bit larger perspective that is even more 

troublesome. We are not only shocked to learn that this happened 

because we are going to get a renege on this, but we only found 

out now that this was a 7-year contract. That document shows a 

30-year timeline, and the language below refers to a 30-year 

timeline. We had no idea there was going to be a renegotiation. 

So what this means is we are placed in a terrible situation. We 

either pay a higher premium now and possibly every new contract, 

which the Director of OPM said will happen on the Kojo Nnamdi 

NPR interview program—it will happen every time—or we accept 

the lesser amount and just hope that coverage does not erode every 

time. Or we go out in the private market. Being 7 years older, that 

means a higher rate. Maybe some people will not be able to get it 

at all. Of course, all the premiums that we paid would be gone. 

42 

This is a very crucial decision for a lot of us, and it is going to 

affect our loved ones too. The problem is that 51⁄2 months after 

OPM made this agreement, we still have not heard exactly what 

our options are going to be. We are not going to get those letters 

until about the end of this month/beginning of the next month. 

That is going to give us 6 weeks. Every single financial expert in 

this area has told us you cannot go through at our age underwriting and comparing. How can we compare if we do not have 

something yet to compare to? So the result is we are trapped, and 

that is wrong. So I heartily support the notion of extending the 

time, as Ms. Kelley said. 

Finally, OPM has repeatedly said that this program complied 

with the National Association of Insurance Commissioners’ guidelines for long-term care insurance. Every place you read it. But in 

fact, they provided us with their companion guide to the shoppers 

guide, the NAIC guidelines. What they left out in their companion 

guide is the fact that there is a warning in there in shopping guide 

by NAIC that says words like ‘‘flat rate,’’ words like ‘‘no increase’’ 

and ‘‘level’’ cannot be used. So this did not comply. It further states 

that many States have outlawed that kind of language. State insurance commissioners have, but OPM allowed it. 

In summary, Chairman Kohl, Chairman Akaka, all ACI policyholders we have spoken to agree we would not have bought this 

policy, we would not have spent these tens of thousands of dollars 

if we had known that OPM’s promise of pay more now but lock in 

a flat rate was not true. But now that we have, we are kind of 

stuck in a tough place. 

What is particularly galling to us and me personally is as current 

and former Federal employees, what tipped the balance in our decision about this was OPM was behind it. That is what tipped it. We 

could trust that brand. I think that is important going forward to 

think about as you deal with this. 

I am not saying that OPM and the insurers were acting in bad 

faith, but by the same token, OPM and the insurers cannot in good 

faith contend that the documents you have seen today—and I want 

to emphasize one of those documents, which I included, and that 

is that one, that Outline of Coverage document, which I referred 

to in my prepared statement, that that document says that that 

provision they are citing relates to the ACI option because clearly, 

when you read it, it only refers to the other. You are only referred 

to that phrase when you get to the FPO section. So the documents 

clearly show they did promise no increase, and I do not think they 

can, in good faith, contend otherwise. 

The proposed fix of offering us the same amount for lesser coverage is not really equitable. What is the fairness or accountability 

in that? 

My prepared statement does describe some remedies that I consider acceptable, including one very closely related, Chairman 

Kohl, to your proposed legislation which if we had passed in 2002, 

none of us would be spending this afternoon like this. 

Ladies and gentlemen, that concludes my statement. 

[The prepared statement of Mr. Joy follows:] 

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The CHAIRMAN. Thank you, Mr. Joy. 

Ms. Senkewicz. 

STATEMENT OF MARY BETH SENKEWICZ, DEPUTY COMMISSIONER, FLORIDA OFFICE OF INSURANCE REGULATION, 

TALLAHASSEE, FL 

Ms. SENKEWICZ. Thank you, Chairman Kohl, Chairman Akaka, 

Ranking Member Corker. Good afternoon, everyone. Thank you for 

inviting me here. 

In addition to my position in Florida, I also serve on behalf of 

Commissioner Kevin McCarty as Chair of the NAIC’s Senior Issues 

Task Force, and it is on the NAIC’s behalf that I testify today, an 

organization comprised of insurance regulators from the 50 States, 

the District of Columbia, and five U.S. territories. 

Before I begin, I would like to thank the Senate Special Committee on Aging for its continued focus on improving the long-term 

care insurance market. The NAIC appreciated the opportunity to 

work with Chairman Kohl on S. 1177, the Confidence in LongTerm Care Insurance Act of 2009. If enacted, this bill would improve the long-term care insurance marketplace. 

As we all know, our Nation faces an increasing challenge of how 

to pay for long-term care services. Medical inflation is rising faster 

than incomes. Some individuals can afford to put money aside, but 

many rely on Medicaid, which puts considerable pressure on State 

and Federal budgets. 

A healthy long-term care market will help alleviate that pressure. Currently, private long-term care insurance provides approximately 10 percent of the total long-term care services in the country, but it is increasing. In the past decade, the market has grown 

from covering less than 3 million lives to covering more than 7 million lives, with premiums increasing to over $100 billion. 

However, let us be frank. Long-term care insurance has proved 

a challenging product to regulate because of the length of the tail. 

You are purchasing a product that you do not expect to access benefits for over 30 years. The history of the product has shown us 

this. Long-term care policies, unlike the original policies which generally only provided nursing home care, now incorporate a myriad 

of care alternatives, including nursing home, home health care, respite care, hospice care, and services provided in assisted living facilities, adult day care centers, and other community facilities. In 

addition, we have observed the emergence of group policies, most 

notably the Federal Long Term Care Insurance Program. 

State regulators did notice during the 1990’s many companies 

were under-pricing long-term care policies due to faulty assumptions. This resulted in Florida and many States with significant 

rate increases for the companies to pay unanticipated claims in 

order for them to retain their solvency. One result, policyholders 

had to lapse. 

At this time, the NAIC—we studied it. We developed and adopted rate stabilization standards in August 2000 which revised the 

NAIC long-term care model regulation. These standards, adopted 

by Florida in 2003, provide incentives for the company to price its 

products adequately at the front end so that no rate increases will 

be necessary and require company assurances that the rates are 

57 

sufficient to pay anticipated costs under moderately adverse experience during the life of the policyholder. 

In addition, the new standards require specific disclosure to the 

consumer about the potential for rate increases which must be 

signed and acknowledged by the consumer. Let me repeat that. A 

specific disclosure is contained in appendix B of our model regulation which is called the ‘‘long-term care insurance personal worksheet.’’ Right up near the front in bold print is the company’s right 

to increase premiums. On the second page, there is a little box that 

you have to check that says we also require that they provide a 10- 

year rate history, and there is a little box that you have to check 

and sign that says I understand that this premium—the price for 

this product may go up in the future. 

A second appendix, appendix F, also discusses what happens if 

there is a contingent benefit upon lapse when there are rate increases. This one is specifically signed. The other is informational. 

If the company does file for a rate increase under these standards, the company is penalized and a persistent practice could result in a company’s suspension from the market. 

In Florida, we have been even more aggressive in adopting regulations to protect seniors. In addition to the NAIC models, we require rate pooling across similar benefits and we impose limits on 

the relationship between the new business and renewal rates, 

which helps reduce death spirals because requiring this pooling 

and requiring that the rates be capped by the new business rate, 

you are preventing people from being in that death spiral when a 

block is closed. 

We believe the adoption of S. 1177 would be an important tool, 

as it would update Federal consumer protection standards and institute a formal process for incorporating new NAIC-adopted protections in tax-qualified and partnership plans. 

In conclusion, we have worked hard over the years to keep up 

with our regulatory oversight of this product, as it has changed 

rapidly and often during the last 20 years. We look forward to continuing our partnership with Congress to achieve the goal of continuing to protect consumers. 

Thank you, Mr. Chairman. 

[The prepared statement of Ms. Senkewicz follows:] 

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The CHAIRMAN. Thank you, Ms. Senkewicz. 

Ms. Harrison. 

STATEMENT OF MARIANNE HARRISON, PRESIDENT, LONG 

TERM CARE, JOHN HANCOCK FINANCIAL SERVICES, INC., 

BOSTON, MA 

Ms. HARRISON. Good afternoon, Chairman Kohl, Chairman 

Akaka, and members of the committees. I am Marianne Harrison, 

President and General Manager of the Long Term Care Business 

Unit at John Hancock. I welcome the opportunity to appear before 

you today to discuss the Federal Long Term Care Insurance Program. 

We believe long-term care insurance is a critically important 

product that can help mitigate the impact of potentially devastating costs on the financial well-being of American families facing a long-term care situation. We have always actively supported 

consumer protection legislation and regulations at the State and 

national level, and we commend the initiatives proposed by Chairman Kohl in S. 1177, the Confidence in Long Term Care Insurance 

Act of 2009. This bill would help to further strengthen the consumer protections afforded to purchasers of long-term care insurance. 

