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FEDERAL LONG–TERM CARE INSURANCE 

PROGRAM: EXAMINING PREMIUM INCREASES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

GOVERNMENT OPERATIONS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

NOVEMBER 30, 2016 

Serial No. 114–126 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JASON CHAFFETZ, Utah, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

CYNTHIA M. LUMMIS, Wyoming 

THOMAS MASSIE, Kentucky 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

MARK WALKER, North Carolina 

ROD BLUM, Iowa 

JODY B. HICE, Georgia 

STEVE RUSSELL, Oklahoma 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

WILL HURD, Texas 

GARY J. PALMER, Alabama 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

BRENDA L. LAWRENCE, Michigan 

TED LIEU, California 

BONNIE WATSON COLEMAN, New Jersey 

STACEY E. PLASKETT, Virgin Islands 

MARK DESAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

PETER WELCH, Vermont 

MICHELLE LUJAN GRISHAM, New Mexico 

JENNIFER HEMINGWAY, Staff Director 

DAVID RAPALLO, Minority Staff Director 

KEVIN ORTIZ, Professional Staff Member 

WILLIE MARX, Clerk 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS

MARK MEADOWS, North Carolina, Chairman 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan, Vice Chair 

TREY GOWDY, South Carolina 

THOMAS MASSIE, Kentucky 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

GERALD E. CONNOLLY, Virginia, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STACEY E. PLASKETT, Virgin Islands 

STEPHEN F. LYNCH, Massachusetts 


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C O N T E N T S 

Page 

Hearing held on November 30, 2016 ...................................................................... 1 

WITNESSES 

Mr. Michael Doughty, President General Manager, John Hancock Insurance 

Oral Statement ................................................................................................. 5 

Written Statement ............................................................................................ 7 

Mr. John O’Brien, Senior Advisor for Health Policy, U.S. Office of Personnel 

Management 

Oral Statement ................................................................................................. 18 

Written Statement ............................................................................................ 20 

Mr. Laurel Kastrup, Chair of the Health Financial Reporting and Solvency 

Committee, American Academy of Actuaries 

Oral Statement ................................................................................................. 25 

Written Statement ............................................................................................ 27 

Mr. Richard G. Thissen, National President, National Archive and Retired 

Federal Employees Association 

Oral Statement ................................................................................................. 35 

Written Statement ............................................................................................ 37 

Marc A. Cohen, Ph.D, Clinical Professor of Gerontology, University of Massachusetts Boston 

Oral Statement ................................................................................................. 49 

Written Statement ............................................................................................ 51 

APPENDIX 

Statement for the record from Anthony M. Reardon, National Treasury Employees Union. submitted by Mr. Connolly ........................................................ 74 

Statement by Senator-Elect Chris Van Hollen, submitted by Mr. Meadows ..... 77 


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FEDERAL LONG–TERM CARE INSURANCE 

PROGRAM: EXAMINING PREMIUM INCREASES 

Wednesday, November 30, 2016 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 2:06 p.m., in Room 

2154, Rayburn House Office Building, Hon. Mark Meadows [chairman of the subcommittee] presiding. 

Present: Representatives Meadows, Jordan, Walberg, Buck, 

Grothman, Connolly, and Lynch. 

Also present: Representatives Comstock, Beyer, and Delaney. 

Mr. MEADOWS. The subcommittee on Government Operations 

will come to order. Without objection, the chair is authorized to declare a recess at any time. The gentleman from Virginia is on his 

way. And so we’re going to go ahead and try to get this started in 

the interest of your time and some pressing schedules that are 

here. 

I’d like to start off by acknowledging just the incredible work of 

the staff, both in majority and minority, on their preparation for 

this particular hearing. It’s an issue that, obviously, has great impact, but it’s also one that was not on my bucket list. And so it’s 

been interesting to be able to come up to speed on that and be 

aware of it. 

And as you know, the Federal Long Term Care Insurance Program helps Federal employees prepare for the future healthcare 

needs by enrolling in long-term care insurance coverage. Federal 

employees can help reduce the financial burden of acquiring care 

as they grow older. And these burdens, obviously, can be very costly. 

According to the Department of Health and Human Services, Americans turning 65 today will spend an average of $138,000 in 

long-term care services. By purchasing insurance now, the Federal 

employees can start paying for those services that they will need 

well into the future. 

Alarmingly, the cost for this insurance continues to rise, and on 

July 18, the Office of Personnel Management, better known as 

OPM, after signing a new contract with John Hancock Insurance 

to administer the program, announced that the premium rates for 

most enrollees will drastically increase. Premiums have increased 

an average of $111, representing an 83 percent increase for nearly 

all of the 274,000 program enrollees. 


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For 102,000 of these enrollees, the rate increase was between 100 

and 126 percent, translating to about $200 per month extra that 

people must pay to maintain the coverage. These most recent premium increases come after rates have already increased in 2009 by 

nearly 25 percent. And for many enrollees, including some 7,500 

North Carolinians who are part of this program, this cost increase 

has been a financial difficulty. Unfortunately, these rates—the rate 

increases are not limited just to the Federal program. 

Premiums have increased for nearly all long-term care insurance 

programs in the private sector as well, as my mother has very eloquently illuminated to me. And so a large reason behind these premium increases have to do with the nature of long-term care insurance. Insurance carriers must project a host of variables, including 

mortality rates, voluntary lapses, interest rates, morbidity rates 

and the like. 

The values of these variables are constantly changing, and when 

projected several years into the future, it makes for the actuarial 

assumptions to be difficult, if not off in a number of cases. This necessitates premium increases at times in order for the insurance 

carriers to guarantee it can cover the expected benefits. Fortunately, insurance carriers have begun to acquire actual claim data 

in order to make more informed assumptions. 

The hearing today will provide this committee the opportunity to 

delve into the variables that actually must be taken into account 

when setting these premium rates. This hearing will also allow the 

committee to look at factors affecting the lack of competition for 

Federal programs contracts. I’m concerned only that one carrier 

has bid on this contract, you know, both the second and third contracts. Encouraging healthy competition for Federal long-term care 

insurance programs contracts is an important aspect. 

And so I look forward to hearing all of your testimony that we 

will receive today. And I recognize the gentleman from Virginia, 

my good friend, the ranking member, Mr. Connolly, for his opening 

statements. 

Mr. CONNOLLY. Thank you, Mr. Chairman. And thank you for 

the honorable way in which you have responded to my request to 

have this hearing. I really appreciate it, and you’ve kept your word 

in helping make sure we had a hearing on this very important 

topic. I also ask unanimous consent to enter a statement into the 

record from Anthony Reardon, the national president of the National Treasury Employees Union. 

Mr. MEADOWS. Without objection. 

Mr. CONNOLLY. I thank the chair. The Federal Long Term Care 

Insurance Program, also known as FLTCIP, was created in 2002 to 

provide affordable long-term care insurance to Federal workers and 

their families. The program has been administered by John Hancock Life & Health Insurance Company and overseen by the Office 

of Personnel Management. Although the Federal Government provides benefits to Federal employees, it is paid for by Federal employees with no government contribution. 

This past July, OPM announced rate increases in the program 

that affected nearly all of the 274,000 FLTCIP enrollees. Like 

many of my constituents, I was shocked to learn that the increases 

averaged 83 percent, equivalent to an additional $111 per month 


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beyond the current premium that enrollees were paying, and nearly 40 percent of enrollees were actually subject to 126 percent. 

OPM has an obligation, it seems to me, to the Federal employees 

enrolled in the program to provide a service that’s affordable. 

OPM’s management and John Hancock’s administration of the contract has left many FLTCIP enrollees scrambling to find ways to 

find affordable alternatives or to pay for the increasing costs of 

long-term care through other methods, and that raises serious concerns. Many of my constituents are worried about how they will afford to pay increased premiums. Many are retirees on fixed income 

and a huge increase, which they did not expect and did not plan 

for, is putting them in a financially untenable position. 

Although Hancock provided enrollees with a few personalized 

rate options, the choices are less than satisfying to most of my constituents. If enrollees choose to keep their existing long-term care 

coverage, they somehow have to find a way to get the additional 

money to pay for it. If they cannot afford to pay the increased premium, then they have to reduce their coverage to lower the cost or 

give it up entirely. Those are not particularly desirable options. 

It’s important to note that this was not the first rate increase 

since FLTCIP’s inception. In 2009, after Hancock was awarded the 

FLTCIP second contract, 66 percent of enrollees were notified their 

premiums would increase by up to 25 percent. Prompted by the 

alarming increases in FLTCIP premiums in October 2009, the Senate Permanent Select Committee on Aging held a hearing to examine FLTCIP and long-term care insurance in general. Witnesses 

from OPM and Hancock at that time agree that the misleading language used in marketing materials led enrollees to believe they 

would not suffer any, much less, egregious increases in premiums. 

The series of dramatic rate increases over the last two contract 

terms are propelling FLTCIP premium prices out of reach for the 

average middle-class Federal employee. 

When FLTCIP was established by the Long-Term Care Security 

Act, it was intended to be an affordable way for individuals to protect against the risk of losing all of their retirement savings because of a long-term illness. It was meant to provide a safety net 

for Federal employees in old age. During an April 1999 Oversight 

subcommittee hearing, then representative Joe Scarborough, now a 

television host, the lead sponsor of the bill, a Republican, stated 

that he hoped to make long-term care, quote, ‘‘affordable and available to all Federal employees.’’ 

Maybe we should have subpoenaed him, Mr. Chairman. 

