1.) For example, some carriers guarantee coverage to a group of  eligible individuals, such as active employees, during an open enrollment  period. As part of FLTCIP’s second contract, OPM and John Hancock agreed to  a premium increase of up to 25 percent for current enrollees who had  selected the program’s 5 percent ACIO benefit and were less than   70 years old at the time of their enrollment. A Variety of Factors Influenced Carriers’ Interest in FLTCIP, Business Strategy Most Significantly

A variety of factors have influenced carriers’ interest in contracting to  insure FLTCIP enrollees and administer the program, according to  officials from the carriers we interviewed. In contrast, officials from the carriers who indicated that their  business strategy detracted from their interest in FLTCIP said that they  wanted to grow their long-term care insurance business at a slower pace  or focus on other segments of the market, such as the individual market. FLTCIP History Generally Detracted from Carriers’ Interest in the Second Contract

Factors related to FLTCIP’s history generally detracted from carriers’  interest in the program at the time of OPM’s solicitation for the second  contract and had the second most significant influence on carriers’  interest in FLTCIP at that time. When asked about how FLTCIP’s history  affected the carrier’s interest at the time of the second contract, officials  from four of the carriers noted that as a result of the program’s history— including the premiums charged for the benefits offered during the first  contract period and the actuarial experience of the program—a premium  increase was warranted. Four carriers also cited concerns about transitioning the program from  other carriers. The large size of the eligible  population had a positive influence on carriers’ interest in FLTCIP, but the  lack of a list of home addresses for the eligible population and the  voluntary nature of the program had a negative influence. These enrollees elected to pay the premium increase. 2.) Changes to Actuarial Assumptions Used to Set FLTCIP Premiums Resulted in a Projected Increase in Future Claims

Since FLTCIP’s inception in 2002, John Hancock has revised the  actuarial assumptions used to set the program’s premiums—specifically,  those made for the program’s lapse, mortality, morbidity, and return on  investment. Changes to FLTCIP’s lapse and mortality assumptions reflect an  expectation that a larger portion of enrollees will voluntarily maintain their  coverage over time and will live longer than originally expected. When setting premiums for FLTCIP’s second contract period, John  Hancock used the same return on investment assumption—6.5 percent— that it used when setting premiums for the first contract period. The new strategy, which invests a  considerable portion of FLTCIP assets in public equities, has a higher  expected rate of return than the investment strategy utilized during the  first contract period, according to John Hancock officials. While John Hancock expects that the amount of  claims payments made for enrollees of each age will be less than initially  assumed, it also expects more enrollees to continue their coverage and  reach older ages. Consequently, FLTCIP expects to pay claims for a  greater number of enrollees than initially expected. OPM’s Oversight Includes an Evaluation of FLTCIP’s Actuarial Assumptions and a Review of Program Communications

OPM evaluates the actuarial assumptions proposed by carriers and  monitors how the program’s experience compared to those assumptions. In addition, OPM reviews all program communications for accuracy and  clarity. OPM Evaluates FLTCIP’s Actuarial Assumptions and Monitors Program Experience

OPM evaluates the actuarial assumptions carriers propose for FLTCIP to  ensure that the assumptions are reasonable and collectively support the  premiums proposed for FLTCIP plans. Once FLTCIP’s premiums are finalized with the award of the contract,  OPM monitors how FLTCIP’s experience compares with the actuarial  assumptions that were used to set premiums. OPM and John Hancock  provided technical comments, which we incorporated as appropriate. Appendix I: Influence of Carriers’ Business Strategies on Their Interest in the Federal Long Term Care Insurance Program (FLTCIP)

Appendix I: Influence of Carriers’ Business  Strategies on Their Interest in the Federal Long  Term Care Insurance Program (FLTCIP)

Appendix II: Influence of Program History on Carriers’ Interest in FLTCIP

Appendix III: Influence of Program Size and Other Characteristics on Carriers’ Interest in FLTCIP

Appendix IV: Selected Features of FLTCIP Benefit Plans Offered during the Program’s First and Second Contract Periods

Appendix V: Changes in the Cost of Long- Term Care Services Compared with FLTCIP Inflation Protection Options

To summarize changes in the cost of long-term care services from 2002  through 2010, we analyzed consumer price index data from the Bureau of  Labor Statistics on changes in the cost of nursing home care and home  care. 3.)
Why GAO Did This Study

Since 2002, the federal government has offered long-term care insurance to its employees, retirees, and certain others through the Federal Long Term Care Insurance Program (FLTCIP). Enrollees pay the full cost of their premiums. The Office of Personnel Management (OPM) oversees the program. OPM has held two competitive processes to select contractors to insure enrollees and administer FLTCIP, although interest in and competition for these contracts has been limited. In 2009, soon after OPM's award of FLTCIP's second 7-year contract to John Hancock Life Insurance Company (John Hancock), 66 percent of enrollees were notified that their premiums would increase up to 25 percent in order to compensate for how the actuarial assumptions used to set premiums differed from the program's experience. GAO was asked to review FLTCIP. In this report, GAO describes (1) factors affecting carriers' interest in FLTCIP, (2) how the actuarial assumptions used to set FLTCIP premiums have changed since the program's inception, and (3) OPM's oversight of actuarial assumptions and experience and program communications. To do so, GAO interviewed officials from six carriers that in 2009 insured over 60 percent of all long-term care insurance policyholders. GAO also interviewed officials from OPM and John Hancock and reviewed program documentation, including FLTCIP contracts.

What GAO Found

A variety of factors influenced carriers' interest in FLTCIP. Carriers' business strategies had the most significant influence on their interest, though in different ways. Some carriers wanted to increase their market share and thus were attracted to FLTCIP. In contrast, some carriers wanted to grow their long-term care insurance business at a slower pace, which detracted from their interest in FLTCIP. At the time of FLTCIP's second contract, factors relating to the program's history had the second-most significant influence on carriers' interest, and generally detracted from it as a result of FLTCIP's need for a premium increase and concerns about transitioning a large, complex program from another carrier. A variety of other factors also affected carriers' interest. For example, the large number of eligible individuals and the lack of a requirement to guarantee coverage to them positively influenced carriers' interest, while the lack of a list of home addresses for the eligible population--which could have been used to market the program--and the relatively large portion of eligible individuals who were disabled detracted from carriers' interest. Since FLTCIP's inception in 2002, John Hancock has revised the program's actuarial assumptions. When setting premiums for the second contract period, John Hancock updated FLTCIP's assumptions to reflect an expectation that a larger portion of enrollees will voluntarily maintain their coverage longer and will live longer than initially expected. The carrier also reduced the amount of claims costs the program expects for enrollees of any given age. Although FLTCIP yielded a lower-than-expected return on investment during the first contract period, John Hancock did not revise this assumption when setting premiums for the second contract period. Instead, it revised the investment strategy to include considerable investments in public equities--such as stocks--which the carrier said have a higher expected rate of return. Altogether, John Hancock expects that more enrollees will continue their coverage, reach older ages, and submit claims than initially assumed. As such, the carrier increased projections for the total amount of future FLTCIP claims. As part of its assessment of carriers' proposals to insure FLTCIP enrollees and administer the program, OPM evaluated the actuarial assumptions carriers proposed for the program to ensure that the assumptions were reasonable and collectively supported the proposed premiums. Once the program's premiums were finalized with the award of the contract, OPM has monitored the program's experience by reviewing regular reports comparing the experience of the program to the actuarial assumptions used to set premiums. OPM's oversight has also included a review of all program communications for accuracy and clarity prior to their use. OPM and John Hancock provided technical comments, which have been incorporated as appropriate.