My testimony today will address the issue of premiums charged 

under the Federal program and describe our communications campaign to help enrollees evaluate their options and facilitate an informed decisionmaking process. I would like to add that we regret 

any misunderstandings that may have arisen as a result of the rate 

increase. We are hopeful that this hearing will help to dispel that 

confusion. 

At the outset, I would like to highlight three critically important 

points. First, everyone can avoid the rate increase without a reduction in his or her current benefit levels. Second, no one who purchased at the issue age of 70 or above will experience a rate increase, and third, everyone will have time and support to evaluate 

his or her options. 

In the world of long-term care insurance, the Federal program 

has a unique funding mechanism that allows for complete and total 

transparency. All of the premiums collected for the Federal program go into a separate fund called the Experience Fund and cannot be used to cover unrelated liabilities of the insurer or for any 

purposes other than the Federal program. All premiums must go 

into the Experience Fund and all debits such as program claims, 

expenses, and fees are paid out of the Experience Fund. 

As the program developed, we saw that some of the original pricing assumptions were inconsistent with actual experience. In particular, enrollee mortality and lapse rates have been significantly 

lower than expected. This has been the case even though a lower 

lapse rate had been assumed in pricing but not generally used 

throughout the industry at the time. 

Also, investment experience has been worse than expected, the 

consequence of the low interest rate environment that evolved 

shortly after the program began in 2002. 

While it is still early in the program, it is evident that in order 

for the program to have enough money to cover the claims that are 

68 

now expected to be incurred in the future, it is necessary to revise 

some of the premiums. For those enrollees who will experience a 

rate change, the average monthly increase is approximately $29 

per month. All of the people impacted by the increase purchased 

a 5 percent annual inflation adjustment. 

Out of concern that some of these enrollees might find this increase in premium unmanageable, we developed an option that allows an individual to avoid an increase in premium altogether by 

changing from a 5 percent annual benefit increase to a 4 percent 

annual benefit increase. This alternative allows enrollees to retain 

the core value of their current benefits including, for example, 

types of services, levels of reimbursement for services, waiting periods, and care coordination while still avoiding the rate increase. 

Again, making this change would not decrease current benefit levels. 

We believe that a 4 percent annual benefit increase provides 

meaningful protection from increases in the cost of long-term care 

services over time. 

We also believe much of the confusion has arisen because people 

assume that because premiums do not increase due to inflation 

under the Compound Inflation provision, that there was an implied 

guarantee that premiums would not increase for the program overall. 

We have worked closely with OPM to develop a comprehensive 

communication strategy for current enrollees to provide clear and 

explicit descriptions of their choices and options. 

We have also developed a process to provide enrollees with sufficient time to help them evaluate their options and choices. Open 

season for Federal employees to make decisions on all their health 

benefits is 30 days. Enrollees in the Federal Long Term Care Insurance Program will have at least 5 weeks to decide how they 

want to proceed. In addition, we will ensure that extenuating circumstances are considered and that every affected enrollee has an 

opportunity within a reasonable timeframe to avoid the rate increase. 

John Hancock believes that private insurance will play an increasingly important role as a source of funding for long-term care 

needs in the coming years and that the reasons for which the Federal program was established are more valid than ever. Our commitment to protecting the interest of our current and future policyholders is unequivocal. 

Thank you for the opportunity to speak to you today to offer this 

testimony. I will be happy to answer any questions you may have 

at this time. 

[The prepared statement of Ms. Harrison follows:] 

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The CHAIRMAN. Thank you, Ms. Harrison. 

We will now turn to the panel for questions. Senator Akaka? 

Chairman AKAKA. Thank you very much, Mr. Chairman. 

Mr. Green, how long have you been with OPM? 

Mr. GREEN. I have been with OPM 37 years, sir. 

Chairman AKAKA. How long have you been in this Deputy Associate Director position? 

Mr. GREEN. Since 2005. 

Chairman AKAKA. As early as the status report for fiscal year 

2004, the provider told you that the program had a deficit that had 

grown from the prior year. This trend continued. 

My question to you is, why is Congress just learning of these serious problems this year? 

Mr. GREEN. Well, sir, first of all, OPM did inform Congress in 

2007 that rates may have to be increased with the new contract 

term. 

But more broadly, the answer is that we dealt with assumptions 

that were believed to be valid at the beginning of the contract 

term. The actual experience was worse than anticipated. We did 

not know, and our contractor did not know, whether this was a 

temporary or long-term condition. Changing the rates while they 

were still fluctuating and uncertain would have been a disservice 

to all concerned, especially our enrollees. 

So it was not until we determined that, not only was the experience worse than anticipated, but it was likely to stay that way, 

that we decided a rate increase was needed even if experience 

turned for the better. In late 2007 and on into the later years, as 

the contract was coming to an end, we decided it was appropriate 

at that time to come up with a new benefits structure going forward and to deal with the rate issue for current enrollees. 

Chairman AKAKA. Ms. Harrison, as was discussed already, John 

Hancock was awarded the next 7-year contract for this program. 

You testified that changes in certain assumptions were needed. 

My question to you is, what changes in investments, assumptions, and program benefits are you making to ensure that additional premium increases of this kind will not be necessary? 

Ms. HARRISON. When we initially priced the product, we were 

using our best estimate of assumptions at that particular time. As 

we saw the experience coming out over the years, there were two 

things that we primarily noted. Termination rates which were 

based on population’s mortality and lapse rates had deteriorated, 

as had the investment experience. 

When we priced for the second contract, we ensured that we used 

what we have learned from the past 7 years, that we used expectations in terms of where we think those assumptions will be in the 

long term. At this point, we have priced, assuming that we will not 

have another rate increase, but if assumptions change, there is a 

possibility that there may be one in the future. However, we have 

priced right now assuming the current premiums are correct. 

Chairman AKAKA. Thank you. 

Mr. Green, according to GAO, State programs faced with a large 

premium increase have varied in how they handle the situation. 

Some States have raised premiums by a smaller amount over a few 

87 

years to make it easier for the enrollees to handle, while others 

have imposed the full increase at one time, as OPM has done here. 

Please discuss why OPM decided to impose a large, one-time increase rather than phasing smaller increases over several years? 

Mr. GREEN. Yes, sir. The primary reason for that is that we were 

not sure 2 or 3 years ago, and our partners were not sure 2 or 3 

years ago, that a rate increase was needed at all. We did not have 

enough experience over the short term of this contract in order to 

be certain that the adverse conditions we were seeing would continue. It was the recommendation of the contractor, which OPM accepted, not to increase rates at all at that time. It was only in the 

past year or so that it was determined that conditions were such 

that, even if they improved, rates would have to go up. 

Chairman AKAKA. Mr. Joy, you said in your testimony that you 

were not aware that your premiums could rise when you signed up 

for the program and chose the Automatic Compound Inflation Option. After taking a look at the documents that you were given 

when you signed up, I think that conclusion was quite reasonable. 

I would like you to talk about what this premium increase or 

lowering the benefit inflation rate would mean for you and for 

other policyholders faced with that same choice. 

Mr. JOY. Many persons chose this policy knowing that it would 

be a stretch, but they thought over time it would go away. It is sort 

of like, well, your mortgage in effect keeps going down. The problem is that we feel like we’re getting our mortgage refinanced at 

a higher level by the company here, and in point of fact, instead 

of living with that stretch of that high mortgage for a while, it is 

going to now be forever and maybe get beyond control. At a certain 

point, especially given that this is going to happen—according to, 

again, OPM Director Berry on September 9th on National Public 

Radio—said this is going to happen every time. 

So I cannot take 25 percent increases every 7 years, not at the 

rate I have paid. On the other hand, lowering the benefit—well, if 

that is just the mirror image, the left-right image. If I am going 

to pay the same amount that I am stretched for now, but I am 

going to get less and less and less over time, then why am I paying 

it? What is going to happen is a lot of people are going to lapse 

and that is going to do everybody a lot of good because then those 

benefits will never have to be paid out, but the premiums will have 

been paid in. 

So that is why there is an equity issue here that has to be addressed, and I would emphasize again we are not talking about a 

difference between the large print and the small print. The Outline 

of Coverage document does not say that that particular paragraph 

they are citing as the reason applies to the ACI one. It is only referred to within the FPO one. So I had no reason to think otherwise, and that is why I am stretched. That is why I made the decision to be stretched like this. 

Chairman AKAKA. Thank you very much, Mr. Chairman. 

The CHAIRMAN. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Ms. Harrison, I have to tell you that I thought that your testimony here today is as misleading as these marketing materials. 

Twice you said that you would allow enrollees to avoid an increase 

88 

in premium by switching from the 5 percent annual benefit increase to a 4 percent increase, and twice you said this change 

would not decrease current benefit levels. Well, of course, the key 

word there is ‘‘current.’’ For about one year, there is no change, but 

after that there becomes a huge change. 