Today, we have a product that has become unaffordable for most 

Federal workers. It’s clearly deviated from the intent of the Act. 

However, Federal workers are not alone here. Industry experts are 

saying that all middle-class Americans are struggling with the 

same problem. Rate increases and benefit reductions are happening 

in the private sector too when it comes to long-term care. And 

nearly all private sector companies have abandoned unlimited longterm care coverage, leaving no long-term care insurance option for 

those who want to guard against the risk of catastrophic long-term 

care costs. 

I’m concerned about the future of this important kind of insurance, as I know you are, Mr. Chairman. Long-term care insurance 


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was designed to close gaps in coverage. Long-term care costs are 

not covered by Medicare or health insurance, and Medicaid only 

covers such costs for low-income individuals. With over 70 percent 

of people age 65 and older needing some long-term care during 

their lives and costs of semiprivate nursing homes averaging well 

above $100,000 annually, the necessity of this insurance seems 

clear. 

John Hancock, one of the few remaining and largest long-term 

care providers in the United States serving 1.2 million enrollees, 

has recently announced it will be pulling out of the private sector 

long-term care market, as I understand it. As options for long-term 

care dwindle, many individuals rely on their families to provide 

care. However, family caregivers are becoming scarcer as baby 

boomers will outnumber caregivers 4 to 1 by 2030. In 2030, this 

baby boomer will be over 70. 

This hearing not only provides an opportunity to look at ways to 

ensure that FLTCIP lives up to its original promise, but also understand the reasons for the rate increases so we can try to work 

together to find solutions to address the failing market. This problem affects hundreds of thousands of Federal employees and retirees and millions of middle-class Americans. The market has not 

solved this problem on its own. And today’s hearing cannot be the 

last on the topic. 

Historically, Republicans and Democrats have agreed that when 

the market is unable to solve a problem, the government has an 

appropriate role to play in finding solutions that work for American 

families. I feel strongly that this market failure and the exposure 

of many Americans to catastrophic costs deserves our attention. 

We’ve got to safeguard about affordability and stability of longterm care premium rates for middle-class Federal workers and, indeed, for all Americans. 

I thank all of the witnesses for being here. And, again, thank 

you, Mr. Chairman, for delivering on your promise. 

Mr. MEADOWS. I thank the gentleman for his eloquent words. I 

also would note that we will hold the record open for 5 legislative 

days for any member that would like to submit a written statement. 

The chair notes the presence of the gentlewoman from Virginia, 

Mrs. Comstock is here. It is my understanding that the gentleman 

from Virginia, Mr. Beyer, and the gentleman from Maryland, Mr. 

Delaney, may indeed come as well. 

We appreciate, Mrs. Comstock, your interest in this topic. 

Mr. CONNOLLY. Mr. Chairman? 

Mr. MEADOWS. Yes. 

Mr. CONNOLLY. I would ask unanimous consent that all of those 

named be given the privilege of participating as if they were a 

member. 

Mr. MEADOWS. Without objection, so ordered. 

I will also ask unanimous consent to enter into the record a 

statement from the representative from Maryland, Chris Van 

Hollen, on this particular subject. 

Without objection, so ordered. 

Mr. MEADOWS. We’ll now recognize our panel of witnesses. I’m 

pleased to welcome Mr. Michael Doughty, president and general 


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manager of John Hancock Insurance. Welcome. Mr. John O’Brien, 

senior adviser for health policy at the U.S. Office of Personnel 

Management. Welcome, Mr. O’Brien. Ms. Laurel Kastrup, chair of 

the Health Financial Reporting Insolvency Committee at the American Academy of Actuaries. Thank you for being here. Mr. Richard 

Thissen, national president of the National Active and Retired Federal Employees Association. Welcome. And Mr. Marc Cohen, clinical professor of gerontology at the University of Massachusetts 

Boston. Welcome to you all. And pursuant to committee rules, all 

witnesses will be sworn in before they testify. So if you would 

please rise and raise your right hand. 

Do you solemnly swear or affirm that the testimony you’re about 

to give will be the truth, the whole truth, and nothing but the 

truth? 

Let the record reflect the witnesses answered in the affirmative. 

You may take your seat. In order to allow time for discussion, we 

would ask that you would limit your oral testimony to 5 minutes. 

Your entire written statement, however, will be made part of the 

record. 

And so I’d like to go ahead and recognize you, Mr. Doughty, for 

5 minutes. 

WITNESS STATEMENTS 

STATEMENT OF MICHAEL DOUGHTY 

Mr. DOUGHTY. Thank you, Chairman Meadows, Ranking Member 

Connolly, and members of the subcommittee. I’m Mike Doughty, 

president and general manager of John Hancock Insurance. I oversee John Hancock Insurance products, including the Federal longterm care program. 

I appreciate the opportunity to be here today to discuss the Federal Long Term Care Insurance Program and the contract that 

OPM awarded to John Hancock Life & Health Insurance Company 

in April 2016. John Hancock has been involved with the program 

since its inception, and we remain committed to providing a strong 

and financially sound long-term care insurance product for Federal 

employees. 

We recognize enrollees’ legitimate concerns about the premium 

increase and the very real impact that it will have on people’s lives. 

I appreciate the opportunity to address that increase, the reasons 

that it was necessary, and the steps that John Hancock has taken, 

in coordination with OPM, to provide enrollees with alternative options designed to mitigate the financial burden of the rate increase. 

Congress created the Federal Long Term Care Insurance Program 16 years ago. Under the authorizing legislation, OPM conducts a competitive bidding process and awards a 7-year contract 

to a company to provide long-term care insurance. Regardless of 

the company that received the contract, the legislation has a 

unique feature that requires all funds, premiums, and investment 

returns, to be maintained separately in a fund called the Experience Fund. The Experience Fund is used exclusively for the program’s assets and liabilities, and it transfers to a new carrier if 

OPM awards the contract to another provider. 


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Also, the Experience Fund receives no taxpayer money. All benefits are paid by the enrollees’ premiums and the fund’s investment 

returns. For these reasons, it is critically important that the premiums and the projected investment returns of the Experience 

Fund match the projected claims that enrollees will make many 

decades into the future. The entire industry has learned that making predictions about claims in the far-distant future is very challenging. But it was these projections that made the recent premium 

increase necessary. 

In 2013, John Hancock observed trends in our non-Federal longterm care insurance policies that we determined could affect the 

Federal program. So we began an assessment of the Federal program. The review of the Federal program, which was completed in 

May 2014, showed that the Experience Fund would experience a 

deficit in the future. We found that new claims were increasing, 

particularly at older ages, claims were lasting longer than expected, and policies with higher daily benefits had higher than expected claims. We continued to evaluate the data. 

Overall, the data revealed changes in mortality rates, people are 

living longer than previously expected; morbidity rates, more people are requiring long-term care and for longer periods of time; and 

investment changes. We have been in a sustained period of low interest rates. 

On page 7 of my written testimony, there is a chart that captures 

the effects of these changes. The Experience Fund was projected to 

enter a deficit between 2035 and 2040 without a premium change. 

With the premium change, the Fund is projected to maintain funding sufficient to cover all enrollees’ projected future claims. 

Both John Hancock and OPM have a contractual obligation to 

adjust the premiums to make sure that the Experience Fund is 

able to meet the needs of enrollees for many decades into the future. And that’s what we did. Importantly, these projections were 

reviewed by John Hancock’s experts, by OPM, by John Hancock’s 

independent actuarial firm, and by OPM’s independent actuarial 

firm. 

Next, recognizing the significance of the premium change, John 

Hancock worked closely with OPM on the implementation. 

First, we created a program to communicate with enrollees about 

the premium increase, including a Web site, webinars, videos, 

FAQs and a professionally staffed call center. 

Second, we created several alternative options which were designed to permit enrollees to adjust their coverage in light of the 

premium increase. 

Finally, Mr. Chairman, I want to note that John Hancock agreed, 

in our new contract with OPM, to reduce the charges that we receive under the contract so that John Hancock will not have an increased profit from this rate increase. 

Thank you for the opportunity to be here today. I look forward 

to discussing possible ways to strengthen the Federal Long Term 

Care Insurance Program, and I would welcome the opportunity to 

answer your questions. 

[Prepared statement of Mr. Doughty follows:] 


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Mr. WALBERG. [Presiding.] I thank the gentleman. 

And I recognize Mr. O’Brien for your 5 minutes of testimony. 

STATEMENT OF JOHN O’BRIEN 

Mr. O’BRIEN. Thank you, Vice Chairman Walberg, Ranking 

Member Connolly, members of the subcommittee. Thank you for 

the opportunity to testify on the Federal Long Term Care Insurance Program. 

OPM’s mission is to recruit, retain, and honor a world-class Federal workforce to serve the American people. Part of that mission 

requires OPM to administer benefits, including the insurance product such as the Federal Long Term Care Insurance Program, for 

Federal employees, annuitants, and their families. 

At the outset, let me make clear that I share the committee’s 

frustration that premiums needed to be raised by such a significant 

amount. I and my colleagues at OPM are painfully aware of the financial burden and hard choices those premium increases placed 

on participants. However, we cannot avoid our primary responsibility to those participants to assure that when the time comes for 

someone to use the benefit that they have paid for, the funds will 

be there to deliver those services. 

The Federal Long Term Care Insurance Program currently 

serves roughly 270,000 members whose premiums cover 100 percent of program’s costs. All those premiums and the income those 

premiums generate is held in a single Experience Fund by John 

Hancock. While the fund is held by John Hancock, it belongs to the 

program and not the insurer. The Federal Long Term Care Insurance Program must assure that it can provide benefits decades into 

the future. Therefore, premiums must be based on long-term projection of both costs and revenues. 