Let me give you an example. If an individual enrolls in this program at age 40—and after all, we are trying to encourage people 

to plan—and then pays into this program for 40 years, which is 

about the time that you would expect someone to need long-term 

care at age 80, then rather than receiving $1,056 as the daily benefit that they would have received under the 5 percent compound 

formula, instead that individual is going to receive a daily benefit 

of only $720. That is almost a third lower. 

So when you twice say today that you can switch, you can switch, 

it is not going to affect your current benefits, it is not going to affect your core plan design, your core benefits, your coverage services, I think that is extraordinarily misleading because, in fact, 

very quickly there is a considerable delta that opens up as a result 

of going from 5 to 4 percent. That may sound like it is minor, but 

because of the way compound interest works, that is not minor at 

all. 

I am discouraged to hear you give those blithe assurances today 

when, in fact, a third decrease to Mr. Joy is going to make the difference between whether he can afford the nursing home if, God 

forbid, you end up in one, or whether his family members or the 

Medicaid program are going to have to pay for his costs. 

So I feel, listening to your testimony today, that your company 

has not learned anything. You are still misleading people. I would 

ask you to respond to that. Do you not think that is a big difference? 

Ms. HARRISON. My response is, in terms of what 5 percent compound inflation is trying to do, is that is trying to maintain your 

benefits over time. If you have a $100 daily benefit today, it wants 

to make sure that in the future when it is time to pay the claim, 

that you have still that core benefit of $100. So it really is trying 

to—the idea of 5 percent compound is that it is increasing your 

benefit to reflect what inflation is doing and what the cost of care 

services is doing. 

The 5 percent compound was introduced several years ago as an 

indication of what inflation would look like. Whether it is 5 percent, 4 percent, 3 percent, no one really knows what the right number is, but I would say that the cost of care over the last several 

years has been trending anywhere from 1.5 to 4 percent. 

So we think that 4 percent is a fair inflation rate to apply to this, 

and some people may even argue that at 5 percent you are actually 

overpaying for what it is that you are trying to maintain core benefit. 

Senator COLLINS. I can tell you that if you told seniors or if you 

told Federal employees today, as you did, that you can change from 

5 to 4 percent, it will protect your core benefit, there will be, quote, 

no change in current benefit levels, they would think, well, wow, 

that is a good deal. If you told them, however, that if they went 

from 5 to 4 percent, 40 years from now, that the difference is they 

89 

are going to be getting a third less, that is a totally different impression. 

Let me, before my time expires, go to the brochure materials that 

Mr. Joy and everyone relied upon who chose this plan. As he has 

pointed out, it even says that there will be no, with capital letters, 

no corresponding increase in your premium. Do you think that this 

is a fair representation of the product? 

Ms. HARRISON. I think in our attempt to try and distinguish between the two inflation options, which were the Future Purchase 

Option and the 5 percent Compound, that the text was trying to 

get at is that with the Future Purchase Option that your premiums 

are going up as you utilize the FPO in the future, whereas with 

5 percent Compound, as that inflation option increases, your premiums would not increase. I do think that it caused a lot of confusion, and I do regret that. I think there are other places where it 

is clear. That was probably not one of them. 

What we have done going forward in the second contract term is 

to ensure that all the language is very clear so that people understand that distinction. 

Senator COLLINS. Ms. Senkewicz, my time is expired. Let me ask 

you the same question. Do you think that this document is misleading to consumers? 

Ms. SENKEWICZ. Ma’am, Mr. Chairman, I think that it is pretty 

evident that a consumer could be misled. I do not think that—just 

looking at that side by side and overall in the documents that I 

have seen, it is not set out as clearly as we do in our model and 

the separate disclosure that you have to read and sign. It says, you 

know, this product could have an increase in rates. I mean, we 

were very concerned about that. We worked very hard on that particular disclosure to make sure that it was crystal clear. 

Senator COLLINS. But that is nowhere on this document. 

Ms. SENKEWICZ. I do not see the little check box in any of the 

materials that were provided to me by the staff. 

Senator COLLINS. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Collins. 

Senator LeMieux. 

Senator LEMIEUX. Thank you, Mr. Chairman. 

Mr. Green, this document that we are talking about that is up 

there on the board next to you—who was responsible for creating 

this document? 

Mr. GREEN. The Long Term Care Partners created it. OPM approved it. 

Senator LEMIEUX. OK. The Long Term Care Partners—that is 

separate from John Hancock? 

Mr. GREEN. It is a subsidiary of John Hancock. 

Senator LEMIEUX. Are they here today? 

Mr. GREEN. Yes. Well, represented by—— 

Senator LEMIEUX. Ms. Harrison? 

Mr. GREEN. Ms. Harrison. 

Senator LEMIEUX. OK. Let me just change if I can. 

Ms. Harrison, Long Term Care Partners, a subsidiary of John 

Hancock, came up with this document? 

Ms. HARRISON. That is correct. 

90 

Senator LEMIEUX. When did you realize that the information 

that was contained in this document was no longer accurate? You 

meaning John Hancock or Long Term Care Partners. 

Ms. HARRISON. I think it has become very clear that with the 

rate increase, that there was a lot of confusion over the document. 

Senator LEMIEUX. When did you understand that there was 

going to have to be a 25 percent increase or any increase? 

Ms. HARRISON. The first time that we proposed a rate increase 

would have been in the spring of 2007. 

Senator LEMIEUX. How long has this document been in use? 

Ms. HARRISON. Since the beginning of the program. 

Senator LEMIEUX. Is still being used? 

Ms. HARRISON. No, it is not. 

Senator LEMIEUX. When did that stop? 

Ms. HARRISON. When we realized that a rate increase was necessary, we stopped actually pushing the program to enrollees. We 

were not actively using those documents. 

Senator LEMIEUX. So as soon as you found out in 2007 that there 

was going to have to be an increase, you did not use this document 

anymore? 

Ms. HARRISON. I would have to check on the exact date. 

Senator LEMIEUX. For the folks that relied upon this inaccurate 

document, when did they find out that this document was no 

longer good and that they were going to have to pay more? 

Ms. HARRISON. I would assume it was when the rate increase 

came up. 

Senator LEMIEUX. That is just 2009. 

Ms. HARRISON. Right. 

Senator LEMIEUX. So for two years, people who have been paying 

into this—$60,000 Mr. Joy says over time—they did not know that 

this information that they relied upon was incorrect, and still, they 

made their payments. 

Ms. HARRISON. I should clarify that in May 2008, all new enrollees got a one-pager that also talked about the possibility that premiums may go up in the future, and it was also posted on the 

fedbizops as well. 

Senator LEMIEUX. Mr. Green, when did you find out from the 

John Hancock company or their subsidiary that this information 

was incorrect? 

Mr. GREEN. First, let me correct for the record that this particular document was taken off the market in January 2005. It has 

not been in use since then. 

Senator LEMIEUX. OK. Can you answer my question? 

Mr. GREEN. Would you repeat it please, sir? 

Senator LEMIEUX. When did you find out that this information 

was inaccurate? 

Mr. GREEN. Before January 2005, in the sense that we did not 

know that a rate increase would be necessary. We did know as was 

said earlier, that it does do a good job of explaining in plain language the difference between a Future Purchase Option and an 

Automatic Compound Inflation Option. It does not do an adequate 

job of explaining the overall potential for a rate increase, and that 

was one of the reasons I believe it was taken off the—— 

91 

Senator LEMIEUX. So 2005 you stopped using this document because you are worried that it is not accurate, that it is not—— 

Mr. GREEN. It was too simplistic. 

Senator LEMIEUX. It says here that you are not going to get a 

rate increase. 

Mr. GREEN. Yes. 

Senator LEMIEUX. You figure out in 2005 that is not true anymore? 

Mr. GREEN. Among other reasons. I do not know all the reasons 

it was taken off. 

Senator LEMIEUX. So you stopped using. Right? 

Mr. GREEN. We stopped using it. 

Senator LEMIEUX. So then you sent a letter, of course, right after 

you found this out to all of the Federal employees who had paid 

for this telling them that this information was inaccurate and a 

rate increase was coming. 

Mr. GREEN. No. 

Senator LEMIEUX. You did not do that. 

Mr. GREEN. Because we did not know at that point that a rate 

increase was coming. 

Senator LEMIEUX. So for years, Federal employees, more than 

100,000 who chose to do the right thing to get the fixed product, 

the fixed payment, keep paying in even though you know and John 

Hancock knows that this information is no longer accurate. 

Mr. GREEN. We started using correct information, and we did not 

know at that time that a rate increase would be necessary. 

Senator LEMIEUX. But people like Mr. Joy are still paying in and 

they do not know that the situation has changed and that the thing 

they relied upon is not true. Right? 

Mr. GREEN. I am not saying it was not true, but it was not complete. It was not accurate. It was not up to our standards. 

Senator LEMIEUX. Your benefit increases year after year without 

causing an increase in your premium. That was no longer true. 

Was it? Because they were going to get a rate increase. 

Mr. GREEN. We did not know they were going to get a rate increase. 

Senator LEMIEUX. When did you know that? 

Mr. GREEN. As I said, we knew a rate increase would be necessary, or we assumed a rate increase would be necessary late in 

2007. 

Senator LEMIEUX. Now, I only have a few seconds left, but I 

want to go back to this point that I talked about in my opening 

statement. Mr. Chairman, if these Federal employees are given 

this document that says they are not going to get a rate increase, 

why should this mistake fall upon them? Why should they have to 

pay for it? 

I applaud the comments of my colleague from Illinois. Why 

should John Hancock and the Federal Government not have to 

make up this difference? You know, frankly, heads should roll over 

this. This is a huge mistake, and we have got 6,000 people in Florida, Federal retirees, who did the right thing and paid into this, 

who are going to get a 25 percent increase. Why should they pay 

the burden of the people—for the mistake that others made? It 

does not make any sense to me. There should not be any increase 

92 

in premiums. There should not be any decrease in benefits. If there 

is going to have to be a change, they should be refunded what they 

paid in, the difference between this plan and the other variable 

plan. They should get the difference back. It is not fair to them. 

But I appreciate, Mr. Chairman, you having this meeting today 

on this very important topic. 

The CHAIRMAN. Thank you, Mr. LeMieux. 

Now we turn to Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. Let me say again, 

Mr. Chairman, I think that this highlights the need for your legislation. 

I just have a couple of points, having listened to some of my colleagues ask questions. 

Mr. Green, I am not clear what is actually going to change at 

OPM as a result of Chairman Kohl’s hearing. What we have heard 

is that you have got older people who feel they were the victims 

of a bait and switch process. It really amounts to them like a confidence game. 

So could you just outline, since we have been at it for 90 minutes 

or so, what specifically is going to change at OPM to give consumers a sense of confidence that things will be different? 

Mr. GREEN. Yes, sir. Thank you. 

First, we have worked very hard to improve the educational materials that will be part of the outreach effort for all enrollees, including the new enrollees we hope will join the program in the second contract year. 

Senator WYDEN. So on that point, improve the educational materials, are you saying that on your watch we will not have another 

situation where there is a big gap between the promotional materials and what the legalese says? I mean, that is what I would call 

a change in the educational materials. 

Mr. GREEN. Yes, sir. 

Senator WYDEN. Can you assure us that that will not happen 

again? There will no longer be a gap between the ads and what the 

fine print—— 

Mr. GREEN. That is our absolute intention and that is what we 

are going to accomplish. 

Senator WYDEN. Go ahead. 

Mr. GREEN. Let me give you some examples. All of these materials are currently outlined, by the way, on the www.ltcfeds.com 

website, and they are available on request from Long Term Care 

Partners. 

The new materials disclose that the insurance company reserves 

the right to increase premiums. The new materials disclose that 

the premiums are not guaranteed. The new materials disclose this 

information in many places, including on the pages that talk about 

the ACI and the FPO options. The first page of the new application 

discloses that premiums are not guaranteed. The agreement and 

acknowledgement section of these applications, which I think we 

have heard about, and which requires the applicant’s signature, 

discloses that premiums are not guaranteed. The new benefits 

booklet, the contractual statement of benefits, discloses that premiums are not guaranteed on its very first page in addition to disclosing it within the booklet. 

93 

In addition, all the new graphs that describe how the ACI option 

works now clearly state that premiums are not guaranteed. Likewise, the new graphs that describe how the FPO option works also 

state that premiums are not guaranteed. 

Senator WYDEN. So we are not going to see any more of what we 

are listening to today, gaps between promotional materials and 

contracts. You have changed the educational materials. Any other 

steps that the agency is going to take to protect consumers? Any 

other marketing changes? Anything else that you can outline today 

to protect consumers? 

Mr. GREEN. We are going to do anything we can and everything 

we can. One of the things Director Berry asked me to share with 

you today is his willingness and OPM’s willingness to work with 

both the subcommittee and the committee on ways of improving 

the program, looking at new ideas, better ways of managing the 

program based on our experience, based on the growth of the experience in the long-term care industry, and working with John Hancock and Long Term Care Partners and all the members on this 

committee and on this panel. We are open to making improvements 

in the program. 

Senator WYDEN. In your mind, would the program be better off 

if the consumer had more choices and there was more competition 

in this sector of health care? Mr. Joy is nodding his head, and I 

might want to give him a crack at it. But I think one of the things 

we have learned in health reform is some of the biggest problems 

take place in health care where you have monopolies and where 

you have sole source contracts. So do you think more competition, 

more choice needs to be brought to this area? 

Mr. GREEN. I think that that should be looked into. There are 

differences, though. One of the strenghts of the Federal Employees 

Health Benefits Program is the amount of choice Federal employees have. If they are not happy with their particular health plan 

for either the premium increase or for any other reason, such as 

customer service, they can switch health plans and stay within the 

program without penalty, without worrying about prior conditions 

or any of that. 

Senator WYDEN. Well—— 

Mr. GREEN. The difference there, though, sir—excuse me—is that 

there are 4 million enrollees in the FEHB program. Right now, 

there are 225,000 enrollees in the long-term care program. Of 

course, we have many more people who could sign up for the program. It is true. But you would need a large enough pool to smooth 

the experience throughout that large pool so that no one paid too 

much because they were in a pool that had higher claims than another pool. 

Senator WYDEN. I understand that, and obviously, big pools is a 

key component of health reform. But OPM went with John Hancock as the sole long-term care policy for the Federal Long Term 

Care Program. Prior to that, there was Met Life and John Hancock. So look at what we got under this arrangement. So I gather 

you are willing to look at the idea of increasing more choices as one 

opportunity to protect consumers. 

Mr. GREEN. As one opportunity, yes, sir. 

Senator WYDEN. I hope you will. 

94 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Wyden. 

Senator Kirk. 

Senator KIRK. Thank you, Mr. Chairman. 

Mr. Green, I was going to ask in testimony that has been offered 

here was a suggestion that OPM would make available to GAO and 

perhaps to the Congress the methodology or the assumptions on experiences and claims by which you arrived at premiums. Has that 

been done? Has that been proffered to either the GAO or the Congress? 

Mr. GREEN. I cannot say of my personal knowledge that it has. 

It is my understanding that it has been provided to staff both of 

this subcommittee and the committee. If that has not been done, 

we certainly would be willing to do that immediately. 

Senator KIRK. The reason I ask, one of the things I hope, in addition to the chairman’s legislation, there will be some lessons 

learned from this experience. It seems to me that one of them is 

transparency in terms of the methodologies and how the quantification of different things were arrived at. So those particularly in 

your agency who have that responsibility—it can be shared so that 

consumers and Members of the Congress who represent them will 

have a full understanding of that. 

Mr. GREEN. Senator, I assure you lessons have been learned. 

Senator KIRK. On that point, one of the things that is of concern—in your testimony you indicated in response to the Senator 

from Florida that this particular marketing document was pulled 

or changed in 2005? 

Mr. GREEN. Yes, sir. 

Senator KIRK. I think I heard you say that one of the things that 

was clear was, indeed, that premiums may have to be increased. 

Therefore, this document would not stand the light of day going 

forward to the present day. Is that right? 

Mr. GREEN. That is correct. 

Senator KIRK. Did you folks feel that the policyholders at that 

point, when you knew that there might be or would be an increase 

in premiums—do you feel responsible to put them on notice that 

this might be coming up? 

Mr. GREEN. We felt that responsibility keenly, sir. What is more, 

though, we felt a responsibility to make sure we had a contract in 

place, going forward, and that there were choices available to enrollees that we felt were reasonable, legitimate alternatives instead 

of merely accepting a rate increase. If that is what they choose to 

do, that is what they choose to do. But we wanted to provide other 

options as well. So we felt it was important to have it all laid out 

and ready so there would not be continued uncertainty. 

Senator KIRK. Going back to your comment about you felt that 

it would be irresponsible not to increase the premiums, let me ask 

you about the sense of responsibility that OPM has or now feels 

toward the policyholders who, in effect, were blind-sided, if you 

will—I am being kind about this—about what they thought they 

were buying at a higher cost and what they were protecting and 

now having the rug pulled out from under them. What I am suggesting perhaps, along the lines that have suggested before, is do 

you feel a responsibility that these folks should be, if not grandVerDate Nov 24 2008 12:34 May 07, 2010 Jkt 000000 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 H:\DOCS\55905.TXT SAG PsN: JOYCE
95 

fathered into the further elongation of an incumbent contract or 

the next term of the contract or somehow compensated for the monies that have been expended for the guarantees that they are now 

not going to receive? 

Mr. GREEN. First of all, let me say again I am one of those that 

are experiencing that sticker shock. I did not expect it either. I 

knew that it was possible, but I certainly did not expect it. No one 

did. So I understand from a personal point of view, as well as from 

a professional point of view, that sticker shock, that concern. 