We are here today because at the end of the most recent contract 

cycle, the long-term insurance program had to respond to two hard 

facts. First, estimates of long-term care costs are increasing. And 

second, projection of long-term revenues to support those costs are 

decreasing. The confluence of higher anticipated costs and lower 

anticipated returns is not unique to the Federal Long Term Care 

Insurance Program. The entire long-term care insurance market 

faces this challenge. 

Given these circumstances, increased premiums were necessary 

for the long-term viability of the Experience Fund. Without the increase, there would be an unacceptable risk that the Experience 

Fund would not have sufficient funds to pay for future claims. 

In order to test the market and ensure that the reasonable efforts were made to attract the most competitive proposal, OPM 

made the decision to recompete the contract. John Hancock was the 

sole bidder, and OPM awarded the contract in April 2016. The premium rates proposed by John Hancock were reviewed by OPM’s 

staff and its actuaries. In addition, OPM contracted with a separate independent actuary to evaluate the proposed premium rates 

and confirm the reasonableness of the assumptions used. 

While the long-term viability of the Experience Fund made a 

substantial rate increase necessary, OPM was well aware of the 

economic hardship that the rate increase would cause participants. 

OPM’s priority became to do all it could to ensure that enrollees 


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had the information and opportunity to make informed choices 

about the costs and benefits of coverage in light of their own circumstances and needs. 

Working with John Hancock and long-term care partners, we 

conducted an enrollee decision period from July the 18 to September 30. Outreach efforts included three direct mailings to enrollees with personalized information about the rate increase and 

options that they could use to adjust their benefit package to reduce their premium or keep the same premium; a Web site, also 

with personalized information, as well as a set of informational videos that explain benefit options; and finally, a fully staffed call center that assured individuals could get their questions answered by 

a real person. 

In large part, the enrollees took advantage of this enrollee decision period. By the end of October, 172,000 enrollees, or just shy 

of two-thirds of the entire population, took some action in response 

to the premium changes. Of those who took action, most chose to 

keep their premium constant by reducing their benefit package. 

While OPM remains committed to the FLTCIP program and the 

individuals it serves, we must also acknowledge that the long-term 

care insurance marketplace has changed substantially from 2002 

when the program started. At that time, over 100 insurers offered 

long-term care products. Today, only a handful of insurers are actively selling long-term care insurance, and those insurers are primarily serving individuals by individual policies rather than group 

plans. 

The challenge of matching premiums with long-term costs and 

revenues is real and ongoing. OPM staff is and will continue to 

closely monitor these trends and what it means for the long-term 

care insurance program and work to ensure that participants have 

an array of options to meet their needs. 

Thank you for the opportunity to testify today, and I am happy 

to address any questions you may have. 

[Prepared statement of Mr. O’Brien follows:] 


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Mr. WALBERG. I thank the gentleman. 

I recognize now Ms. Kastrup for your 5 minutes of testimony. 

STATEMENT OF LAUREL KASTRUP 

Ms. KASTRUP. Vice Chair Walberg, Ranking Member Connolly, 

and distinguished members of the subcommittee, thank you for the 

opportunity to testify on the issue of examining premium increases 

for long-term care insurance. 

My name is Laurel Kastrup. I am an actuary specializing in 

long-term care insurance and financing. I am representing the 

American Academy of Actuaries. The Academy is a nonpartisan 

professional association representing the actuarial profession. Our 

mission is to serve the public and the U.S. actuarial profession. We 

do this by providing independent and objective actuarial information, analysis, and education to help in the formation of sound public policy. 

I would like to start by emphasizing the importance of actuarial 

input when considering the design and evaluation of any potential 

long-term care policy approach. Actuaries are uniquely qualified, 

according to our professional standards. Qualified long-term care 

actuaries play a crucial role in the design of long-term care financing systems, from private long-term care insurance to public programs that provide long-term care benefits. 

Actuaries have specialized expertise in managing the risk of adverse selection in insurance coverage. We have the ability to recognize and incorporate uncertainty into cost projections and premiums. We also have experience in evaluating the long-term solvency and sustainability of public and private insurance programs. 

The Academy recently developed an issue brief to highlight important underlying factors affecting long-term care insurance premium 

rate increases. Without long-term care insurance, many more people would exhaust their savings on care costs and then potentially 

rely on public programs such as Medicaid for their additional care 

needs. 

Long-term care insurance requires a long projection period with 

assumptions extending over 50 years into the future, which creates 

a high level of uncertainty. The premium rates needed to ultimately be sufficient are also affected by changing circumstances, 

such as changing service providers, for example the growth of assisted living facilities; changes in incidents of Alzheimer’s disease; 

the effects of mortality improvement in the population; and 

changes in family composition reducing availability of caregivers. 

Determining premium increases is a relatively straightforward 

mathematical calculation. However, determining projection assumptions can be difficult. Actual historical experience that are 

sufficiently credible is needed to justify the future assumptions 

used in projections. With long-term care insurance, it can take a 

long time from the purchase of a policy until the first time a claim 

is submitted. This means that for a relatively young group of policy 

forms, there is often little claims experience to justify premium 

rate increases based on those forms alone. 

Actuaries are required by actuarialstandards of practice to use 

alternative data sources, such as experience from the insurance 

companies older, similar policy forms or public data for identifying 


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reasonable assumptions. Waiting until there is adequate claim information on each policy form can result in much larger, less affordable rate increases. 

Insurers have routinely allowed insureds to reduce coverage by 

changing benefit options in order to help offset some or all of the 

rate increase. In an effort to enable policyholders faced with a rate 

increase to retain significant coverage, some companies have started making available an option for policyholders to avoid the rate 

increase by reducing their future automatic built-in inflation increases. 

In closing, I want to mention that I understand that these premium rate increases can affect families. My own personal experience with long-term care insurance was that my grandpa had a 

policy. It had a small daily benefit. He gave up the inflation option 

to avoid rate increases. When he moved into an assisted living facility, his long-term care insurance policy, along with his income 

from Social Security was enough to make the cost affordable for 

him. 

Predicting future policyholder and service provider types and 

availability can be difficult. This uncertain future makes it important that there is a way to take corrective action. The more conservative assumptions used in today’s pricing of private long-term 

care insurance and the improved speed at taking corrective action 

should improve future projections resulting in fewer and smaller 

rate increases. 

I, again, thank you for the opportunity to be here today with you 

and share the recent analysis by the American Academy of Actuaries on long-term care insurance. I would be happy to answer any 

questions. 

[Prepared statement of Ms. Kastrup follows:] 


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Mr. WALBERG. Thank you, Ms. Kastrup. 

And now I recognize Mr. Thissen for your 5 minutes of testimony. 

STATEMENT OF RICHARD G. THISSEN 

Mr. THISSEN. Good afternoon, and thank you for the opportunity 

to express NARFE’s view on premium increases for enrollees in the 

Federal Long Term Care Insurance Program, or FLTCIP. 

NARFE was proud to have played the lead role in supporting legislation creating FLTCIP, but we are extremely disappointed in the 

recent premium increases. FLTCIP premiums increased by an astounding 83 percent on average and by as much as 126 percent for 

nearly 40 percent of the enrollees. The average increase amounts 

to $111 per month. For many, the increase will be much larger. 

These cost increases come as a rude awakening for enrollees. Following the announcement in July, they were presented with difficult and unfair choices: Pay substantially higher premiums, reduce coverage significantly, or abandon what for some had become 

more than a decade-long investment in protecting their future. This 

situation should not have occurred and signals the need for 

changes in the program. 

We have heard from hundreds of NARFE members, and their 

messages have been personal and blunt. One NARFE member reported her premiums would rise from $275 to more than $600 per 

month. She is not alone in her experience. Another member told 

me, ‘‘I am so much older now than when I entered the Federal 

plan, the cost to switch to another plan would be prohibitive. All 

my bills are fixed. The new payment will have to come from the 

grocery budget.’’ Another said, ‘‘We have already paid John Hancock $56,000 in premiums. We cannot quit now. We have too much 

invested. We are outraged by this bait and switch scheme,’’ end 

quote. 

For these enrollees, the reasons behind the increases come as little comfort, but are worth examining. The actuaries got it wrong. 

Long-term care costs are rising faster than expected and interest 

rates are expected to remain low. This may be the case, but the actuaries and the insurance company did not just get it wrong, they 

got it very wrong. 

We hope this hearing, at the very least, provides the opportunity 

to further investigate why the assumptions were so far off and how 

lessons learned from those mistakes may be applied to assumptions 

about the future. But our efforts should not end there. We need to 

plan for long-term care—the need to plan for long-term care is as 

much a reality today as it was when the program was created 16 

years ago. 

Average long-term care costs are high, $3,800 per month for 

home health, $3,600 to stay in an assisted living facility, $7,700 for 

a private room in a nursing home. Sixty-nine percent of Americans 

will need some long-term care services for an average of 3 years. 

Without adequate insurance, too many will be bankrupt and forced 

to rely on Medicaid. 

Federal employees and retirees want to do the responsible thing 

for themselves and their family. This program seeks to address the 

real need to plan for these future long-term care costs, but the lack 


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of price stability and affordability make it increasingly difficult to 

do so. Legislative reforms are needed. 

NARFE proposed a number of policy options in my written testimony. One of these proposals including providing enrollees an option to convert their plans to hybrid long-term care/life insurance 

policies, which would provide price stability. Another is to provide 

options to extend waiting periods or buy plans with deductibles 

which would improve affordability. 