However, under current law, all of the costs of the program, both 

claims and expenses, are to come from premiums in the program. 

So by law, there is no other source for funding claims than the premiums received from enrollees in the program, which are deposited 

in the Experience Fund. 

Senator KIRK. But I am trying to get at not so much the sticker 

shock. Everybody, when the price goes up—they do not like it, but 

they were paying in on a certain premise that was published and 

marketed to them. So I mean, in another world, you would call it, 

if not deliberate, it became a deceptive document on which folks relied. So I am wondering whether there is some way to continue the 

guarantee on which they did rely for some period of time, which 

would allow them a much longer special decision period so they can 

plan their lives for the future, or whether we can somehow make 

them whole for the monies that are out of pocket and for which 

they will not get the guarantees that they thought they were getting. 

Mr. GREEN. Again, sir, OPM does not have the authority under 

current law to do that. But, of course, we will work with you and 

with the committee to take appropriate actions for the future. 

Senator KIRK. Yes. I would hope we could at least visit the possibility of some sort of recompense for these folks who have been basically wronged by this incident. 

I am pretty clear that with the chairman’s legislation, along with 

hopefully more vigilant oversight by OPM, that things will get better in the future. But I really have a nagging concern about the 

folks who have been wrongly treated under this particular plan, 

and I hope we can find a way to alleviate that. 

Mr. GREEN. I appreciate that, sir. 

The CHAIRMAN. Thank you very much, Senator Kirk. 

Senator KIRK. Thank you, sir. 

The CHAIRMAN. Senator Burris. 

Senator BURRIS. Thank you, Mr. Chairman. I would just like to 

continue Senator Kirk’s line of questioning to Mr. Green and to Ms. 

Harrison. 

You said, Mr. Green, that there is no provision in the law to try 

to do a grandfathering process. I do not see in a rightful judgment 

how anyone, especially Mr. Joy and all your union members and 

yourself, who signed up for this program believing that your premiums would not increase and your premiums have increased proportionately at a rate of 25 percent, or if you do not want to do 

that, they are going to reduce, as Senator Collins just said, how 

your payout benefits are going to be 40 years from now. I was just 

wondering whether or not OPM and John Hancock cannot get together and come up with some type of recommendation for this 

96 

Congress to do grandfathering for those—well, I guess there are 

100,000 and some odd. In Illinois, we got 3,710 employees who are 

members of this system. 

I know what is going to happen when they hear what my position is going to be on this—those Federal employees who put their 

money into this system and now they are going to get hit. Or just 

take Mr. Joy who is sitting right here. He said he is going to pay 

$29 a month. What is that? Another $300 a year, if that is what 

his coverage is? 

Ms. Harrison, Mr. Green, you all ought to get together. 

Mr. Chairman, I would like to see your legislation amended that 

would allow those employees not to have to bear one additional 

premium payment because of the erroneous information that they 

were given in this brochure. It borders on almost misleading. We 

will give you credit for someone saying that this was unintentional. 

But now, Ms. Harrison, I am trying to find out what is the difference now between the first plan and the second plan if the premiums are going to go up. That is where you sold the ACI plan. 

No increases in premiums. So you only got one plan now. Is that 

correct? 

Ms. HARRISON. No. We still have two plans. 

Senator BURRIS. So what is the difference between the future 

plan and the other plan? The premium is going to go up in both 

of them. There is no fixed payment with no increases. 

Ms. HARRISON. There is no fixed payment with no increases. 

That is correct that both the 5 percent compound and the FPO— 

if the circumstances are different than what our expectations 

are—and as I say, we have priced it so that we have the best assumptions today, that there is no guarantee that rates would not 

go up. 

Senator BURRIS. So what is the difference between the plans? 

Ms. HARRISON. One is compounding at a rate of 5 percent in 

terms of the benefits. So it is trying to keep up with inflation. 

Senator BURRIS. So you just got one plan. You got a different 

compounding rate. You do not have two plans. You promoted this 

as two plans. 

Ms. HARRISON. There are two inflation options. So when you see 

everywhere in the documentation—there is usually a header that 

talks about inflation—— 

Senator BURRIS. So you got one plan with two inflation options. 

You do not have two plans. 

Ms. HARRISON. We have two inflation options. That is correct. 

Senator BURRIS. So that is the same plan with an inflation option. The other plan said that we would not increase premiums. 

You do not have that anymore, do you? Do you have that anymore? 

Ms. HARRISON. When you say the other plan—— 

Senator BURRIS. Do you have that anymore? 

Ms. HARRISON. I just want to understand the question, sir. 

Senator BURRIS. Do you have any more plans that say you will 

not increase your premiums? 

Ms. HARRISON. We do not have any plans where the premiums 

are guaranteed. 

Senator BURRIS. That plan is out. The ACI no longer exists. 

Ms. HARRISON. It does actually. 

97 

Senator BURRIS. Under you all’s interpretation, but it is just a 

modification of what the rates will be. 

Ms. HARRISON. Well, again, I really regret that some of the documentation was confusing. In some spots it was clear that rates 

could go up—— 

Senator BURRIS. Ms. Harrison, that is more than confusing. I 

know you regret it. I know you probably were not there when this 

was done, but this is unconscionable to do this to Federal employees who have given their life in service to the public. Now they are 

trying to plan for their long-term care, and because of OPM and 

you and the other insurance policy, you all put out information to 

them that is erroneous and they got to bear that burden. I am hoping that that does not happen. 

I am going to ask my staff to talk to the chairman to see if we 

cannot come up with some amendments where you will pay and I 

do not whether or not the other taxpayers are going to bear this 

burden or how OPM is going to get any more because they only get 

it from the taxpayers. I am just wondering whether John Hancock 

is going to take it out of some their profits because since the insurance company has been making all this money anyway. We can 

stop this onslaught of our Federal workers to pay this amount of 

money. It is unconscionable. It is unacceptable. I am not going to 

sit here and listen to you all say we made a mistake and who is 

going to bear the brunt of this mistake? Mr. Joy, Mr. Green. They 

are going to bear this mistake? 

Please respond, Ms. Harrison. 

Ms. HARRISON. The program is set up very uniquely versus a lot 

of other group plans. The program was set up specifically so that 

it was walled off, shall I say, from all of our other business. They 

wanted to have transparency within the program where all the premiums went in and all expenses came out. That is what has happened. 

Yes, there seems to be a lot of confusion, and I admit that there 

is confusion. 

Senator BURRIS. What is the difference? How much money are 

we talking about here that you are falling short on and that you 

actuarially calculated out would be a shortfall? What are we talking about in dollars? 

Ms. HARRISON. So in 2007, the deficit was $1 billion, and we 

worked very hard to try and find ways to lower that. We did it by 

changing investment policy. We did it by updating claims experience. 

Senator BURRIS. So you are saying that the money that you collected in premiums and turned around and invested the premium 

payment—you all fell $1 billion short in your earnings. 

Ms. HARRISON. Because of those lapse and mortality assumptions 

that we talked about earlier. 

Senator BURRIS. Because of your—evidently there is another 

question too about your sophistication in investments and what did 

you all put that money in. I mean, that is what we have got to look 

at too. What was the significance of your investing this money that 

caused you to lose $1 billion in the investment? 

The question is, how much premium did you pay out during this 

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98 

stand it. I do not know what has been paid out. How much have 

you all paid out under this plan? 

Ms. HARRISON. In total from a claims perspective, about $83 million. 

Senator BURRIS. $83 million, and you got a $1 billion shortfall. 

No further questions, Mr. Chairman. I hope, Mr. Chairman, that 

my staff can work with you to see what we can do to prevent our 

Federal employees—some of them are still working with the hopes 

that they would have something when they become—in a nursing 

home or need home care that they would be taken care of. Still 

they got to pay additional monies. I think that is totally unfair, Mr. 

Chairman. 

The CHAIRMAN. Thank you very much, Senator Burris. 

Mr. Green, we have been led to believe that you over at OPM are 

thinking about extending that—what is it—December 26th deadline? 

Mr. GREEN. December 14th. 

The CHAIRMAN. Is that right? 

Mr. GREEN. We need a firm date so people will have a time limit. 

We all need time limits to make a decision and move forward. We 

know that, in most cases, people wait until the last minute anyway. However, if a person needs more time to make a decision, 

they can get in touch with Federal Long Term Care Partners and 

they will be given extra time. 

If they do not make a decision, especially those that are subject 

to the 25 percent rate increase, if they do not contact the Long 

Term Care Partners, they will be sent a letter at the end of the 

year reminding them that their rate will be going up if they do not 

make a change. They will be given another opportunity at that 

time to make a change. 

One more time, if they still take no action, but upon receiving 

their check at the first of the year and see that the premium increases have gone up and that they have less in their check, they 

will have an opportunity at that time to contact Long Term Care 

Partners and do something to reduce that increase in premium. 

The CHAIRMAN. Thank you. 

Ms. KELLEY. Mr. Chairman, if I could just with all due respect—— 

The CHAIRMAN. Yes, go ahead. 

Ms. KELLEY. The announced open season for these impacted 

144,000 Federal employees has been announced on OPM’s website 

that it was going start on October 1st. The last information we can 

find on the website says the packets will not even been mailed 

until October 26th. Even the announced period was 10 weeks, 

which some would argue is not enough time to make this kind of 

an important life choice decision and to do all the analysis needed. 

I am sure it took them more than 10 weeks to put the materials 

together and to tell anybody that the increase was coming. 

So I really believe this open season, whatever they are calling it, 

needs to be extended to give impacted employees the time that they 

need to get those materials. Even if they mail them October 26th 

from a mail house, it could take 2 weeks for them to get to the west 

coast. Now they are telling employees they have 4 weeks, maybe 

6 weeks to make that kind of a decision. It is not their fault that 

99 

they are in this situation. I just think that is really inappropriate, 

and I think OPM should be adjusting that timeline and it should 

not need some congressional action to do that. 

The CHAIRMAN. I think you are right, and I thought—and Mr. 

Green, you can clarify it. I thought I heard you say that you are 

prepared to extend that deadline. 

Mr. GREEN. We are prepared to give individuals more time, yes, 

sir. 

The CHAIRMAN. Are you prepared to extend the deadline? 

Mr. GREEN. I am prepared to go back and discuss with staff and 

with Long Term Care Partners the possibility extending the deadline. December 14th is a good date because it also is the end of 

open season for health and dental. It is a common date people can 

understand. So there is some validity in having that December 

14th date. 

But, nonetheless, we will discuss the feasibility and appropriateness of extending that deadline. Again, listening to people at the 

table here with me and you, sir, I will certainly take that back. 

The CHAIRMAN. Well, we will look forward to hearing from you 

and your associates pretty promptly on that—— 

Mr. GREEN. Yes, sir. It will be very promptly. 

The CHAIRMAN. When you are not mailing it out until October 

26th and people do not get it until the end of the month and then 

you have a deadline on December 14th—— 

Mr. GREEN. Yes, sir. 

The CHAIRMAN [CONTINUING]. That is not right. I am sure you 

can understand our concern. 

Mr. GREEN. I understand what you are saying, sir. 

The CHAIRMAN. That is fixable. Some of the things that have 

happened here, as we have discussed today, are not nearly as correctable as this. This is something we could do something about, 

and I think it would show at least the concern we have over the 

predicament that we are in that caused the hardship to the people, 

that we want to do everything we can to alleviate it, at least in 

some small way, by extending that deadline. 

Mr. GREEN. Yes, sir. 

The CHAIRMAN. That is reasonable, is it not? 

Mr. GREEN. I think it is, but I will have to take it back and discuss it with my director and with Long Term Care Partners. But 

I understand what you are saying and what you are saying is reasonable. 

Ms. HARRISON. Mr. Chairman, could I make a clarifying comment? 

The CHAIRMAN. Yes, go ahead, Ms. Harrison. 

Ms. HARRISON. I just wanted to let you know that although the 

deadline is December 14th, we have what we call a silent grace period. The reason why we call it a silent grace period is that although it is not announced people have more time if they need 

more time. The reason we do not announce it is based on our experience in the group business, where we have found that people usually wait until the deadline to take action, and so we wanted to use 

a deadline date that made sense, and as Mr. Green had commented, it did coincide with the benefit program. But there is time 

100 

beyond the stated deadline during which people can make decisions 

as well. 

The CHAIRMAN. All right. Before I ask Senator Akaka to make 

a closing statement with respect to this hearing, does anybody 

want to say anything? Go ahead, Mr. Joy. 

Mr. JOY. Yes, Mr. Chairman. Let me say again thank you for 

convening this hearing. 

The discussion here of options I think has been something that 

we have all been listening to very closely, and with respect to the 

extension of the time, that obviously would be an immediate something maybe to help stop the pain. I am not sure it is going to be 

a cure-all, but it will help. Everybody on death row will always 

take a week’s extension. 

But by the same token, there are, I think, some other forms of 

equitable relief that need to be considered. One of them clearly is 

grandfathering. Again, I return to this because there is a little 

something that is not being said here about the emperor and his 

clothes. The provision that people are relying upon was not applied, 

as your documents will see in exhibit 6—or attachment 4 on page 

10 of the Outline of Coverage, it was not just that there was some 

fine print. The fine print was there and it was not connected to this 

one. But beyond that, that to me means that essentially if it happened four blocks from here, it would have been called theft, but 

here it is not being called theft. 

In terms of fixes, it strikes me that there is a number of them, 

but one of them—all of which are necessarily mutually exclusive. 

One of them is, for instance, the—and I am checking my note here. 

Here it is. One of them is to extend to the policyholders who have 

paid more than they would have paid an amount that essentially 

would forward-fund whatever other policy they went to within the 

one. You could credit with the difference between what they would 

have paid and what they did pay—excuse me—what they would 

have paid if they had bought it originally and what they did pay. 

That would be one way to do that. 

What is being proposed, as we understand, it by Hancock is that 

there will be some options, but not all of them are available. For 

instance, according to the testimony, if you move to a new plan, 

you would go to a new cost basis. Well, why is the new plan not 

available—period—entirely at the old cost basis? 

The other thing is this increase that supposedly happened was 

because returns have been low. Well, I appreciate that, but I have 

not heard anybody make a pledge that if returns come back, that 

we are going to, in fact, have premiums lowered. It sort of almost 

a heads they win, tails we lose because their returns go down, we 

have to pay more. But if their returns go up, we do not get to pay 

less. So that structurally is one issue. 

A third one is the Federal tax law now says that you can deduct 

for the cost of long-term care, depending upon your age, varying 

amounts that you pay for a qualified plan that you are paying 

under. One way that might be able to be done—and this is, I appreciate, not a tax-writing committee—would be to simply say for 

any holder of this policy, that they can write off the entire amount 

of the premium for a 7-year period, essentially this period that people have been suffering. But the point is there may be a tax fix. 

101 

Another plan—and I want to turn to 1177. All of the features of 

1177, the disclosure, et cetera, are excellent. We would not be here 

now if we had that disclosure, if we had the model, et cetera. But 

I do think there is maybe an argument for at least automatically 

including, via some sort of legislative measure, these existing ACI 

policies under the State long-term care Medicaid partnerships, just 

automatically including them. That is possibly another way for recompense. 

None of these are mutually exclusive. I am really heartened by 

so many Senators here in the committee wanting to do something. 

The only thing I would say is this. You cannot fix it unless you 

know all the facts, and there is only one way you are going to know 

these facts. I guess I will special plea for my former employer. GAO 

needs to be all over this on a permanent basis. That is the only 

way you are going to get the facts in order to fix it. 

Having said all that, the only thing I would add is I think Ms. 

Baptiste makes a good point. I am not so sure about this patient. 

I think self-insure is something that also needs to be put on the 

table and looked at. 

Ms. BAPTISTE. Mr. Chairman, I would like to add NARFE’s voice 

to the plea that this deadline be extended and not hidden somewhere in some fine print that you can maybe, if you call up, get 

an extension. That date has to be changed so that everybody understands it. 

Retirees face an extra problem this year in that they get no 

COLA on their annuity, and they are now faced with these higher 

costs. They have some very tough decisions to make and it is going 

to be very difficult if they do not get the information until the middle of November and it is due back by December the 14th. So their 

needs to be an extension and it needs to be in bold print somewhere. Thank you. 

Ms. KELLEY. Mr. Chairman, I would just make one more comment about this. I have to tell you I find it very disheartening that 

there is a silent, secret extension that employees should know 

about. One hundred forty-four thousand people should not have to 

guess if there is some kind of silent, secret extension. Federal employees understand what these deadlines are. They meet them 

every year for FEHB for dental, for vision. They follow the deadlines. To say that there can be a secret one, I just find that unacceptable. 

I would love to know why the materials were not printed in the 

middle of September so that they were not in the mail and in their 

hands by October 1st. 

So, like I said, without congressional action, I would hope they 

would just do the right thing on that. 

Other than that, back to the solution for all these impacted employees. I think the grandfathering solution is one that should be 

seriously looked at. NTEU would support providing some assistance to these impacted enrollees. Perhaps Congress could work 

with OPM to create a process to offset some or all of these increases. Maybe there could be a way found to require the insurance 

company to create a fund. It does not have to be—it is not as technical as Mr. Green referred to that claims cannot be paid anywhere 

other than from the Federal Long Term Care plan. This would be 

102 

a fund that the insurance companies would contribute to so that 

relief could be provided in some way, but it could require a mechanism that Congress may have to work with OPM on doing. NTEU 

would welcome the opportunity to work with you to try to put some 

fix in place before this really unfair impact hits these employees. 