NARFE also supports broader reforms to the national long-term 

care policy. The crisis faced by FLTCIP is not unique. Individuals 

in private long-term care insurance plans are facing significant premium increases, and neither FLTCIP nor any other private longterm care insurance provider is continuing to offer unlimited catastrophic coverage. 

Middle-class consumers seeking to insure against the worst-case 

scenarios are left with no options at all. Rather, Medicaid, a program intended to protect those in poverty, steps in as the only catastrophic option for consumers who must bankrupt themselves in 

order to qualify. Instead, NARFE supports a public-private partnership with a universal catastrophic insurance program that covers costs between the first 2 or 3 years of care and private insurance, such as FLTCIP, to cover the front end costs of care. 

It is incumbent upon this subcommittee to support real reforms 

that provide Americans with affordable, reliable options. Enrollees 

should not bear the risk when insurance companies and actuaries 

make mistakes, and they should have options available to plan for 

their future needs. NARFE looks forward to working with Congress 

to pursue them. The status quo is unacceptable. Thank you so 

much. 

[Prepared statement of Mr. Thissen follows:] 


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Mr. WALBERG. Thank you for your testimony. 

And now I recognize Mr. Cohen for your 5 minutes of testimony. 

STATEMENT OF MARC A. COHEN, PH.D. 

Mr. COHEN. Thank you, Vice Chair Walberg, Ranking Member 

Connolly, and members of the subcommittee. I’m Marc Cohen, the 

director of the Center for Long-Term Services and Supports at the 

McCormick Graduate School at UMass Boston, and a former president and current adviser to LifePlans, Inc., a long-term care research, consulting, and risk management company. 

I appreciate the opportunity to testify in this topic. And in my 

testimony today, I will draw upon my 25 years of research focused 

on the private insurance market. I’d like to make three broad 

points today. 

First, the rate increases that we’re discussing should be viewed 

within the broader context of the long-term care insurance market 

and the challenges faced by all insurers in that market. These rate 

increases are occurring across almost all blocks of business as actuaries learn how the product is performing and make adjustments 

to their initial pricing assumptions. 

Second, the current marketplace challenges do not diminish the 

need for an insurance-based solution for middle-class Americans, 

many of whom will face catastrophic costs and financial impoverishment in the absence of insurance solutions. 

Finally, without public action, the private insurance market 

alone is unlikely to play a meaningful role in financing the Nation’s 

long-term care needs. More specifically, an insurance-based public/ 

private partnership stands the best chance of moving the needle on 

protecting middle-class Americans from significant costs that 

threaten their retirement. 

Let me begin by making a few key observations to frame some 

of the subsequent discussion. Today, fewer than 10 percent have insurance protection, industrywide sales are declining significantly, 

and many companies have exited the market. Thus, the market is 

shrinking rather than growing, and this at a time when more 

Americans are facing significant long-term care costs. 

There are a number of reasons why so many insurers have 

stopped offering policies. On the demand side, selling costs are high 

because consumers lack knowledge and understanding about longterm care risks and costs. They’re confused about the role of public 

programs and there’s general mistrust of insurers. On the supply 

side, insurers have faced a variety of unpredictable and often uncontrollable risks that are hard to spread. For example, given the 

current funding structure of almost all standalone policies, companies must correctly estimate yields on investment premiums 20 to 

30 years into the future. An err of just a few percentage points in 

such an estimate can result in very large premium increases to assure adequate funding of future claims. 

Second, unfolding negative claims experience has led to large 

rate increases as insurers waited many years before requesting 

some of these rate increases. Recent research shows that people 

would prefer smaller but more frequent adjustments rather than 

large infrequent ones. The problem is that these premium increases have made the product too costly for a growing number of 


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middle-class consumers who only have personal savings and safety 

net programs like Medicaid to rely on should they require significant amounts of care. 

Despite private sector challenges, variation in long-term care 

needs and expenses make risk pooling through insurance desirable. 

The underdevelopment and growing unaffordability of private insurance in the absence of any public insurance present a fundamental problem. People have no way to effectively plan for what is 

a perfectly insurable risk. 

Since current strategies have not worked well in assuring broad 

consumer appeal and ensure enthusiasm, what can be done? Some 

concrete actions include simplifying and standardizing products to 

reduce selling costs, changing the structure of premiums payments 

so that there is some level of indexing to address both affordability 

and premium stability issues. 

Also, without expanded Federal and/or State support designed to 

spur both demand and supply, however, the needle is unlikely to 

move enough to protect the majority of middle-class Americans. In 

addition to an educational campaign designed to reduce consumer 

confusion and increase knowledge and awareness, we need to think 

more broadly about shared public and private insurance models. 

For example, given that the private insurance market is not willing to provide products any longer that cover the catastrophic tail 

risk, one might consider whether and how States or the Federal 

Government might do so. Such an approach could provide a basis— 

a base that the private insurance industry could supplement or 

wrap around, and it would likely encourage more insurers to get 

back into the market, broaden the risk pool, and lower the cost of 

insurance products. 

In the interest of time, I will stop here, but would be happy to 

answer any questions that the committee might have. Thank you. 

[Prepared statement of Mr. Cohen follows:] 


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Mr. WALBERG. Thank you. And I thank the panel for your testimony. 

And now I recognize the gentleman from Wisconsin, Mr. 

Grothman, for your time of questioning. 

Mr. GROTHMAN. Interesting testimony. I’m going to ask Ms. 

Kastrup—is that right?—a few questions. I don’t know if you’re familiar with this product as opposed to other products, but whenever there’s insurance, I don’t care whether it’s health insurance, 

car insurance, whatever, you always kind of wonder how much of 

that premium is going for claims and how much is going for overhead and commissions and that sort of thing. 

Could you give me, the insurance industry in general, how much 

of, say, auto insurance, health insurance, and long-term insurance, 

how much goes for claims? 

Ms. KASTRUP. I’m not an expert in all of those areas. Very few 

actuaries would cover all three of those areas. You know, it depends on the pricing structure. It depends on how the products 

were sold. So it would vary by carrier as well, whether it was sold 

with an agent or not. And so there’s not really a guideline I can 

give on that, but I could research that and come back. 

Mr. GROTHMAN. You can give me about. When you pay your auto 

insurance premium—you’re an actuary, you must have some idea. 

Ms. KASTRUP. I’m not a casualty actuary. I don’t practice in car 

insurance. 

Mr. GROTHMAN. Okay. Well, which type of insurance do you deal 

with? 

Ms. KASTRUP. With long-term care insurance. 

Mr. GROTHMAN. Okay. And the average long—do you have longterm care insurance? No, you’re too young, right? Do you have 

long-term—— 

Ms. KASTRUP. I myself do not have a policy, no. 

Mr. GROTHMAN. Okay. Do you know—I mean, guess, if your parents had a policy, how much do you think goes out average and 

how many—what percentage of the premium goes out in claims? 

Ms. KASTRUP. Like I said, it would vary by carrier because it depends on how the product is sold and what costs go into it, whether 

it’s a group policy or an individual policy. There’s a lot of different 

factors that go into that. I don’t know right offhand, but I could 

look into it and get back to you. 

Mr. GROTHMAN. You must have some idea for some policies. 

Don’t you? No idea at all? 

Ms. KASTRUP. It would depend on your—— 

Mr. GROTHMAN. I know it depends. But, you know, they sell 

these things. I mean, is it 10 percent, is it 50 percent? 

Mr. COHEN. I can maybe add something on that. 

Mr. GROTHMAN. Sure. 

Mr. COHEN. At least historically when these products have been 

priced, the idea was that somewhere between 60 to 70 percent of 

the dollars that were collected would eventually get paid out in 

claims. 

Mr. GROTHMAN. Okay. 

Mr. COHEN. Just to get for order of magnitude. 


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Mr. GROTHMAN. And can you compare that? Are you aware of 

any other kinds of insurance? Can you compare that to automobile 

insurance or some other insurance? 

Mr. COHEN. I don’t know. I will say that, as I mentioned in my 

testimony, the selling costs associated with long-term care insurance are pretty high because of the lack of information, confusion. 

It’s not a sort of a one and done. It’s agents sitting across the table 

from people and so on. And that’s, you know, one of the ways that 

we are—have to think about making the insurance more affordable 

is how to reduce some of those selling costs. They can represent 

anywhere from 15 to 25 percent of the premium. 

Mr. GROTHMAN. Okay. You mean for selling costs? 

Mr. COHEN. Yes. 

Mr. GROTHMAN. Okay. And could you compare it to any other 

kind of insurance or you don’t know? 

Mr. COHEN. I don’t know. 

Mr. GROTHMAN. I’ll give you another question here. And—oh, Mr. 

Doughty, you must know, because doesn’t John Hancock have other 

insurance other than just long-term care? 

Mr. DOUGHTY. We do offer—the only other kind of insurance we 

offer is life insurance, which has—in terms of selling costs, et 

cetera, it’s quite similar. In terms of the ongoing administrative 

costs, because you’re paying out—when a client goes on claim, 

you’re just paying out one death benefit, so that would be slightly 

lower than in long-term care insurance. 

Mr. GROTHMAN. Okay. I’ll give you another question. I’ve always 

wondered about this on long-term care insurance. With any insurance there’s a degree of moral hazard, okay, and it’s your behavior 

changes because you’re insured. People have to make a decision, 

families, in life, as to whether you’re going to allow somebody to 

go to a home or not. And I think sometimes families do extraordinary things due to the huge cost of long-term care.You know, 

they can take care of grandpa for years and years, because they 

don’t want to pick out, whatever, $8,000 a month or something. 