The CHAIRMAN. Very good. 

Ms. KELLEY. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Burris. 

Senator BURRIS. I think it is important, the fact that $1 billion 

was lost in the program. So those are the investments which are 

creating the shortage, and we cannot lose sight on that. That is 

where the investments that you all made have gone. They lost 

money. 

The CHAIRMAN. Very good. 

Ms. Harrison. 

Ms. HARRISON. Just a couple of clarifying points, if I may. One 

is with respect to the Experience Fund and the comment that Mr. 

Joy made that as rates go up, that the policyholders feel the pinch 

and that if mortality or our lapse experience went the other way, 

they would not see the benefit. As I mentioned earlier, this fund 

is walled off so that if the assumptions change favorably, the 

money stays in the Experience Fund. It does not come back to the 

insurance company. So theoretically either premiums could be lowered or benefits could be increased. I just wanted to clarify that one 

point. 

The other point I would make is that, as I said, in 2007 there 

was a $1 billion deficit in the fund. We worked very hard to get 

that deficit down to $200 million, with some of the actions that we 

took, one of them being that we reduced the profit charge that was 

being paid for by the fund by about 35 percent. As I mentioned, we 

changed our investment policy, and we also changed our claims assumptions. So we tried hard to avoid a rate increase. That left the 

fund about $200 million short which is why the premium rate increase became necessary. 

The last just clarifying point—and I do not want to make it 

sound like I am making excuses, but I just thought for the record 

I should be very clear. In our actual Outline of Coverage, which 

Mr. Joy was talking about, in the very first section we do refer to 

see the section entitled Where Your Premium May Change. If you 

go to that section, there are five paragraphs. 

The first paragraph talks about the Automatic Compound Inflation, and it says your premium will not increase due to inflation 

increases, which is true. Your premium does not go up with the inflation. So that was true. 

The second paragraph addresses the Future Purchase Option. 

The third paragraph relates to both of them. It is not specific to 

the inflation options. 

Then the final paragraph basically says that the premiums can 

go up. 

So I just wanted to clarify that the fine print does have that. I 

am not making excuses. 

The CHAIRMAN. All right. Thank you so much. Final comment before our closing statement. Mr. Joy. 

103 

Mr. JOY. Yes. I am glad we got to this point because this is the 

one I keep repeating, Mr. Chairman. You will note, if you turn to 

page 11 of my testimony, attachment 4, which relates to exactly 

what she just said. There is a ‘‘7, relationship of cost of care to benefits’’, an introductory paragraph. Then a bold print subtitle, Automatic Compound Inflation Option. It talks about it. Then there is 

a space and then there is another bold one, Future Purchase Option, and another space. Everything below that, there are no more 

spaces. There are no more side caps. It is within that side cap of 

the Future Purchase Option and only within that side cap that the 

phrase, ‘‘see the section titled when your premium may change’’ is 

found. It is not found in the paragraph with the bold titled one. 

So the representation you have just heard from Mrs. Harrison is 

100 percent an incorrect reading of the document you have. It is 

only within the FPO. She says it refers to both, but in point of fact, 

it is not separated in an extra paragraph outside of the Future 

Purchase Option. It is wholly contained within the paragraph of 

the Future Purchase Option and applies only to it. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Akaka. 

Chairman AKAKA. Thank you very much, Mr. Chairman, and for 

inviting the Federal Workforce Subcommittee to join you for this 

hearing today, as well as our witnesses for participating in this 

hearing. 

This has been a helpful discussion for me, as we review the Federal Long Term Care Insurance Program. It is so important that 

this program, which is the largest of its kind, serves as a model for 

other long-term care programs. As we have heard, much has to be 

done to come to be a model. 

I look forward to continuing to work with OPM and also with 

John Hancock to ensure that this program includes reasonable 

timeframes for transparency and thoughtful responses to offered 

options so the program remains stable and affordable for our Federal employees. A decision on the time frame needs to be made as 

quickly as possible and notification of your decision must be made 

known to all those who are enrolled in this program. 

I want to wish you well. I would prefer that we do not have to 

do things legislatively, that you do it yourselves and do it correctly 

in the best interests for our Federal employees. So let us work together to do that. 

Thank you. 

The CHAIRMAN. Thank you very much, Senator Akaka. 

Ladies and gentlemen on the panel, you have really brought a lot 

of light and thought and recommendations for action to a very important issue, long-term care insurance. So your time spent here 

has been usefully well spent. We thank you for being here. 

This hearing is concluded. 

[Whereupon, at 4:35 p.m., the hearing was adjourned.] 

(105) 

A P P E N D I X 

DAN GREEN’S RESPONSES TO SENATOR GEORGE V. VOINOVICH QUESTIONS

Question 1. Your testimony discusses the projected shortfall in funding and need 

for a premium increase for enrollees who selected the automatic compound inflation 

option. It is my understanding OPM attributes approximately 80 percent of the need 

for premium increase to enrollee persistency and 20 percent to investment loss. 

What factors contributed to the projected shortfall? 

Answer. Late in the first contract period, analysis of the Experience Fund indicated a future projected shortfall of monies available to pay claims. Some of the key 

assumptions used in developing premium rates in the first contract period turned 

out to be inaccurate for this Program, even though they were intended to be conservative and were consistent with industry practices at the time. For example, enrollee persistency—which refers to the rate at which enrollees keep their coverage 

rather than voluntarily canceling it—has been higher than expected. In addition, 

people are living longer than expected when the initial rates were set. Investment 

experience has also been worse than was assumed in the original pricing. Even if 

overall trends improve, experience is unlikely to match the underlying assumptions 

used in the original pricing. 

Question 2. It is my understanding that lower than expected lapse rates was common knowledge within the long-term care industry in 2001 and 2002 when the federal program was being crafted. With this in mind, why were OPM’s lapse rate projections off by such a wide margin? What assurances can you provide to the Committees and enrollees about the current projections used to set the premium rates 

in the current contract? 

Answer. At the Program’s inception, lapse rates were trending lower than previous industry pricing assumptions, and the trend toward lower lapses has continued since 2001. The Request for Proposals (RFP) for both the initial and the second 

contract required that the carriers’ pricing of new policies adhere to the NAIC 

standard for rate adequacy. That is, the pricing actuary must certify that premiums 

are, at time of enrollment, expected to be sufficient under moderately adverse conditions. The initial pricing and lapse rate projections were performed by the long term 

care insurance carriers as part of the competitive acquisition process. For pricing 

under the second contract, John Hancock used the actual experience of the Federal 

Long Term Care Insurance Program (FLTCIP) in setting its lapse assumptions. 

John Hancock’s inclusion of actual FLTCIP lapse experience in its new pricing 

should provide additional assurance about the assumptions underlying the new premium rates. 

Question 3. Current enrollees may avoid the premium increase by choosing the 

‘‘landing spot’’ and lowering their daily benefit. While the difference is small in the 

first few years, at year thirty, when the average enrollee will be 88 years old, the 

difference in the daily benefit amount grows to approximately $160 per day. That’s 

about a $3,200 dollar a month difference—$731 more than the current average 

monthly annuity for federal retirees. 

What has OPM done through its current education campaign to make sure enrollees have a clear understanding of the tradeoffs associated with the ‘‘landing spot’’ 

and other benefit decisions? 

Answer. Every enrollee not currently eligible for or receiving benefits (e.g., not in 

a nursing home) has received a decision package outlining options for moving to the 

new plan design or avoiding the premium increase (for those facing an increase). 

The decision package includes background material illustrating the difference over 

time between a 4 percent and a 5 percent compound benefit increase. Historical inflation increase data are also provided. Modeling tools are available online to allow 

enrollees to project the growth of their current daily benefit under each inflation 

rate. The decision packages also contain detailed comparisons of specific benefits 

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and the differences between the original plan, FLTCIP 1.0, and the new plan, 

FLTCIP 2.0. 

The materials for the new FLTCIP 2.0 benefits have also been rewritten. They 

are currently online at www.ltcfeds.com and available by request from LTC Partners. The new materials, both in hard copy and online, provide detailed information 

and graphs that illustrate the difference over time between 4 percent and 5 percent 

compounded benefits, as well as detailed information about other benefit decisions. 

Question 4. The National Association of Insurance Commissioners suggests that 

companies who increase premiums meet a minimum loss ratio requirement of 85 

percent. Does OPM’s current contract with John Hancock meet this standard? If so, 

how? If not, why not? 

Answer. The National Association of Insurance Commissioners (NAIC) determined 

by the late 1990s that, for long term care insurance, the loss ratio test was not effective. State regulators reviewing policy filings for pricing adequacy were not necessarily presented with an accurate picture and rate increases were becoming more 

prevalent. To address this, the NAIC created the requirement that company actuaries price and certify that the pricing was done using ‘‘moderately adverse’’ assumptions. The NAIC and various actuarial bodies developed models and tools for 

actuaries to use, and OPM and its consulting actuaries employ them. 