And therefore, I’ve always kind of thought that if you have longterm care insurance, maybe people are quicker to send grandma to 

the home than they would be without insurance. 

Do you feel there’s that degree of moral hazard when people buy 

long-term care insurance? 

Mr. DOUGHTY. Yeah, I believe that that is absolutely a reality 

that people that don’t have coverage are far more likely to take 

care of mom and dad for longer. I also think in the context of this 

broader discussion about the future of long-term care, and I think 

we’re all in agreement that we need to do better. That one of the 

risks of that reliance in the past on families taking care of people 

is that families are becoming more spread out. There’s more divided families. So I think in the future, it’s going to continue to 

pose a problem in terms of overall support for people requiring 

long-term care. 

Mr. GROTHMAN. Can I ask one more quick question? 

Mr. WALBERG. The gentleman’s time has expired. We’ll have to 

move on. 

Mr. GROTHMAN. Okay. 

Mr. WALBERG. I thank the gentleman. 


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I recognize the gentleman from Virginia, the ranking member, 

Mr. Connolly. 

Mr. CONNOLLY. I thank the chair. And this conversation is why 

I requested this hearing and I’m so glad we’re having it. 

But first, just, Mr. Doughty, are you from Baltimore, Philadelphia, or Canada? 

Mr. DOUGHTY. I am from Canada. 

Mr. CONNOLLY. Yes. You speak with a diphthong. O–U-T. 

Okay. So, Mr. Doughty, Hancock got out of the private sector 

provision of this kind of coverage. Is that correct? 

Mr. DOUGHTY. Yeah. Just to be perfectly clear on that front, we 

recently decided that we were going to stop selling standalone retail long-term care insurance policies. 

Mr. CONNOLLY. Right. Why? 

Mr. DOUGHTY. Primarily because, well, we recognized a growing 

and increasing need. I think as Dr. Cohen noted, it was becoming 

increasingly difficult to actually develop enough critical mass in 

sales to make it a worthwhile business venture. 

Mr. CONNOLLY. So it wasn’t because people are living too long or 

getting older. It wasn’t even the expense, if I’m hearing you correctly. It was that you just couldn’t get the critical mass in terms 

of making it worthwhile as a marketable product? 

Mr. DOUGHTY. Yeah. I think the two are related, though. I mean, 

we have been for a long time a player in the private long-term care 

insurance market. We continue to provide service in—— 

Mr. CONNOLLY. I understand. But, I mean, if 50 million customers knocked on your door tomorrow saying we want this insurance, would that change your posture in terms of providing it? 

Mr. DOUGHTY. It would. And primarily because we actually had 

come up with a new product that we thought provided some rate 

stability and things like that. So, yes, it would have. Definitely. 

Mr. CONNOLLY. All right. And just, what’s the chicken and the 

egg thing here? Is the reason for the drop in the popularity of the 

product or the demand for the product because of the pricing or is 

it just we’re just not that interested in long-term care? 

Mr. DOUGHTY. I think it’s both of those issues. I would say the 

primary issue because if you see sales have come down, it’s because 

of the pricing. 

Mr. CONNOLLY. Yeah. 

Mr. DOUGHTY. I do believe that there’s still a reluctance for 

younger people to think about long-term care. 

Mr. CONNOLLY. Right. Got it. 

So, Dr. Cohen, is this a nonviable product given what’s happening in the market? 

Mr. COHEN. I don’t—I don’t think it’s—— 

Mr. CONNOLLY. We cannot hear you. 

Mr. COHEN. Oh, I won’t touch that. 

Mr. CONNOLLY. Okay. Go. 

Mr. COHEN. Sorry. No, I don’t think that it’s unviable. I think 

that there can be changes, changes in the structure of the product. 

There can be much greater education. Just to your last question 

also. When we look at the primary reason why people who have 

been approached to buy this insurance don’t, it’s a cost issue. They 

don’t see the value proposition. And if you don’t believe you’re at 


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risk, if you believe that public programs are going to cover you, 

then why would you lay out the money? There’s a lot of work that 

needs to get done in that regard. 

And I also think that these types of products work best in the 

context of a broader public role. And that was one of the things I 

mentioned. 

Mr. CONNOLLY. And real quickly to get it on the record, because 

you suggested that in your testimony, is there a precedent for that 

in terms of the Federal Government getting involved directly in 

sort of trying to fix holes in the market, in the insurance industry? 

Mr. COHEN. Sure. I mean, there are—the Federal Government 

has been involved in, for example, organizing risk pools for, you 

know, flood insurance. 

Mr. CONNOLLY. There you go. Flood insurance. The Federal footprint is quite considerable. Right? 

Mr. COHEN. I mean, in—when there are issues that are—especially when it relates to insurance, if there are common shocks that 

affect the entire industry, then you can’t—you know, you can’t 

spread the risks adequately, no matter what you end up doing. 

Mr. CONNOLLY. Right. I’m only establishing on the record, because I’m anticipating arguments in our next Congress on this subject matter that this would be an unprecedented role for the Federal Government. Not true. In fact, the Federal Government has 

been involved in the insurance market in various and sundry ways, 

including flood insurance especially, which may be a model—I’m 

not slavishly devoted to that model, but a model. 

Mr. COHEN. Right. On that point, I would like to say that it’s 

likely—there’s no magic bullet here. It’s a combination of both demand and supply. 

Mr. CONNOLLY. We understand. 

Mr. O’Brien, my final point. So OPM, other than weeping and 

gnashing its teeth over what’s happening to your constituents, my 

constituents, Federal employees, and retirees in terms of cost, has 

OPM come up with any ideas in terms of how we can solve the 

problem or address the problem or make it easier for those constituents to avail themselves of this kind of coverage at an affordable price? 

Mr. O’BRIEN. Yeah. We do not have any proposals to bring before 

the committee right now. However, we are very interested and 

committed to working with anyone on ideas that might work. We 

appreciated some of the ideas that are shared in their testimony 

and we look forward to working with people to figure out what we 

can do moving forward. 

Mr. CONNOLLY. Well, that’s quite a piece of testimony. Thank 

you. 

Mr. WALBERG. I thank the gentleman. 

I recognize myself for my 5 minutes of questioning. 

Ms. Kastrup, in your testimony, you indicated that there continues to be a high level of uncertainty in the long-term care market that affects premium rates. Can we ever expect long-term care 

insurance premiums to stabilize as more claims experience becomes 

available? 

Ms. KASTRUP. Thank you. I think I also mentioned that it’s a 

long projection period and any time you have a projection period, 


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like a 50-year projection period, you’re always going to add more 

uncertainty as you spread that out. I do think we have more stability and assumptions than we did in the initial years. Every new 

bit of experience, more bit of credibility gives us a better basis to 

project out. 

I don’t think we’ll ever have perfect—we don’t have perfect in life 

insurance, and we’ve been doing that a lot longer than long-term 

care insurance. 

Mr. WALBERG. But is there any reasonable guess when it might 

stabilize? 

Ms. KASTRUP. Well, one of the issues that makes that hard is 

that care delivery has changed a lot from the initial policies. If you 

think about it, the initial policies were sold as nursing home insurance and the thought being no one wants to go to a nursing home. 

And, you know, assisted living facilities didn’t even exist. Today, 

there’s assisted living facilities. There’s home care, and the policies 

cover these as well, even though they were maybe not even around 

when the policy was written. And so it would be hard to ever foresee future care delivery changes and know those perfectly, but we 

can get a lot better feel on things like mortality, mortality improvement, some of those assumptions. 

Mr. WALBERG. That could change prediction, ultimately, of—— 

Ms. KASTRUP. There’s a lot of assumptions, and some of them we 

will have more certainty on and know more about. There will always be some things that we won’t know. 

Mr. WALBERG. That’s comforting for me to know, having bought 

long-term care. So thank you. 

Mr. Doughty, recently, John Hancock announced that it was 

going to discontinue selling new standalone, long-term care policies 

because there’s limited demand for the product. Why is there limited demand for the product? 

Mr. DOUGHTY. I think the primary reason, I think it may have 

been touched on a little bit today, is one has been this price increase that has sort of happened and the other has been a general 

lack of understanding that people need to actually think about this 

very important event that could happen to them in the future. I 

will say on that point, however, that when you—you know, all of 

the things that we’ve talked about both in the—in terms of prices 

going up in the FLTCIP but also in standalone retail insurance, the 

prices are going up because the costs are going up. 

And so people still have to consider these products in the context 

of what alternatives do they have? They can stay in that kind of 

a program. They can try to buy something on the private marketplace or they can try to fund it themselves. And, generally speaking, insurance, although sales have gone way down, insurance still 

can for many people provide a very attractive alternative in that 

context. 

Mr. WALBERG. Any other factors, specifically for your company, 

go into making the decision—— 

Mr. DOUGHTY. The decision to stop selling? 

Mr. WALBERG. The decision to discontinue selling. 

Mr. DOUGHTY. No. But that would—the primary factor and really 

the overwhelming factor was—I mean, there’s questions about how 

long you tie up capital, et cetera, in this kind of a product. But, 


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really, the number one factor was really just a pretty simple business discussion around can you sell enough of it to cover the infrastructure you need for your sales teams, for your, you know, negotiating with each State, all those kinds of things. 

Mr. WALBERG. Did you consider what that means for individuals 

who have purchased standalone policies? 

Mr. DOUGHTY. Yes. And thank you for asking that question because I want to be very clear on that point. We have not stopped— 

we continue to be in the long-term care business. We have 1 million customers that we continue to provide service to, pay claims 

for. We continue to be providing insurance for the Federal program. 

And we also provide long-term care insurance as an accelerated 

benefit on their life insurance policies, which is an increasingly 

popular way to—for consumers to get their long-term care insurance coverage. 

Mr. WALBERG. Will there be substantial premium increases for 

these individuals? 

Mr. DOUGHTY. On our—which individuals? 

Mr. WALBERG. On standalone, those that have purchased it. 

Mr. DOUGHTY. Our in force long-term care insurance has been 

experiencing really the very same trends that we have been discussing as part of the Federal program. Yes. 

Mr. WALBERG. Okay. Well, thank you for your testimony. 

I yield back and recognize Mr. Lynch for your 5 minutes of questioning. 

Mr. LYNCH. Thank you, Mr. Chairman, and thank you and the 

ranking member for holding this hearing. 

I want to welcome our witnesses. Thank you for the important 

input you’ve had and the advice. I read through your papers; very, 

very helpful. 

This is a thorny issue, and as someone who’s an advocate on behalf of Federal employees, this was a shocker. I do understand that 

the real issues behind this, though, I’ve had some experience sitting as a trustee on pension funds where we assumed years ago 

that would always have, you know, our target rate was 7 or 8 percent interest on our funds and actuarially we could sort of stay 

within those guidelines and we could provide the fine benefit pensions to people and we could project that out. Now, we’re in an interest rate period where it’s half that. 

And so, Mr. Doughty, is that the core issue for you here in terms 

of—you’re trying to project over a very long period of time. I know 

you’re experience rating is different. You know, the expectations on 

long-term morbidity and all of that, but the fact that you can’t— 

if you’re putting this money in the market and getting return on 

your investment and it’s so low, even over a long period of time, 

you cannot pay the benefits. Is that the crux of the problem? 

Mr. DOUGHTY. That is one of the major issues with the problem, 

not the only one. I think some of the other issues were raised 

around people living longer, being on claim longer, all of that kind 

of experience. But investment expectations have significantly 

changed because of the prolonged low-interest rate environment, 

and that represents a very significant portion of the problem. Absolutely. 


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Mr. LYNCH. I notice, unlike John Hancock, a lot of other insurers 

have just gotten out of the business. They’ve exited. I think in the 

majority memo they said there were 100 companies doing this business not too long ago. And now they’re down to 12 that are doing 

individual policies, and maybe a similar amount doing group policies. 

So it’s not an area where people are flocking to it. And as I understand it, the Federal contract that you’ve signed prevents you 

from getting any additional profit as a result of increasing the premiums. Is that correct? 

Mr. DOUGHTY. Yes, that’s correct. And—but we are quite happy 

to do that. I mean, we—— 

Mr. LYNCH. Well, I’m sure you weren’t happy. But—— 

Mr. DOUGHTY. Well, no. But one of the reasons—one of the reasons you referenced, all the people that have left the industry, and 

why is that? 

Mr. LYNCH. Yeah. 

Mr. DOUGHTY. Because we’ve talked already about the need is 

going up. 

Mr. LYNCH. Right. 

Mr. DOUGHTY. The truth is, it’s a very difficult business to be in. 

When you—John Hancock has been around for 150 years. We’re 

very proud of our brand. Nobody likes to raise the price on customers. And I think that that’s been a big challenge, so it’s made 

it very difficult for people to stay in the business. 

Mr. LYNCH. I understand. 

Mr. DOUGHTY. But we negotiated not to make any additional fee 

off of the fact that we had to raise rates on these. 

Mr. LYNCH. Let me thank you for that. I understand you came 

forward, your company came forward and agreed to that. I think 

that at least eliminates the possibility that, you know, that there’s 

gouging going on or anything like that, since you’re not getting any 

additional profit by raising the premiums. But it doesn’t help my 

constituents, the Federal employees who have to pay these premiums. And, you know, I hear the stories of Mr. Thissen and it 

puts a human face on this. 

Let me just shift. Mr. Cohen, thank you so much. I love UMass 

Boston. They wouldn’t let me in, but I jog around the bank along 

the water there. I actually did take a few courses there before I 

went to law school, so I appreciate it. 

Let me ask you. You know, Mr. Connolly raised the issue of flood 

insurance. It’s intriguing. And to encourage more—there are some 

key differences here, but to encourage more insurers to get into 

this line of business, would it be helpful to have a government 

backstop like we do in the flood insurance field where we—you 

know, we actually buy our subsidy. We do provide a lot of assistance to families who would otherwise not be able to afford flood insurance. 

Mr. COHEN. Well, I mean, there are different ways to think about 

it. One is that you could imagine either the State or the Federal 

Government organizing a pool—— 

Mr. LYNCH. Right. 


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Mr. COHEN. —among insurers where right now they have a premium tax that goes maybe to a guarantee fund. Maybe it goes to 

an reinsurance backstop. 

Mr. LYNCH. Yeah. 

Mr. COHEN. And they all agree to a set of principles in the way 

that they operate. And if either one company, or whatever, has 

losses above that, then that’s spread across the companies. 

Mr. LYNCH. Okay. 

Mr. COHEN. That’s one way to think about it. You know, one 

thing that I wanted to make sure that got out there, and that is 

that when you look at, for example, people who are on claim, you 

know, it is—it is true that right now, even 22 years of premium 

payments would be made up in about 5, 6 months of actual longterm care expenses. And so I have to say that if even—and even 

in the presence of rate increases, that means it’s closer to 8 

months. 

If you turn out to be one of the people who become disabled for 

a significant amount of time, meaning 2 to 3 years, you’re getting 

a lot of benefit—a lot of benefit out of your policy. And I just want 

to make sure that that’s understood here. 

Mr. LYNCH. That’s a good point. Thank you. 

Mr. LYNCH. Mr. Chairman, I know I’ve exhausted my time. I 

yield back. 

Mr. JORDAN. [Presiding.] I thank the gentleman for yielding. 

And I now recognize the gentlelady from Virginia for her 5 minutes. 

Mrs. COMSTOCK. Thank you, Mr. Chairman. And I thank the 

committee for holding this hearing. 

You know, when my constituents, seeing as I’m in Virginia and 

have many Federal employees also, were notified by OPM on July 

of these large premium increases, they were understandably concerned, and we certainly did hear a lot from them. And that’s why 

I had joined folks in requesting the hearing. So I appreciate you 

all being here and taking a look at this issue. 

Walt Frances, a health economist and an expert on these programs, is quoted in the Washington Post as saying, quote, ‘‘This 

never should have happened. The long-term care estimate should 

have been actuarially sound and accurate, taking into account far 

more carefully both the possibility of low interest rates, the low 

rate of return on premiums invested in bonds, and thirdly, the average selection by persons most likely to need long-term care.’’ 

Could Mr. Doughty and Mr. O’Brien address the industry assumptions that were here as well as just the general statement? 

And maybe some others would like to join also, but why don’t we 

start. 

Mr. DOUGHTY. Maybe I can start. Certainly, referencing the 

quote, which I’m not that familiar with but, you know, looking 

back, we clearly got it wrong, and there’s no question about that. 

And it’s creating a big issue, as you referenced, for your constituents. 

The question is, could you have done better? And what we do 

know is that our actuaries use the information—we talked about 

this is a relatively new product. Experience is emerging. They use 

the best—they’re trained to use the best estimates that they can 


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at the time, set the best assumptions that they can at the time. 

And we weren’t alone in doing that. You know, we vetted those. We 

had outside actuarial firms. OPM used their experts to look at 

them and I know used outside actuarial firms. So it is a very challenging question. 

And specifically on the interest rate one, that is a big driver. You 

know, a small—as someone mentioned earlier, a relatively small 

change in your long-term projection around interest rates can have 

a significant impact when you’re assuming that to—you know, 

you’re losing that revenue year after year after year. 

Ms. COMSTOCK. I think you’ve addressed it a little here, but 

would the premium increases shorten the contract period if it went 

from like 7 to 3 years? Would that help? Is that something, OPM, 

that you’re looking at? 

Mr. O’BRIEN. Honestly, we do not think that shortening the contract—— 

Mr. CONNOLLY. Please use the mic. 

Mr. O’BRIEN. Sorry about that. 

Honestly, we don’t think that shortening the contract period from 

7 to 3 years—we can make adjustments during the contract periods 

if we desire to. So a shorter contract period does not necessarily 

solve any problem. 

Ms. KASTRUP. I would like to jump in here and say that, you 

know, when the product was first priced, it was new. It was a new 

product. So you had to look at other things, like population data, 

because there was no insured data. And you had to look at other 

products. 

I’ll give an analogy. It’s that time of year. College football, if you 

think about the preseason top 10 football polls, it’s based on last 

year’s teams. You don’t really know. You’re trying to project this 

year. You know, now that we’re all into December, you have a lot 

more information, and that top 10 has changed. It’s kind of a similar situation here. So we have a lot better data now. 

Another thing to remember is the product was priced as a guaranteed renewable product, meaning that premium rates can be 

reset. If it had been priced as a product with level premiums that 

couldn’t change, the initial prices would have been a lot higher to 

start with. 

Mr. COHEN. One other point on that with respect to these actuarial assumptions, part of the challenge that the whole industry 

has faced is the issue of waiting until you get what you perceive 

to be credible experience. And so that means that if you’ve waited 

10 years and all of a sudden you’re now certain because you have 

all of this credible experience, you’ve got about 10 years back to 

make up. 