For private policies, when a company increases premiums, a loss ratio limit may 

be imposed in order to prevent the insurance company from unduly profiting from 

the rate increase. However, for FLTCIP, all of the premiums collected go into an 

Experience Fund that can be used only to pay claims and cover expenses and fees 

for the FLTCIP. The additional premium from a rate increase is deposited in the 

Experience Fund for use by the Program. Current projections show the rate increase 

is necessary to ensure the Experience Fund balance will be adequate to pay expected claims, expenses, and fees over the course of time. However, if at some future 

date the Fund has more money than might reasonably be needed to cover the Program’s expected obligations, the surplus would be used to benefit the FLTCIP, not 

the insurer, via reduced premiums or improved benefits. Moreover, if the Program 

changes insurer(s), the Fund moves to the new insurer(s). 

Question 5. How did OPM use its position as one of the largest administrators 

of group long-term care insurance to keep premiums low? 

Answer. Group long term care insurance has certain advantages over individually 

sold policies, mostly involving the fact that no agent compensation is paid, enrollment can be administered more easily (e.g., payroll deduction), and the administrative costs are spread over a larger group of enrollees. The Program’s experience 

rated structure is designed to keep insurers’ risk charges lower and allow participants to benefit from financial gains the Program might experience. 

Question 6. Please explain in detail OPM’s decision making process once it received the information from John Hancock on enrollee experience. As part of your 

response, please provide a timeline for such notifications and the decision-making 

process OPM followed upon receipt of the information. Please also explain how OPM 

determined whether or not there was a need for a premium adjustment during the 

initial contract. 

Answer. In February 2005, OPM received MetLife’s/Hancock’s September 2004 

funded status report, which showed a best estimate of a 6 percent projected shortfall. Discussion centered on sensitivity of the analysis to underlying projection assumptions (e.g., claims, lapse rates, investment). Given that this was the first indication of a projected shortfall, that the Program was new, that the investment horizon is long, and that the projections were quite sensitive to assumptions, we did not 

believe it was prudent to take immediate action. 

In April 2006, OPM received MetLife’s/Hancock’s September 2005 funded status 

report, which showed a best estimate of a 15 percent projected shortfall. Due to the 

increase in the projected shortfall, we held discussions with the carriers. MetLife 

and John Hancock recommended no change to premiums, either for current or future enrollees, but rather continued monitoring to see if the trend persisted. Subsequent conversations included discussions about establishing guidelines for deciding 

when a rate action might be necessary and possible pursuit of an alternative investment strategy. 

In March 2007, OPM received MetLife’s/Hancock’s September 2006 funded status 

report, which showed a best estimate of a 32.5 percent projected shortfall. This report included MetLife’s and Hancock’s first statement of support for a premium adjustment. OPM then entered into discussions with MetLife and Hancock regarding 

possible adjustments to premiums and contract terms and the timing of any 

changes. However, the Long-Term Care Security Act provides that premiums may 

not be adjusted during the term of the contract unless mutually agreed to by OPM 

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and the carrier(s). MetLife and Hancock submitted no detailed premium proposals 

at that time. 

On June 28, 2007, OPM submitted to Congress its recommendation for the continuance of the Program, as required by law within 180 days of receipt of GAO’s 

second report. The letter mentioned the possibility that a premium increase would 

be required and OPM’s intention to adjust premiums as part of the second FLTCIP 

contract. Consistent with the law, OPM took no steps to re-bid or otherwise contract 

for coverage during the 180 days following June 28, 2007. OPM and MetLife/Hancock did not engage in discussions about rate adjustments during this ‘‘silent’’ period. 

On September 27, 2007, in accordance with the terms in the first contract, 

MetLife and John Hancock each submitted policy renewal proposals. These proposals set forth the terms under which the carriers were willing to offer a group 

policy for the second 7-year contract term. These proposals would have increased 

premiums by as much as 65 percent for current enrollees, while generally continuing the terms of the first contract for a subsequent 7-year period. 

Early in 2008, OPM decided to conduct a competitive acquisition for the next 

FLTCIP contract. The RFP to compete the contract for the second FLTCIP term was 

issued in August 2008. Given that we were near the end of the initial contract term, 

and the new contract would result in new terms and premiums, we did not believe 

it would be in enrollees’ best interest to increase premiums before the new contract—and new product options—was in place. 

Question. 7. What assurances can you provide the Committee that premiums will 

remain affordable beyond 2016, when the contract is scheduled for renewal? 

Answer. The goal in establishing the premium rates is to calculate rates that will 

be sufficient, along with the earnings on the investment of those premiums, to pay 

claims plus expenses, now and over the future lifetime of enrollees. Calculating premiums requires using a series of assumptions that quantify risk over the course of 

time. The key risk assumptions relate to claims (how many people will file claims 

and when and for how long will benefits be paid?), investment results (how much 

additional funding will be realized by investing portions of the premium?), lapse results (how many people will voluntarily drop their coverage over the course of 

time?), and mortality (how many people will die while covered?). These risks vary 

for Program enrollees, depending on their ages when they enroll, and the risks 

change as people age while enrolled. 

OPM requires its insurer to price its premiums for new enrollees according to 

NAIC rate stability guidelines. It is important that standard rate stability guidelines be applied universally across the long term care industry. Because applicants 

have a choice between the FLTCIP and other insurers’ products, the FLTCIP’s products and premiums must remain competitive. If FLTCIP premiums are significantly 

more conservative than other insurers premiums, the Program is likely to attract 

a smaller and riskier enrollment base. 

COLLEEN KELLEY RESPONSE TO SENATOR GEORGE VOINOVICH QUESTION

Question. How has OPM worked with NTEU to ensure its members have access 

to the information needed to make informed decisions in a timely manner? 

Answer. After the announcement of the new FLTCIP contract last May, and when 

NTEU became aware that premium increases were likely, we immediately contacted 

OPM asking for explanations. The agency answered questions, and assembled a 

briefing for NTEU and other employee representative organizations. While we were 

not satisfied with the substance of the looming premium increases, we were advised 

at that time that the agency was taking steps to devise ‘‘landing spots’’ for enrollees 

to redesign their policies if they later decide to do so. After the congressional hearing, the agency did extend the Early Decision Enrollment Period in keeping with 

NTEU’s request. In general, OPM has been responsive when questions were raised. 

MARY BETH SENKEWICZ RESPONSES TO SENATOR GEORGE VOINOVICH QUESTIONS

Question 1. Your testimony discusses the NAIC’s supplemental reequirements for 

consumer disclosure of the potential for future rate increases. Do you believe OPM’s 

prior and current marketing materials meet these standards? 

Answer. I have not seen the current marketing materials, staff provided me with 

the marketing materials used when the program was initially started. In my opinion, the prior marketing materials do not meet the standards set forth in the NAIC 

Long-Term Care Insurance Model Regulation. Section 9 is entitled ‘‘Required Disclosure of Rating Practices to Consumers.’’ This section requires that the insurer proVerDate Nov 24 2008 12:34 May 07, 2010 Jkt 000000 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 H:\DOCS\55905.TXT SAG PsN: JOYCE
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vide the following information: a statement that the policy may be subject to rate 

increases in the future; an explanation of potential future premium rate revisions, 

and the policyholder’s options should such occur; the rate applicable to the insured 

until a rate change is effected; a general explanation for applying rate schedule adjustments; and rate increase history of the company for the prior 10 years. The section also requires that the applicant sign an acknowledgement at the time of application (or at delivery of the policy if no agent is involved) that the above disclosures 

have been made. Last, insurers must give at least 45 days notice to policyholders 

and certificateholders of any rate increase. 

Appendix B to the model regulation is entitled ‘‘Long Term Care Insurance Personal Worksheet.’’ Prominently displayed on page one of this document are sections, 

in bold print, entitled ‘‘The Company’s Right to Increase Premiums’’ and ‘‘Rate Increase History.’’ On page three of this document, the signature page, is a box which 

must be checked and the narrative attendant to the box includes the following (also 

in bold print): ‘‘I understand that the rates for this policy may increase in the future.’’ 

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Appendix F to the model regulation is a form that provides information to the applicant regarding premium rate schedules that the insurer may use to satisfy the 

disclosure requirements concerning explanation of potential rate revisions and the 

insured’s options should a rate increase occur in the future. The form is entitled 

‘‘Long Term Care Insurance Potential Rate Increase Disclosure Form.’’ 


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Question. 2. What assusrances can the NAIC provide to federal employees about 

the value of the landing spot being marketed to current enrollees as a way to mitigate the planned premium increase? 

Answer. The NAIC cannot provide any assurances to federal employees about the 

value of the landing spot. Neither the NAIC nor any state insurance commissioner 

regulates these policies and as such, have not reviewed the original policy and its 

benefits or the alternative being offered to mitigate the rate increase. 

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