And I think one of the ways that we could improve the functioning of this market is to have insurers certified on an annual 

basis based on actual—what actual assumptions are operating in 

the marketplace. For example, you see what’s happening with interest rates. You know that. You don’t have to wait 5 years to know 

that this year you’re earning 1 percent or so on. 

And so we just completed a study and asked a question about 

that, and overwhelmingly, people would prefer—if there have to be 

rate increases, people would prefer more frequent, smaller inVerDate Nov 24 2008 09:17 May 08, 2017 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 H:\25005.TXT APRIL

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creases, similar to health insurance, than, you know, infrequent, 

large, you know, one-time hits. 

Ms. COMSTOCK. Okay. 

Mr. Thissen, did you want to—did you want to comment at all? 

Mr. THISSEN. No. 

Ms. COMSTOCK. Okay. I see my time is about to expire. So thank 

you. 

Mr. JORDAN. I thank the gentlelady for yielding back. 

We now recognize the gentleman from Virginia, Mr. Beyer. 

Mr. BEYER. Thank you, Mr. Chairman. Thanks for allowing me 

to sit in on the hearing today. 

You know, this is something that affects many of my constituents. I think I have more Federal employees than Federal retirees 

than any other Member of Congress. And, believe me, we have 

heard from them. The phone rang off the hook. 

Mr. CONNOLLY. Wait a minute. I’m not sure about that. Barbara 

and I might compete with that. 

Mr. BEYER. Mr. Ranking Member, thank you for requesting this 

hearing. 

For example, Rebecca Cuddy shared this story of her mother and 

her unaffordable premiums. Sharon Reynolds wrote about how she 

feels completely untrapped with the unaffordable premiums. Jim 

Real asked many effective probing questions. And I sent several 

letters to OPM requesting an explanation and a justification for 

why this is happening, what we can do to fix it, and at least how 

to plan to prevent this from ever happening again. 

So, Mr. O’Brien, maybe Mr. Doughty, why during the interim actuarial reviews didn’t you know that a premium hike was imminent and at least make this information available to the current 

enrollees? One of the big problems they had was sticker shock after 

7 years. Or why not even perhaps interim rate increases at the 4- 

or 6-year period? 

Mr. O’BRIEN. That’s an excellent question, and I’d like to kind of 

go through the timeline. What we had found at the end of the last 

contract cycle, there were two sets of hard facts we had to deal 

with. 

First, when we got the funded status report in June of 2014 was 

when the reevaluation of long-term cost projections by John Hancock indicated that the long-term care—long-term costs of the program were higher than we were originally projected. 

Then in April, as part of the contract when they provided us with 

bids, they had done additional revisions of their assumptions, including revisions to their long-term projection of revenue returns. 

So we had—as I said in my testimony, we had the confluence of 

two unfortunate factors. We had higher long-term projected costs 

and we had lower long-term projected returns. So those two facts 

meant that we had a very huge increase coming on. 

We then had a decision we could make. We could have made a 

decision where you could have phased in the increases over several 

years, but we knew what the magnitude of those increases were 

going to be. 

So Mr. Cohen has made the thing that people would rather have 

more frequent, smaller increases, but I would put that in context, 

given the magnitude of the bad facts that we had to deal with, it’s 


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different to say, yes, give me smaller increases rather than give me 

30 percent this year and then follow it up with 40 percent next 

year. Because then you have the situation, long-term care that people can make the 30 percent increase and they stretch to make 

their budget, but they can’t make the 40 percent increase. So 

they’re in a circumstance where we have effectively made them pay 

additional money for a benefit they will not be able to take advantage, because they made the choice—— 

Mr. BEYER. Mr. O’Brien, I think you go right to the heart of this 

too. Because what I heard from so many people was they signed 

up in 2002 or sometime along the way with really expectations and 

guarantees that this was the premium, as long as the benefits—in 

fact, in the 2002 literature, I quote, ‘‘Premiums have been set to 

remain constant for life unless you increase benefits.’’ And then in 

the renewal in 2007, the—I think you said that somewhere along 

the way that they signed a form indicating premiums may only increase from among a group of whose premium is determined to be 

inadequate. And basically, no one saw that. 

In fact, the literature—the only thing that’s different in the literature from 2002 to 2009 was you left out that line about premiums set to remain constant. Here, we’re always guarding against 

binding arbitration hidden in the six-point type on the back of the 

contract. 

What did you do proactively to make sure that people knew in 

2009 that they could really get hit the next time around? 

Mr. O’BRIEN. Well, I’m—we were criticized in hearings in 2009, 

and we took those criticisms to heart. Exactly the points you’re 

making, Congressman. 

Since 2009, the materials that are shared with enrollees have extensive information about the fact that premiums can increase. In 

fact, people positively attested they are aware of that. I’m happy 

to share with you in detail the information of how we’ve changed 

the materials and what information we now provide people since 

2009 to clarify the possibility that their premiums will increase. 

If we can improve on that and make it even clearer, we are 

happy to do so, but we think we made extensive changes to the materials to make that clear. 

Mr. BEYER. Well, I confess if you talk to the people that you 

serve, they don’t feel that way. 

Mr. Thissen, you had suggested perhaps a Federal long-term 

care insurance oversight board. Is that still a good idea? 

Mr. THISSEN. Well, I think that there should be a public/private, 

you know, partnership—— 

Mr. CONNOLLY. Turn on your microphone. 

Mr. THISSEN. I’m sorry. 

I think there should be a public/private partnership that looks at 

catastrophic protection; it looks at ways to encourage more individuals to purchase long-term care insurance, because the wider we 

can spread the risk and the wider we can spread the pool, it just— 

it helps everybody. And then I also think that if we can put something together like that, we possibly maybe even can save some 

money on Medicaid, because we’ve paid some of that up front. 

Mr. BEYER. Okay. Thank you. 

Mr. Chairman, thank you. I yield back. 


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Mr. JORDAN. I thank the gentleman. 

Now recognize for additional round, the gentlelady from Virginia. 

Mrs. COMSTOCK. I just have one more question, but what percent 

of policyholders—I’m sorry if missed it—have dropped their policy 

since this increase this summer? And what percent cut back on 

their coverage in some way? 

Mr. O’BRIEN. Roughly 3 percent of policyholders chose to drop 

coverage so that they took the contingent nonforfeiture option. Of 

the 172,000 people who made a decision during the decision period, 

roughly a little over half, or 93,000 of those, took the option whereby they reduced their benefit to keep their premium the same. 

Mrs. COMSTOCK. And could you—what exactly was the reduced 

benefit? 

Mr. O’BRIEN. There were various options in terms of how you 

could reduce the benefit to keep the premium the same, so it 

wasn’t a one-size-fits all. 

Mrs. COMSTOCK. Okay. But half of them reduced their benefits? 

Mr. O’BRIEN. Yes. 

Mrs. COMSTOCK. Okay. Thank you. 

Mr. JORDAN. I thank the lady. 

Now recognize Mr. Connolly, the ranking member. 

Mr. CONNOLLY. I thank the chair. 

Mr. O’Brien, I ran out of time in questioning you, but if I understood your response to my last question to you, it was that OPM 

has given no thought to recommendations for how to resolve this 

issue, address the issue, ameliorate the issue. You gave consideration to, in response to Mr. Beyer’s questions, parceling out the 

premium increases and decided against it because you didn’t think 

it would—that would be particularly helpful. 

But what about—I mean, we’re listening to suggestions from 

NARFE and from Professor Cohen about some creative ways we 

could go about trying to address this problem and make it easier 

for Federal employees, Federal retirees to access this product. I 

want to give you the opportunity to respond, because is it really 

your testimony on the record that OPM hasn’t given a thought to 

that? 

Mr. O’BRIEN. I believe what I said is that we’ve given—— 

Mr. CONNOLLY. Please move that closer to you. 

Mr. O’BRIEN. I’m sorry. 

Mr. CONNOLLY. Thank you. 

Mr. O’BRIEN. Okay. I believe what I’m saying is that we do not 

have a position that I can offer in terms of recommendations to this 

committee as far as what we think we should do to move forward 

in terms of addressing the problems in long-term care insurance. 

I have found this hearing very, very helpful. There’s a number of 

ideas and proposals and ways to deal with the challenges of the 

program, and we are wide open to working with this committee 

and all of these individuals on how we can come up with solutions. 

Mr. CONNOLLY. But, Mr. O’Brien, it’s not my purpose to play 

Torquemada here, but surely you knew about this hearing, you 

knew we were planning on this hearing. This is not a new item in 

the press. It’s gotten lots of coverage. You certainly have had feedback from Federal employees and Federal retirees. We certainly 

have, Ms. Comstock, Mr. Beyer, and myself. And yet you come here 


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emptyhanded. You’re open to ideas. The hearing is fascinating, but 

we have nothing in our kit bag to offer the people we serve. That’s 

your testimony? 

Mr. O’BRIEN. My testimony is that we do not have a proposal 

that is ready for being shared with the committee at this time. The 

options and the discussion that has been offered around here goes 

in a number of different directions. We would like to evaluate those 

possibilities and come to this committee and this group with a proposal that we could really play out and we’ve weighed all the pros 

and cons, and we have not yet done that. 

Mr. CONNOLLY. Any idea of the timeline when you will do that? 

Mr. O’BRIEN. We are continuing to work. I cannot give you a 

timeline at this time, sir. 

Mr. CONNOLLY. Well, then let me say this to you: I’m the ranking 

member of the subcommittee, and I’m going to use every influence 

I’ve got to make sure you are summoned back to this subcommittee. And at that point, we will expect specific proposals. You 

owe that to the Federal employees and retirees who count on this 

product. You’re not a passive observer, just responds to the whims 

of the market with, oh, my. You have an obligation to the people 

you serve. And you have an obligation to this Congress to come 

here with concrete ideas about how to ameliorate and resolve this 

issue. And we will expect that next time we see you, sir. 

I yield back. 

Mr. BUCK. [Presiding.] The gentleman yields back. 

Does the gentleman from Wisconsin have any questions? 

Mr. GROTHMAN. Yeah, sure. First of all, a comment. I think any 

company could bid on this product, correct? 

Mr. O’BRIEN. Yes. 

Mr. GROTHMAN. How many different companies in the country 

offer long-term care insurance? Dozens? 

Mr. O’BRIEN. I think about a dozen has been stated at this meeting. 

Mr. GROTHMAN. About a dozen. Okay. So one would think that 

if somebody could offer this plan for less, they’d be given a contract 

in the future, and we’ve solved the problem. I think there are some 

underlying problems here with long-term care insurance I go into, 

and my guess is—well, I’ll ask one question and I’ll go on my soapbox again. 

Have premiums for long-term care insurance gone up in general 

across the board—like if I go to my individual insurance agent or 

anything, is this an industry-wide phenomena? 

Mr. DOUGHTY. Yes. I think it’s safe to say that almost every insurance company offering long-term care has faced the need to 

raise premiums. 

Mr. GROTHMAN. I thought so. And I think if any Congressman 

thinks you’re doing a lousy job of running their company, they can 

apply to be the chief executive officer of any long-term care insurance company and make a boatload of money for you guys if they 

can do a better job than the free market can do. 

But back to the last question. It is—nationwide, if I just go to 

my local insurance agent, how much can I expect my premiums to 

go up, say, every year for the last 5 years, you think about? 


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Mr. DOUGHTY. I think it’s—it varies greatly, similar to this program, depending on the type of product that you’ve bought. But 

our—you know, and I’ll just speak to John Hancock on the private 

insurance, the retail insurance that we’ve offered. And generally 

speaking, it’s gone up by, you know, the same factors in similar 

amounts over time. 

Mr. GROTHMAN. And that’s true of your 11 competitors too, 

about? 

Mr. DOUGHTY. Fairly similar, yes. 

Mr. GROTHMAN. I would assume John Hancock, I mean, I would 

assume you guys know something about trying to offering insurance at the lowest price, don’t you? And if you didn’t, wouldn’t one 

of your competitors undercut you and put you out of business? 

Mr. DOUGHTY. Yes. 

Mr. GROTHMAN. That’s kind of something that everybody who 

graduates from high school should know by now, wouldn’t you 

think? 

Mr. DOUGHTY. I mean, I would think that one of the realities 

that the industry faces is that insurance—the cost of insurance as 

they go up have been going up, the same factors apply to all companies and—— 

Mr. GROTHMAN. You guys have been surprised in the amount of 

claims compared to where you all thought it was going to be 10 

years ago, right? That’s the underlying problem? 

Mr. DOUGHTY. That’s correct. The amount of claims and the investment environment that we talked about earlier. 

Mr. GROTHMAN. Right. And as long as people maybe continue to 

live longer, be more likely to have diseases, Alzheimer’s or whatever, that you have to put people in long-term care, premiums are 

going to have to go up, no matter how much a politician wants to 

grandstand and be critical of you, right? 

Mr. DOUGHTY. Premiums will go up as claims go up and the need 

and costs of long-term care goes up. That’s absolutely right. 

We should—as someone pointed out earlier, this is a relatively 

young product. And we started with very little experience. So as we 

gather additional data, we should be able to get better but not perfect at predicting what those costs would be. 

Mr. GROTHMAN. And if I yell at you some more and ask you to 

produce your costs, is that going to make any difference at all as 

long as more and more people continue to need long-term care, no 

matter how much I yell at you, no matter how many times I bring 

you back in this room? 

Mr. DOUGHTY. Well, in terms of the Federal program and John 

Hancock, we obviously have an obligation to make sure that there 

are sufficient prices being charged to make sure that those claims 

can get paid in the future. 

Mr. GROTHMAN. Right. It’s not going to matter. I can’t yell at you 

and say, keep coming back here until you lower your costs as long 

as more people need the insurance, right? I mean, you need a payout, right? 

I’m sorry for the—for what you’re having to put up with here. 

I guess that’s it. 

Mr. COHEN. There are some countervailing trends, which advances in health care, for example—— 


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Mr. GROTHMAN. Are we keeping people alive longer, too, right? 

Mr. COHEN. Right. It may turn out that we’re keeping people 

alive longer with less disability. I mean, that’s—part of the uncertainty here is, frankly, it can go in both directions. 

Mr. GROTHMAN. It can, but largely, the industry is hostage to the 

number of people who need long-term care, which they can’t control. Right? 

Mr. COHEN. Can they—I agree that they can’t control the number who need long-term care. I don’t know if they’re held hostage 

to that, but—— 

Mr. GROTHMAN. Well, assuming they’re not going to go through 

bankruptcy, they’re hostage to it. Okay. Thanks much. 

Mr. BUCK. The gentleman yields back. 

The chair recognizes the gentleman from Virginia. 

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

Mr. Doughty, one of the things I’ve been confused—I did sign up 

for long-term care insurance. And when I got the notices, I show 

that my premium was just $325 a month, went to $483. And I got 

the three different options, which seem perfectly fair. 

But the letters that we were getting in our office were from people 10 years older than I who had signed up for premiums at $180, 

$150, and $200 that went up to $1,200, that were up by factors of 

four, five, six. And I’m trying to figure out why was there such a 

difference in the increase in the premiums person to person? I felt 

like I got a relatively soft landing compared to the letters that I 

was receiving from constituents, who will probably have much less 

ability to pay it than I did. 

Mr. DOUGHTY. So there definitely were differences in the amount 

of increase, depending on things like age, the type of benefit, et 

cetera. But I would be very interested in following up with—back 

to you, because the maximum increase that was required was 126 

percent. So I think there must be some confusion around—you 

know, if people think their rates are going up by five or six times. 

And I would love to work with those constituents directly, if we 

can, to make sure that we’re giving them adequate information to 

make sure we understand exactly what choices they’re making. 

Mr. BEYER. To be clear, unaffordability was what came home so 

hard to them. The other deal too is feeling cheated that they put 

in money for year after year after year and then all of a sudden 

it becomes unaffordable, and they have a choice of taking a much 

smaller premium that wouldn’t cover them or getting all their 

money back, which doesn’t do them much good at age 75 or 82. 

Mr. O’Brien, just one—as a retailer of 40-plus years, we gen- erally like to increase our labor rates like $1 at a time and hope 

people don’t notice it rather than do it all at once and double it or 

126 percent. You might take that into consideration going forward. 

Mr. O’BRIEN. Would I had that option, it would have been great. 

Mr. BEYER. And I know Mr. Connolly was very firm there at the 

end, and I think what came—what I heard from that is that we 

really need a commitment from you to have to do things differently, 

lest the 2016 hearing be like the 2009 hearing, and we’re back here 

again in 2023 tearing our hair out again and asking you questions 

that you have a hard time answering. 

Mr. O’BRIEN. I would like to avoid that as well. 


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Mr. BEYER. And I—on the notion of why we couldn’t have 

made—I’m still not convinced that the actuarial things—you talked 

about the perfect storm, the low interest rates. Well, we’ve known 

that we’ve got low interest rates since the Great Recession. Or that 

people are living longer, we’ve known that for a long time too. 

Was it only April of this year that we suddenly realized how offbalance we were, how out of sync we were with the premiums? 

Mr. O’BRIEN. Again, what we had is we had, first, a revaluation 

by John Hancock in terms of their long-term cost projections, which 

we learned about in June of 2014. And that was when we knew 

that there were going to need to be rate increases, but those were 

the higher costs. Then later, as there were continued refinements 

to the assumption, including the revisions to the long-term investment returns, we got the new premium rates in April of 2015. And 

that’s when we had the situation where we had 83 percent average 

rate increases that we rolled out. 

It’s a fair discussion about whether or not you would have done 

that incrementally, you know, did one increase followed by the 

other increase, and which would have been the least pain? The decision we made, which was—and the risk we thought we ran once 

we knew that there was going to be substantial rate increases 

needed over the period to keep the Experience Fund solvent into 

the future, which is our primary responsibility, is that if we had 

done it in what were going to be large increments no matter what 

we did, increments of 20 and 30 percent over several years, we 

thought we ran the risk of essentially having people stretch to stay 

in the program, and then a year later when they got the next increase be unable to do it, and they would have been paying an additional year’s premium that they could not afford and have gotten 

no benefit from it. 

What we decided—and it’s fair to say there were other decisions 

that were possible—was to do the entire increase at this point 

based on the best information we have to take the fund, you know, 

on the best information we have into the future and provide these 

opportunities for landing spots, you know, as opportunities to 

maintain the current premium, cut your benefit a little and pay a 

little bit more premium or keep the same premium, if that’s all you 

could afford. That was the decision we made, and I still feel it was 

the correct one. 

Mr. BEYER. Okay, great. Thank you. 

Mr. Chair, I yield back. 

Mr. BUCK. The gentleman yields back. 

Seeing no other questions, I’d like to thank our witnesses for taking the time to appear before us today. If there’s no further business, without objection, this subcommittee stands adjourned. 

[Whereupon, at 3:34 p.m., the subcommittee was adjourned.] 


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